The United States says the decline in trade with China may be positive

The top US trade official told the BBC that the sharp decline in trade with China could be a positive development.

“It's not necessarily a negative. Rather, it can be a positive indicator of diversification on both sides,” Katherine Tai said.

The amount of goods the world's two largest economies sold to each other fell by 17% last year.

This comes amid deep divisions in the global economy.

Those differences were exposed again with the United States announcing an investigation into what it said was a potential national security risk from cars made in China, citing concerns that cars linked to the technology could collect personal data or be controlled remotely.

Chinese auto companies have been expanding their presence in other parts of the world, but have almost no presence in the United States, where they already face 25% import duties.

The White House described the measure as “unprecedented” and a fair response to Chinese policies that impose restrictions on foreign auto companies.

Last year, the amount of goods the US bought from China fell by just over 20% to $427bn, with a 4% decline in the other direction to just under $148bn (£117bn).

Consumer electronics, machinery and apparel have been the biggest sellers in recent years.

Amid rising tensions between the two countries, trade expert William Rensch of the Center for Strategic and International Studies says: “The decline in trade between the United States and China in the past year appears to be a sign that the two economies are moving away from each other.”

“But if you look at the increase in imports from Southeast Asia into the United States, it appears that a large portion of that increase is coming from Chinese companies that have either moved production or are simply moving their products through third countries in order to circumvent tariffs or other restrictions.”

“China's economic development is creating many competitive pressures around the world,” Ambassador Tai said.

Speaking at the main meeting of the World Trade Organization in Abu Dhabi, she said the institution was “showing its age” and needed reform so it could do more to address those pressures.

The meeting of world trade ministers was extended for a fifth day as they sought to reach an agreement on modernizing global trade rules.

However, reaching any agreement is complex because it requires the consensus of all 166 members.

Among the issues being discussed are fishing subsidies, expanding the ban on e-commerce tariffs and reforming the World Trade Organization itself.

The United States has been leading the calls for reform of the World Trade Organization in recent years.

Under Donald Trump's presidency, it crippled the dispute resolution body by preventing the appointment of new judges, arguing that the system and its rulings favored China at the expense of the United States.

This siege and call for reform has continued under Joe Biden's presidency despite his team revealing very few of the changes they want publicly.

“The WTO is here to serve the interests of all its members, large and small,” Ambassador Tai said.

Trade relations between the world's two largest economies have deteriorated under the Biden administration, with both the United States and China imposing new barriers to trade, including restrictions on exports of computer chips that have recently suffered from shortages.

Liu Bingyu, spokesman for the Chinese Embassy in Washington, told the BBC: “Supporting the sound and steady growth of economic and trade relations between China and the United States serves the fundamental interests of both countries and our peoples and is conducive to global economic growth.”

Liu added that the two sides should work together to confront global challenges, and expressed his hope that the United States would move “in the same direction.”

In preparation for the meeting in Abu Dhabi, the Director-General of the World Trade Organization, Dr. Ngozi Okonjo-Iweala, told the BBC that the organization is trying to help the United States and China resolve some of their differences.

Both countries are trying to grow their economic influence in parts of Africa and Asia, as they try to secure access to natural resources and build resilience in supply chains.

This has led to growing fears that the world is splitting into two trading blocs, and Dr Okonjo-Iweala warned: “We have to be very careful, because if this continues, it could cause real damage to the global economy.”

A World Trade Organization study found that such a division could cost the global economy 5% of GDP. At a time when growth is suffering due to rising interest rates and inflation, “this is a huge number,” she says.