Five years into a once-unthinkable trade war with China, US Treasury Secretary Janet Yellen chose her words carefully on April 20. In a wide-ranging speech, she reversed the terms of US engagement with China, prioritizing national-security concerns over economic considerations. That formally ended a 40-year emphasis on economics and trade as the anchor to the world’s most important bilateral relationship. Yellen’s stance on security was almost confrontational: “We will not compromise on these concerns, even when they force trade-offs with our economic interests.”

The People’s Republic of China wishes to increase domestic consumption to reduce reliance on western trade, technology, and knowledge. One attempt at this is inviting western companies to learn their business strategies, enable domestic competitors, and use mass media to sway consumer spending. This strategy has had mixed success, and increasing domestic consumption will be difficult as the economic recovery from COVID is slower than expected.

The decline in trade cannot continue, as both countries need each other. It can be expected that they will patch up their disputes and work together, turning the numbers around to bring more tangible benefits to their people.

Consumption is the key. To restore and expand it, China needs to roll out sound, targeted policies. Obstacles that currently hinder consumption growth need to be removed, especially in the real estate and automobile sectors.

Industrial and supply chains have become the main theater of competition between China and the United States. America’s technology war will be deliberate, intense and long-term. For this reason, China must be strategically prepared for a protracted fight.

The year 2023 represents a turning point. If economic realities guide global prospects, it will be a positive turnaround. If geopolitics will continue to penalize economic prospects, a negative inflection point is more likely.

Next winter, Europe is likely to face a challenging time in the energy market, in part due to China’s increased energy demand post-COVID lockdowns. As European countries reduce their dependence on Russian pipeline gas and imports of liquified natural gas, they will face challenges and potential shortages that might impact energy supply security and pricing.

In March 2022, the Chinese government set a target of 5-5.5% GDP growth for the year. At the time, such growth levels appeared perfectly attainable. But within a month, the Omicron variant had arrived, triggering strict lockdowns that, while stemming the spread of the coronavirus, caused serious damage to the supply and demand sides of the economy. China’s growth rate for 2022 was just 3%.

The U.S./NATO-led proxy war in Ukraine is aimed against Russia, and is not for the good of Ukraine. It is an unwarranted war that could penalize global economic prospects for years to come, and any escalation will only make a terrifying status quo far worse.

Most experts see China’s economy moving on an upward track. If a 5.0 percent growth rate is achieved this year, as expected, China will contribute 0.9 percentage points to slumping global GDP growth, and it will continue to be a leading economic engine in the years ahead.