The Biden-Xi Meeting Is Over, And Everyone Is Celebrating Peace On Earth... Except This Looks Just Like Four Years Ago

By Bas van Geffen, Senior Strategist at Rabobank

The Panda Express

So the Biden-Xi meeting is over, and once again everyone is celebrating peace on Earth and goodwill to all men.

Except this looks exactly like four years ago, when Trump negotiated the Phase One Trade Deal... Which proved to be utterly useless. How much hope should we place on any deals agreed this time? To underline the point, here we are ahead of a US presidential election once again, and with fears not of trade war, as in 2019, but of actual war. Can you see the direction of travel?

Indeed, the Chinese readout of the meeting says:

“President Xi Jinping noted that there are two options for China and the U.S. in the era of global transformations unseen in a century: One is to enhance solidarity and cooperation and join hands to meet global challenges and promote global security and prosperity; and the other is to cling to the zero-sum mentality, provoke rivalry and confrontation, and drive the world toward turmoil and division. The two choices point to two different directions that will decide the future of humanity and Planet Earth.”

Maybe those stakes will focus minds more than fear of tariffs did. However, unless both sides are prepared to change course fundamentally, all we will see at best now is another ‘pause that doesn’t refresh’.

We’ve already had China remind the US that unification with Taiwan is inevitable, and that it must stop arming it. Will the US now back off, alarming all the regional alliances it has so carefully constructed in recent years? Yes, there is a flurry of perhaps dovish activity in Taiwanese politics, and in British, and in the US. Yet it remains to be seen if this is anything more than a Phase One Peace Deal. But at least, President Xi’s promised the US new pandas, so all is good, right?

Now back to the mess in Ukraine, the Middle East, and western society…

On that note, the German constitutional court has just dealt a blow to Europe’s ambitions to regain strategic autonomy. Yesterday, the court ruled that Second Supplementary Budget Act 2021 is incompatible with the debt brake and is therefore void. During the Covid-pandemic, the government used rules on emergency borrowing to authorise debt issuance that does not count towards the debt brake. By the end of fiscal year 2021 it turned out that some €60 billion of that emergency borrowing authorisation had not been used. The government figured it would be a shame let this go to waste, and so the Second Supplementary Act provided for the transfer of this borrowing authorisation to the off-balance sheet Energy and Climate Fund, to be used in subsequent years. This recycling of emergency borrowing was declared unconstitutional.

The court took offense at the government’s creative accounting. Yet, effectively, this verdict crosses out some €60 billion of funding to address climate change and Germany’s economic transition. The climate fund was topped up to €212 billion for the years 2024-2027 in August, so it effectively loses almost 30% of its available funds – unless the government finds less creative ways to raise this money.

On the topic of budgetary headaches, the US government has once again narrowly averted a shutdown – at least for now. Yesterday the Senate approved a stopgap funding bill, after the House passed it on Tuesday. The bill only provides temporary reprieve, shifting the new deadline to the first weeks of 2024. At stake is, amongst other things, the White House’s request for $61 billion in assistance for Ukraine, as part of a broader package that also provides funding for Israel, and Taiwan. Hardliners will probably continue to oppose additional support for Ukraine. Even if politicians ultimately reach a deal, the struggle to get there should be another wake-up call for Europe to increase its own defence spending. And Europe may have to speed up, as the polls are showing a neck-and-neck between Biden and Trump for next year’s Presidential election. Creative government accounting and sticking with mainly financial aid to Ukraine may not prove sufficient.