Senior-level talks during the U.S.-China Strategic and Economic Dialogue this week sought to address the current trade rift and ways for both nations to redefine their roles as they move toward global economic recovery.

The United States and China pledged Tuesday to lay a foundation for a global economic recovery by pursuing policies aimed at easing their massive trade imbalance and improving regulation of the financial system.

“The relationship between the United States and China will shape the 21st century, which makes it as important as any bilateral relationship in the world. That reality must underpin our partnership. That is the responsibility that together we bear,” President Barack Obama said, kicking off two-day senior-level talks in Washington on Monday.

The President proceeded to move onto specific areas where future progress can be made. The first challenge: cooperating to “advance mutual interests in a lasting economic recovery.”

In recent years, the economic relationship between the U.S. and China has become strained, as a decades-old trade pattern no longer seems to apply. As the economic crisis has spurred Americans to save more, the drop in dependence on Chinese exports compounded with China’s own decrease in consumer demand has already resulted in a sizable trade imbalance.

Meanwhile, American inflation and the current fluctuation of the dollar remains a serious concern, as China is currently the U.S.’s primary foreign creditor, having edged out Japan last fall. “[China] now holds roughly $1 out of every $10 in U.S. public debt,” the Washington Post reports. As the U.S. dollar has failed to adjust against the Chinese national yuan, both American exports and Chinese consumption have faltered, adding yet another problematic facet in the uphill battle for mutual economic recovery.

Although the dollar has stabilized somewhat when compared with yuan, which carries significant weight in terms of regulating global trade imbalance, the problem remains that “Chinese real trade weighted yuan has moved around a bit, as the dollar has appreciated and depreciated,” Menzie Chinn, professor of Public Affairs and Economics at the University of Wisconsin, Madison, explains at the Wall Street Pit.

While it appears the U.S.-China bilateral trade balance appears to be approaching a state of stability for the short-term, it’s the issue of long-term stability in the face of Chinese trade surplus “which is key for thinking about global imbalances,” Chinn continues.

At this week’s discussions, President Obama touched upon not only the troubling economic situation between the U.S. and China, but other issues the two nations must jointly address to restore a stronger tie. Still, many harbor doubts about developing U.S.-Chinese relations, a fact that President Obama did not shy away from:

“Let us be honest: we know that some are wary of the future. Some in China think that America will try to contain China’s ambitions; some in America think there is something to fear in rising China. I take a different view. And I believe President Hu takes a different view as well … This future is not fixed, but it is a destination that can be reached if we pursue a sustained dialogue… .”

As two days of talks ended yesterday, both nations appeared eager to meet the economic issues head on.

China, for one, has agreed to “increase domestic consumption to reduce its reliance on exports to U.S. markets,” the Associated Press reports. Additionally, the U.S. has “agreed to toughen its financial regulations to avoid the Wall Street meltdown that contributed to the global crisis,” the AP continues.

Looking forward, President Obama outlined other areas that both nations could benefit from a combined effort, including the pursuit of clean energy, containing nuclear weapon development, and a dedication to stopping international threats.

The drive to “stimulate economic growth remains the top priority,” Chinese Vice Premier Wang Qishan, who co-chaired the economic track with U.S. Treasury Secretary Timothy Geithner, said in translated comments (via Agence France-Press).

Although none of these goals is achieved easily, officials at this week’s talks stressed the cooperation of both nations as essential for future progress. As a result of the two days of high-level meetings, both sides gave a positive assessment of the current development of U.S.-China relations, recognizing that relations between the two nations have maintained strong, positive momentum.

Resources

The First Round of the U.S.-China Strategic and Economic Dialogue
U.S.-China Strategic and Economic Dialogue, July 28, 2009

Remarks by the President at the U.S./China Strategic Economic Dialogue
WhiteHouse.gov, July 27, 2009

A Dialogue with China
Whitehouse.gov (Briefing Room Blog), July 27, 2009

U.S., China Pledge Economic Overhauls
Agence France-Presse, July 29, 2009

China’s Exchange Rate and Trade Balances
by Menzie Chinn
Wall Street Pit, July 27, 2009

Obama: Cooperation with China Key to Avoid ‘Ravages’ of Climate Change
by Keith Johnson
Environmental Capital (The Wall Street Journal), July 27, 2009

Geithner: US, China Response Halted Global Crisis
The Associated Press, July 28, 2009

Away from the Dollar
The Economist, July, 27 2009

U.S., China Chart Economic Efforts
by Annys Shin and Mary Beth Sheridan
The Washington Post, July 29, 2009

Confronting US & China Relations Head On
by Matthew Jaffe and Kirit Radia
ABC News, July 27, 2009

China-US Dialogue “Successful”: Vice-Premier
China Daily, July 29, 2009