Gyeongju, South Korea – President Donald Trump and President Xi Jinping’s first face-to-face meeting since 2019 is expected to lead to an agreement to ease trade tensions between the United States and China.
But whatever agreement they reach on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in South Korea will have repercussions for the entire global economy, as Mr. Trump and Mr. Xi are scheduled to represent the United States and China on Thursday.
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The world’s two largest economies, the United States and China, are unparalleled in their influence on global stability and prosperity.
Together, they account for 43% of global gross domestic product (GDP) and nearly half of global manufacturing output.
Two-way trade between the two countries reached approximately $585 billion in 2024 alone.
If the US-China trade war or decoupling becomes serious, it will almost certainly have a significant negative impact on global economic growth.
The World Trade Organization estimates that splitting the world into two economic blocs between the United States and China would reduce global GDP by nearly 7% in the long run.
“The US-China relationship is the most important bilateral relationship,” said Hei Wai Tan, director of the Asia Global Institute in Hong Kong.
“If tensions between the two countries ease, it will have an even more significant impact not only on their own countries but also on small economies that depend on trade with either superpower,” Tan told Al Jazeera.
“The question is how long the agreement will last, including increasing China’s soybean purchases and lowering U.S. tariffs on China.”
After months of back-and-forth trade salvos between the United States and Beijing, Thursday’s summit between President Trump and President Xi Jinping came on the back of mutual threats to sharply escalate the conflict.
Earlier this month, the Chinese government announced plans to impose strict export controls on rare earths, which are essential to the production of everything from smartphones to fighter jets, raising concerns that global supply chains could be disrupted on a massive scale.
In response, President Trump threatened to impose additional 100% tariffs on Chinese goods, raising the possibility of a de facto trade embargo between the two countries.
The move is considered highly economically destructive by economists and is widely seen as a way to gain leverage in trade negotiations, as much or more than a statement of intent.
“If implemented, it would have a devastating impact on the global economy and could easily backfire on our own economies,” said Henry Gao, an international trade expert at the Singapore Management University.
“That’s why I’ve always maintained that these tools are wielded, not deployed, to pressure the other side back to the negotiating table.”
In the lead-up to the summit, U.S. officials have indicated that President Trump and Xi Jinping will try to avoid further escalation.
U.S. Treasury Secretary Scott Bessent said in a media interview this week that he expects the two countries to agree to postpone China’s export controls and U.S. tariff hikes.
“The calming of the trade war, and perhaps more importantly the tech war, is of great importance for the global economy, which has been badly hit by the shock and uncertainty caused by the US president since April 2,” Rolf J. Langhammer, a researcher at Germany’s Kiel Institute for the World Economy, told Al Jazeera, referring to President Trump’s announcement of an “Emancipation Day” that would impose high tariffs on nearly all US trading partners.
“It could stabilize expectations, at least for now, and incentivize investors to take a medium-term view to decision-making, rather than delaying decisions due to concerns about further overnight shocks.”
While the U.S.-China conflict has sharply reduced trade and dispersed exporters to Southeast Asia, Latin America, Europe and Africa, the global economy has remained relatively intact so far.
Earlier this month, the International Monetary Fund (IMF) raised its 2025 gross domestic product (GDP) growth forecast to 3.2% from 2.8% in April, when President Trump announced the “Emancipation Day” tariffs, most of which have since been postponed or sharply lowered.
The outlook could change dramatically unless the United States and China find a way to manage, if not completely resolve, their differences.
Although Mr. Trump and Mr. Xi are expected to reduce the temperature of the conflict between the two countries for the time being, there are low expectations that the United States and China will end their conflict in the long term.
Jacob Gunther, an analyst at the Mercator Institute for China Studies in Berlin, said that after decades of the United States benefiting from cheap Chinese goods and China receiving American technology and capital in return, the fundamental incompatibility of the two superpowers’ economic models can no longer be ignored.
“These irreconcilable differences exist,” Gunter told Al Jazeera.
Gunther said it is difficult to imagine China abandoning its export-oriented, state-led investment model or the United States opening up fully to Chinese imports and lifting restrictions on Chinese technology.
“I don’t see an agreement that satisfies the interests and values of both sides without sacrificing the other party,” he said.
