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The EU is trailing China’s trade distortions all round the world

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Hello from Brussels, and welcome to the first edition of the new and improved Trade Secrets.

We’re still feeling the reverberations from the US’s announcement last week supporting, in principle, a patent waiver for Covid-19 vaccines at the World Trade Organization. The EU’s incredibly indignant that it’s been outspun and made to look like the bad guy, and is letting everyone know about it. The problem is that, being the EU, it’s unable to convey a quite simple and entirely reasonable message — it’s fine to talk about patents, but tech transfer and exports are the main thing — without a bit of a cacophony and strange references to Anglo-Saxons.

The babble managed to overshadow some quite big news at the EU-India summit over the weekend. As the Financial Times predicted last week, Brussels and Delhi launched (or technically renewed) talks on a trade deal, plus ambitious notions about co-operating on digital connectivity, geopolitics and so on, plus an investment treaty of the kind that’s gone down so well since the EU signed it with China. Speaking of which, today’s main piece is on the EU’s determined campaign to create legal tools to take on Chinese trade distortions, complicated by the fact that the problem keeps changing shape.

Charted Waters takes a look at trade flows over the past decade.

We want to hear from you. Send any thoughts to trade.secrets@ft.com or email me at alan.beattie@ft.com

New answers to the ever-changing China question

There’s been a finely tuned humming heard around Brussels over the past few years, like a high-performance engine being run at speed. It’s the legal brains of the European Commission designing new “autonomous” (unilateral) tools to counter what the EU regards as the unfair trade and investment distortions produced by Chinese state capitalism. (They don’t say China, but that’s what they mean.)

Whether you support the campaign’s underlying philosophy — free-traders are sceptical about it — the process is impressive to watch. Frankly, we wouldn’t want the lawyers of the trade and competition directorates after us. The latest contrivance was wheeled out of the hangar last week, in the form of a subsidies instrument to be used against state-supported foreign companies operating in the EU.

Assuming it gets adopted, and depending on how it’s used, it’s a big deal, bringing competition tools to bear on international trade. Essentially, it extends the reach of the EU’s state aid regime abroad where foreign handouts distort the European market. It can be applied to market competition, mergers and acquisitions, and public procurement. 

The anti-subsidy tool is the latest in the following list of China-unfriendly initiatives implemented or proposed by the EU over the past five or so years. If you’re taking notes: sharpening up trade defence instruments (anti-dumping and anti-subsidy duties); allowing those duties to be used against companies subsidised by the Chinese government but exporting from another country; tightening up screening of inward foreign direct investment (FDI) for national security reasons; developing an anti-coercion tool (aimed more at Donald Trump’s administration, to be fair) to use against foreign governments acting illegally; producing a toolbox for member states to manage risky entities (Huawei) from 5G networks; banning imports made with forced labour; and requiring European companies to exercise “due diligence” in eliminating labour and environmental abuses from their supply chains. Quite a list.

You have to admire the commission’s stamina and ingenuity, finding ways to tackle one alleged distortion after the other. You’d also think that, what with China and the EU becoming ever closer trading partners, Brussels’ stance would somewhat rattle Beijing. But it’s hard to conclude that the EU’s tools, along with a bunch of similar actions by the US and other countries, have pushed the Chinese growth model towards a market economy. In fact, President Xi Jinping’s going the other way, with a “dual circulation” growth strategy, one of the aims of which is to use heavy government intervention to build up high-tech capacity in China in an insulated domestic market.

Why? Well, some of the explanations are political. These tools are housed in the commission, but some require EU member state acquiescence to create and/or use. Powers over national security FDI and 5G screening, for example, reside at national level: China can pick off individual countries with carrots and sticks. 

Some explanations are institutional. The ability to use anti-dumping and anti-subsidy duties against Chinese companies based in third countries has been tried just a few times (glass fibre fabric and reinforcements from Egypt and steel from Indonesia and India) and only partially succeeded. Antidumping lawyers grumble that the commission makes it too hard to bring new cases.

Some are practical. The subsidy instrument will involve complex investigations, trying to apply existing EU state aid disciplines to the myriad opaque ways that China hands out money to its companies. The thresholds for action also have to be set high enough not to deter benign investments, especially since a foreign business attempting to acquire a company in the EU may also have to file separate national FDI notifications.

