Amid deepening geopolitical fault lines and a fragile global economy, a nearly two-hour-long phone call between Chinese President Xi Jinping and his American counterpart Donald Trump on September 19 produced a rare moment of clarity in the world’s most consequential bilateral relationship.

The phone conversation – described by Beijing as “pragmatic, positive and constructive” and by Washington as “very productive” – signals a mutual willingness to ease tensions.

Just days earlier, top Chinese and US officials concluded their fourth round of talks in Madrid, Spain, where they discussed contentious issues such as Trump’s unilateral tariffs, export controls, the future of TikTok, and potential collaboration on combating money laundering. The key outcome of the two-day discussions was a “framework” deal regarding the Chinese-owned popular video-sharing platform.

The Xi-Trump phone call – the third direct conversation between the two since Trump’s return to the White House in early 2025 – reflects that both sides recognise the importance of leader-to-leader diplomacy in chaotic times. The “candid conversation” the two had covered a wide range of topics, including trade disputes, the TikTok controversy, historical ties, and their shared responsibility to maintain global peace.

The summit call was important both in symbolism and in substance. It came shortly after an impressive military parade China staged to commemorate its victory against Japan in World War II. Xi recalled the China-US wartime alliance and the contributions of American pilots, saying that the families of the “Flying Tigers” were also invited to the parade to honour their sacrifices in China’s “anti-fascist struggle.” The underlying message in Xi’s reference was a subtle call for a renewed commitment to peace and cooperation in today’s turbulent world.

Beijing remains wary of what it sees as an increasingly confrontational posture by the US, driven by Washington’s concern that an “autocratic” China may seek to upend the “liberal democratic world order” and ultimately topple America as the dominant global power. This perceived threat informs much of the US approach – politically, diplomatically, economically, and strategically. This is despite repeated reassurances from the Chinese leadership that the world is “big enough” for both powers to coexist in a mutually respectful and cooperative relationship.

The crux of Xi’s message was conciliatory: the world’s two largest economies, the US and China, are capable of pursuing a symbiotic relationship – provided Washington gives up a zero-sum mindset and both sides commit to working in the same direction towards mutual benefit. At the same time, however, the Chinese leader also reaffirmed his country’s firm stance on major bilateral issues. On trade, he warned against unilateral protectionist measures and stressed the need to build on the progress made in four rounds of negotiations between the two sides.

The latest round of talks was consumed by discussions on TikTok, producing a “framework” agreement that the US later touted as a victory. Xi, however, reiterated that Beijing only supports a resolution that aligns with market principles and Chinese laws while serving the interests of both sides. And this stance is reflected in the unofficially disclosed contours of the deal, which is set to be a joint venture in which ByteDance, TikTok’s parent company, will retain nearly 20% ownership.

Xi also urged Trump to create an “open, fair, and non-discriminatory” environment for Chinese businesses operating in the US, stressing that protectionist policies undermine trust and damage long-term economic interests.

Trump, for his part, struck a similarly conciliatory tone, describing America’s ties with China as “the most important bilateral relationship in the world.” He said Washington desired a “long-term, big and great” relationship with Beijing and acknowledged the importance of collaboration in achieving global peace and stability. Trump also praised the “V Day” parade in Tiananmen Square as “phenomenal and beautiful,” adding a personal touch to the conversation.

It is unrealistic to expect a single call will resolve deep-seated issues, including trade imbalances, technology disputes, and geopolitical rivalries. Any sign of a thaw in their relations is a welcome development, especially against the backdrop of a trade war reignited by Trump after returning to the White House and surrounding himself with “China hawks” in his second administration.

The positive tone between the two leaders resonated far beyond Beijing and Washington. Global markets responded immediately, with major US stock indices, including the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite, rallying on renewed optimism about trade stability.

This market confidence reinforces a broader truth: the US-China relationship doesn’t just affect the two superpowers – it impacts the entire world. From international supply chains to climate action, from pandemic preparedness to technology governance, cooperation between the world’s No 1 and No 2 economies is not just important – it is essential.

The World Bank and IMF have consistently warned against US-China economic decoupling, saying it poses huge risks to the global economy as it could disrupt global supply chains, deter international investment, and ultimately hinder economic growth.

A 2021 IMF study found that technological decoupling between the US and China could shrink global GDP by up to 5%. A more recent IMF analysis in 2024 projected that full economic fragmentation could slash global GDP by as much as 7% in the long term – equivalent to $7.4 trillion.

A 2023 World Bank report, however, cautioned that these figures may underestimate the true impact. It warned that the disruption of complex, specialised supply chains could render some critical industries unable to function effectively in a divided global economy.

Any deal on key issues, including US access to rare earth metals and China’s purchase of Russian oil and access to US semiconductor chips, may be unlikely until October when the two leaders will meet face-to-face on the sidelines of a regional summit in South Korea.

The cost of a trade war spiralling between the two economic powerhouses would be immense, particularly at a time when the world is mired in myriad crises, including ongoing wars in Europe and the Middle East, and growing political and economic uncertainty. Washington must reconsider its approach and pivot from confrontation and containment towards cooperation and collaboration – not just for the benefit of the American and Chinese peoples, but for the greater good of the international community.

The key takeaway from the Xi-Trump summit call is a shared realisation in both Beijing and Washington that, despite the strains in their complex relationship, diplomacy – however imperfect – remains the most effective tool for preventing conflict and shaping the global economic outlook.

The writer is an independent journalist with special interest in geoeconomics