November 15, 2023

If Presidents Xi and Biden have one thing in common, it’s that both desperately need a historic win. In the 23 years since Bill Clinton welcomed China into the World Trade Organization, the aura of the two nations’ relationship has shifted from hopeful to confrontational. Skirmishes once took place outside of the public view: in cyber-attacks, satellite warfare, the cutting of subsea internet cables, and submarines playing cat-and-mouse games. But when Russia invaded Ukraine and threatened to deploy nuclear weapons, something changed.

Even China was rattled. President Xi made it clear that nuclear war was not an option. Then Hamas triggered the real possibility of a widespread ground war across the Middle East. As Biden and Xi meet in San Francisco today, everyone wants a way out.

For Xi, such geopolitical chaos is an existential risk. China is falling apart. The $18 trillion economy has tanked. The collapse of Evergrande, the nation’s property giant, exposed a simple truth. It wasn’t just one huge company that had gone bust. It symbolised the loss of a dream: the Chinese no longer believe that property is a safe investment.

Meanwhile, earlier this month, foreign direct investment into China turned negative for the first time, killing any hope of rising export sales. The Belt and Road Initiative was supposed to alleviate this, bringing valuable raw materials — food, energy and data — back to China. It should have become a revenue generator, but it has turned into a system that bleeds cash. The poor emerging market nations it targeted often had to borrow money from China to cover the cost of building its physical infrastructure — and now, thanks to rising inflation and the global slowdown, they cannot pay back those loans.

All this helps explain why Xi, who is convinced the only way forward is to return to an export-led strategy, visited China’s Central Bank (PBOC) a few weeks ago. It was shocking to see the nation’s leader deigning to meet lowly technocrats. Xi is unhappy with how they are portraying China; no doubt he demanded that they make the numbers prettier, even though the world lost faith in the veracity of China’s numbers a long time ago. In the same vein, the arrest in September of a former PBOC boss on suspicion of corruption may have been an attempt to project control, but it hasn’t worked. Xi’s internal opponents are muttering, and the Communist Party wants to get back to making money. They certainly don’t want to waste China’s already declining youth demographics on a senseless war with the US, the world’s most formidable military power. Taiwan can wait.

Biden, meanwhile, has his own problems. Both Trump and Robert F. Kennedy Jr are breathing down his neck in the polls. Only 14% of Americans think that Biden has improved their standard of living. Threatening China won’t change this. Nonetheless, in recent months, he has engaged in a serious show of force by deploying aircraft carrier groups to the Pacific and the Middle East, and by revealing frightening new technologies such as the new nuclear gravity bomb. The message to China, Iran and Russia is to back off; Biden is ready to escalate.

In reality, however, the public appetite for spending money on foreign wars dropped even further once Israel stole the spotlight. It is now almost impossible for Biden to justify further funds for Ukraine, especially with President Zelenskyy refusing to hold elections, a move which killed any idea that he was fighting for democracy.

Nor can Israel expect unconditional US support. The prospect of conflict across the Middle East is splitting Jewish and young votes, both of which are critical for Biden’s re-election chances. Since warfare is expensive as well as inflationary, a serious and historic geopolitical rapprochement would be far less costly. Now could be the moment that both the US and China agree to play nice for the sake of the world.

Such a deal might require Xi to burn both Moscow and Tehran, but they have already served their purpose. Their bullying changed the American perception of risk and brought Biden to the negotiating table with China. Putin may not be losing in Ukraine, but he faces increasing opposition at home. His position is precarious: Russia needs China, but China doesn’t need Russia. The same goes for Iran. Washington is more valuable to Beijing than Moscow and Tehran combined.

Xi knows that global harmony would necessitate an armistice in Ukraine and for China and Russia to stop their support of Hamas and Hezbollah. In return, Biden understands that this will require an end to America’s hawkish rhetoric. Already, the seeds of this shift are being sown: when, in another highly unusual move, Xi summoned California Governor Gavin Newsom to Beijing last month, Newsom lay the groundwork for the reconciliation by saying “divorce is not an option”. Given that Newsom is Biden’s preferred successor, this change of tone was very important. China has already said it is “ready to improve ties with the US at all levels”, and has even offered to negotiate a deal on nuclear weapons.

All of which suggests that both sides know the other cannot afford a messy divorce. The White House can’t raise or cut taxes, and Beijing can’t stimulate its economy either. It’s a stalemate.

Could this be why former prime minister David Cameron has agreed to serve as the Foreign Minister of the United Kingdom? If a US-China deal is in motion, it constitutes a rare opportunity to shape and craft a new story for the world economy and a new phase of superpower relations. Would the US task the British to do the work necessary to construct this potential new order? It’s not inconceivable, especially given the White House is distracted by its own domestic issues.

The benefits of such a “kiss-and-make-up” photo-op would certainly be widespread. It would generate a rally in the markets and a huge sense of relief among the citizens of the world. The “make-up” part wouldn’t even need to be that friendly. The US and China could continue to fight against each other invisibly: underwater, in space, in cyberspace and with spygames. But, as long as these battles were fought out of sight, things could get better. A cold war always beats a hot war — and kicking today’s problems into the future seems like a fine solution for now. In a world where everyone is preparing for the worst, a note of optimism wouldn’t go amiss.