But one of the hardest issues is that the creation of the instruments generally lags behind the evolution of the Chinese trade and growth model by a few years. While Europe’s trade defence tools were being strengthened against exports from China, Beijing was instead building industrial capacity abroad through the Belt and Road Initiative. Then, just as the EU started to apply those duties against Chinese companies outside China, Beijing was rethinking the Belt and Road Initiative and reducing its foreign exposure. The subsidy tool arrives several years after Chinese FDI into the EU started falling and many European governments became disenchanted with China. You can very plausibly argue the EU now needs more rather than less Chinese FDI.

As the EU-China Comprehensive Agreement on Investment shows, China is less interested in getting market access in the EU than securing European inward investment in intellectual property-intensive sectors such as electric vehicles, and we can guess what for. The agreement has provisions to prevent forced technology transfer, and the EU has brought cases on the issue at the WTO, but winning dispute settlement cases rather than wielding a unilateral tool is a slow and uncertain business.

This isn’t a counsel of despair: there are still plenty of Chinese exports and investment in the EU that can be regulated, assuming that’s a good idea. But the EU’s critiques of the latest phase of Chinese development — dominating advanced markets through huge government support and weaponising trade for geopolitical ends — will be even harder to address than the previous ones. And that’s before we get to the question of human rights.

We’ll take a deeper look at the EU’s anti-subsidy initiative in future newsletters: there’s a lot to examine. For now, we’ll just say that there’s been a lot of painstaking legal engineering going on, but the devices that result are already looking a little dated.

Charted waters

This is about as big a picture on global trade as you can get. The data, from the CPB Netherlands Bureau for Economic Policy Analysis, track trade flows over the past ten years and show two things.

Line chart of 2010=100 showing World trade has recovered from the pandemic, but not Trump

First, the good news (for those of you who are fans of globalisation at least). The recovery from the early months of the pandemic has been remarkable, with flows now at their pre-Covid mark.

This is a point that we don’t think is made often enough. While semiconductor chip shortages and high shipping costs often make headlines (including, we confess, in Trade Secrets), global manufacturing and logistics should be given an awful lot of credit for ensuring that the rebound seen over the past three quarters has been so strong.

The bad news is that broader geopolitical tensions were clearly affecting flows in the run-up to the pandemic. We don’t see those tensions dissipating soon, so expect growth to stutter even if we manage to get Covid under control. Claire Jones

Trade links

Welcome to our new Trade Links section, a round-up of the best content we’ve come across over the past few days.

Today’s must-read comes from the European Centre for International Political Economy and covers the trade implications of the radical shift in technology turning manufacturing giants, such as Volkswagen, into software developers. It’s well written and has some great charts that help support the case that, when it comes to trade and technology, the future is now. 

We’d highly recommend this FT piece, which takes an in-depth look at why the Serum Institute of India, the world’s top vaccine maker, is struggling. One of the reasons being that it’s at the sharp end of the vaccine trade wars. Also worth a look is this Big Read from Andrew Hill, explaining why the UK’s services sector is taking a big hit from Brexit. This is a massive deal. And — as Lionel Barber, formerly of this parish, notes — it is a story too few are talking about given that services makes up a whopping 80 per cent of UK output. Expect this to change, and the services sector’s woes to rise in prominence, as economies on both sides of the Channel begin to reopen. 

This morning’s edition of the FT’s excellent Europe Express newsletter focuses on the transatlantic spat over the vaccine waiver, which Mehreen Khan concludes will do little to help poorer countries in desperate need of more jabs. For those of you interested in European policy and politics beyond trade, sign up here for a daily guide to what’s driving the European agenda, available for premium subscribers Monday to Friday at 7am CET. Nikkei Asian Review looks at ($ — subscription needed) why bureaucratic timidity led to the withering of Japan’s pharmaceuticals industry, leaving it reliant on foreign countries for vaccine supplies. For fans of the chip story (who isn’t?), Nikkei has dug into how Korean electronics group Samsung lost its lead to Taiwanese chipmaker TSMC. 

Elsewhere, the International Economic Law and Policy Blog asks what if the US can’t create consensus around a vaccine waiver. (There are some interesting recommendations for further reading in the comments too.) This week’s Economist delves into the topic ($) of vaccine donations. While Covax has made almost 50m vaccination donations, this is well short of its target. One of the reasons for that being the tragedy unfolding in India. China, meanwhile, has doled out 13.4m doses to 45 different countries, and India more than 10m vaccines. Alan Beattie and Claire Jones 

Any recommendations on articles to include in Trade Links? Send your tips here.

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Vaccine cocktails cause headaches for Italy’s government

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Buongiorno and welcome to Europe Express.

Italian cocktails such as the Aperol Spritz are being enjoyed in many European capitals these sunny days, but mixing Covid-19 shots is proving a recipe with potentially toxic effects for the government of Mario Draghi. We will explore why recent flip-flops on this latest vaccination trend are dominating the political debate in Italy.

Sticking with toxic politics, an en masse resignation at the Oslo city council has highlighted the difficulties even respectable Nordic oil producing countries face in working out how to meet their international climate obligations.

As for the EU’s stalled Banking Union, the ball did not move yesterday because of multiple differences between eurozone finance ministers gathered in Luxembourg. Eurogroup chief Paschal Donohoe, who has been trying to land a “work plan” setting out how to advance the complex initiative, said it would take more time to agree the plan between member states and that he would return to the matter later this year. Here is a full rundown of why the project remains blocked.

This article is an on-site version of our Europe Express newsletter. Sign up here to get the newsletter sent straight to your inbox every weekday morning

Toxic cocktail recipe

Mixing Covid-19 vaccines risks turning into a toxic cocktail recipe for Mario Draghi’s government, as an increasing number of Italians begin to shun immunisation, writes FT Milan correspondent Silvia Sciorilli Borrelli.

Italian authorities last week banned the Oxford/AstraZeneca vaccine for people younger than 60. At the same time, they sought to impose mRNA jabs, such as BioNTech/Pfizer and Moderna, as the second dose for almost 1m people who had already received a first dose of the vaccine.

Both moves were prompted by the death of an 18-year-old woman (who allegedly suffered from low blood platelets) from a rare form of blood clot two weeks after receiving her first AstraZeneca dose.

But this latest change in guidelines sparked panic among the public, with thousands of people cancelling their vaccination appointments. Adding to the public scare was Marco Cavaleri, a senior European Medicines Agency official, who was misquoted in Italian media as saying that the AstraZeneca jab should be banned altogether.

The EU regulator reiterated this week that the advantages of the AstraZeneca vaccine outweighed the risks for all age groups.

Nevertheless, the Italian government has come under fire for failing to restrict it for younger people earlier and for continuing to give the public mixed messages on a vaccine that has been discontinued in several European countries and was banned for certain age groups in others months ago.

The idea of an obligatory cocktail of vaccines was met with strong opposition in Italy, where several regional governments signalled that they would not follow Rome’s orders and vowed to offer citizens an option for their second dose.

Yesterday, after an increasing number of people refused the vaccine cocktail and with only 24 per cent of the population fully immunised, officials in Rome suggested Italy might follow the “Spanish model.” Under that policy, people can still opt to receive their second AstraZeneca dose regardless of their age after signing a liability waiver in case of adverse effects. 

France has also approved mixing the AstraZeneca and mRNA vaccines for people under the age of 55, but it is not mandatory and applies to a smaller proportion of the population than in Italy.

Franco Locatelli, head of the health council, insisted preliminary studies showed mixing vaccines boosted the immune system’s response.

However, preliminary findings of a study published in The Lancet last month showed the vaccine cocktail amplified common side effects and therefore “might have some short-term disadvantages”.

The absence of unambiguous data on the effects of mixing led Italian commentators to harshly criticise the government’s decision and its poor communication on the AstraZeneca jab’s limitations.

Several analysts and politicians also claimed that the media had been sympathetic to Draghi’s government and the Covid-19 commissioner he installed, whereas the former prime minister, Giuseppe Conte, would have been “torn to pieces” had the same situation materialised. 

Italy’s decision to set up vaccination “open days” — where people as young as 16 could show up without a booking to be immunised with any vaccine available — also came under fire domestically and abroad.

How would you feel about being inoculated with two doses of different Covid-19 vaccines? Take our poll here.

Chart du jour: Inflation extremes

Line chart of Annual inflation (%) showing Eurozone inflation mostly trends upwards

The European Central Bank’s governing council meets on a hillside in Frankfurt today, with inflation targets one of the big issues on their agenda. Figures released for May showed inflation was on the rise across most of Europe, with Luxembourg recording an increase of 4 per cent. At the opposite end, Greece, hampered by low tourism numbers, is still recording negative inflation.

Norway’s Greens vs Big Oil

A fierce and sometimes surreal controversy has felled Oslo’s entire government, giving a taste of some of the debates that are likely to resurface in national elections in September, writes Richard Milne, FT Nordic and Baltic bureau chief.

The entire centre-left Oslo city council resigned in protest on Wednesday after a vote of no confidence in Green politician Lan Marie Berg, because of her failure to disclose a huge cost overrun in a new water pipeline for Norway’s capital.

Berg is one of the most polarising politicians in Norway, as her outspoken attacks on petrol cars and more have drawn a torrent of criticism, some of it heavily misogynistic and racist.

She is running for Norway’s national parliament in elections on September 13 that the centre-left opposition — of which her Green party is part — are on track to win.

But the controversy surrounding her underscored the difficulties that Norway, western Europe’s biggest petroleum producer, is experiencing in working out how to meet its climate obligations.

The International Energy Agency warned last month that there should be no new oil and gas exploration to reach the Paris agreement goal of limiting global warming to 1.5C more than pre-industrial levels. But Norway’s main centre-left Labour party and ruling centre-right Conservatives have shown no desire to call time on the country’s oil industry.

The Greens have said they would not support any government that continues with oil exploration, but it is far from clear whether the party will gain enough votes to enter parliament. Many Norwegian voters appear put off by their tough rhetoric, with the Centre party — rivalling Labour as the biggest centre-left group — defending diesel cars popular with their mostly rural supporters.

The surreal aspect of the events in Oslo is that the same centre-left government is likely to be reborn without Berg, who wants to focus on her parliamentary run. That led the Centre party to accuse her of self-indulgence for not simply resigning and sparing the capital the spectacle of high political drama in the midst of a pandemic. It also demonstrated the divisions within Norway’s centre-left and the difficulties they could have in forming a coherent national government should they win in September.

What to watch this weekend

  1. Brexit commissioner Maros Sefcovic gives a speech today at the College of Europe on the EU’s post-Brexit relations with the UK

  2. The Conference on the Future of Europe holds its first plenary session tomorrow in Strasbourg

Smart reads

  • WFH future: Remote working is here to stay, with a majority of European office workers preferring it to the old way of going in to the office. A policy paper by Bruegel suggests the EU should set up a regulatory framework for hybrid working.

  • Gig workers: Self-employed, in fierce competition for orders, without social protection and subject to algorithmic bias — this is the experience of most delivery service workers in Europe. The Centre for European Policy Studies has published a report about the situation of digital platforms workers in all 27 EU countries over the past five years.

  • Flying green: FT travel editor Tom Robbins writes about his experience onboard the world’s fully electric two-seat plane, which was recently certified for commercial use in the EU market.

  • Axe the G7: A week after the G7 summit in Cornwall, economist Jeffrey Sachs argues that the format is outdated and consistently fails to deliver results — and should therefore be consigned to the history books. (PS)

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Are you enjoying Europe Express? Sign up here to have it delivered straight to your inbox every workday at 7am CET. Do tell us what you think, we love to hear from you: europe.express@ft.com.

Today’s Europe Express team: silvia.borrelli@ft.com, richard.milne@ft.com, david.hindley@ft.com, valentina.pop@ft.com. Follow us on Twitter: @silvia_sb_, @rmilneNordic, @valentinapop.





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The links with Tai that Brussels hopes will bind

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Hello from Brussels, where the barbed-wire barricades have been cleared away, the buses are back running on their usual routes rather than being diverted around the centre and in general the city has the typical morning-after feeling that follows a visit from the US president. Today’s main piece looks at what Joe Biden’s trip to Brussels actually meant for trade, while Charted waters delves into the nature of the trading relationship between the two jurisdictions.

We want to hear from you. Send any thoughts to trade.secrets@ft.com or email me at alan.beattie@ft.com

Warm words now, but a cold reality awaits

And so the US presidential procession leaves behind, certainly in Brussels trade circles, a profound sense of relief that they are dealing with the personable and constructive Joe Biden and Katherine Tai rather than the abrasive and frequently toxic Donald Trump and Robert Lighthizer.

The big victory was the Airbus-Boeing deal after a mere 17 years of World Trade Organization litigation, not just in itself but for what it said about the possibilities of constructive engagement. Tai, the US trade representative, told a media roundtable in Brussels on Tuesday: “This was a test of our relationship and our ability to build confidence and trust.” However, as Trade Secrets wrote yesterday, it’s not a given that an ad hoc make-it-up-as-you-go-along approach will work between two economies and their aircraft manufacturers, which still have serious problems with each other’s subsidy models.

In fact, if you had to sum up the entire encounter, it was that while leaders and officials luxuriate publicly in a rhetorical hot tub of co-operation and mutual appreciation, they still need to pass through a cold shower of political and legal reality on the way to the changing rooms.

Having China as a rival in common is certainly a useful bonding experience and framing device. The Airbus-Boeing deal was portrayed as a joint response to the rise of aircraft manufacturers in non-market economies. Similarly, the US pledge to fix the “Section 232” national security tariffs on EU steel and aluminium that the Biden administration inherited from Trump was put in the context of global overcapacity driven by Chinese (and others’) steel production.

Still, when it comes to a choice between irritating an ally such as the EU (and possibly breaking international law) and disappointing a politically powerful domestic constituency such as the steel industry, which likes the tariffs, the Biden administration has so far chosen the former

Plans to remove existing transatlantic irritants remain either fragile or aspirational. The Airbus-Boeing subsidies have been suspended but not abolished. Tai said on Tuesday: “We have pivoted to co-operation and collaboration, but it is going to be helpful to have the ability to bring these tariffs back to keep each other honest.” In other words: trust but verify, agree a ceasefire but do not disarm.

On the Section 232s, which are supposed to be fixed by the beginning of December, Tai said: “There are hard questions that we have to face and deep feelings that we’re going to have to address . . . we’re going to push ourselves and our partners in the EU for an outcome that is going to be good for our relationship, for our industries, for our economies, for our workers”. If you believe the zero-sum logic of protectionism, there may be some difficulty in addressing all those goals at once.

There are mysterious nose-tapping “wait and see” noises from both sides about how they might punch enough of a hole in the 232 tariff wall to let some European steel and aluminium into the US without alienating blue-collar workers enough to hand the Midwest to the Republicans. But it’s going to be technically and politically difficult to get that done in less than six months.

As for the WTO itself, certainly the Biden administration pleased the EU and others by moving quickly in its early weeks to unblock the appointment of Ngozi Okonjo-Iweala as director-general. But that wasn’t politically costly: only isolationist headbangers in US politics and business really want to destroy the institution. Asked on Tuesday about the prospects for reviving the WTO’s at-present paralysed appellate body, long disliked by the US steel industry for ruling American antidumping duties illegal, Tai said: “I’m definitely not answering that.”

The goodwill certainly sounds like it’s there. Every utterance on both sides was suffused with the rhetoric of co-operation. Tai even went out of her way to praise the EU for its submission to the WTO on the vaccine IP issue which, unlike the US stance, does not call for a patent waiver.

On that subject, incidentally, while declining to rule out the US itself submitting a negotiating text, she said: “I think that we have a unique ability in the WTO on this issue to be a facilitator, to have credibility with the different sides”. This strengthens our view that the US is far happier to get the good PR from supporting a waiver in principle than to stick its neck out by taking a position in the talks.

Whatever the vibe, the Biden administration is overwhelmingly focused on its domestic economy and maintaining political support, and the EU doesn’t have any votes in the next year’s US midterm elections. We’ll watch the outcomes with interest but without great confidence that everything will get fixed in short order.

Charted waters

We’ve written about the diplomatic relationship, but what about trade between the EU and US itself? As the chart below shows, the two have a tight — and increasingly important — relationship. The EU’s surplus has grown slightly of late, though by a smaller factor than the growth in total values of traded goods.

Column chart showing the EU maintains a healthy trade surplus with the US

In terms of industries, here’s a breakdown of the most valued ones for the EU. The importance of machinery and transport equipment goes some way to explaining why Trump’s threat of tariffs on the car industry did so much to rile lawmakers here. Claire Jones

Bar chart of EU trade balance with the US, by product group (€bn) showing the EU surplus by sector

Trade links

A round-up of stories from the Financial Times this morning. As jurisdictions get tougher on due diligence, lawyers are helping companies clean up their supply chains. We also have an opinion article, which pushes for a global consensus on how to stress test supply chains. This follows calls from the US — wise in our view — to set up a global forum for supply chain resilience. New Zealand wants to agree trade deals with the EU and UK this year in an attempt to become less reliant on China.

Many countries have imposed sanctions on Myanmar following the military coup earlier this year. Not so Moscow. Nikkei ($) reports that Russia’s rolling out of the welcome mat for Myanmar’s air force commander was a cue to the junta that its arms will flow to the south-east Asian nation.

Bloomberg ($) has a piece on European car sales failing to recover to pre-pandemic levels. We think this may have something to do with chip-induced supply shortages. In the meantime, the price of used cars has surged. Alan Beattie and Claire Jones

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Biden warns Putin of ‘devastating’ fallout if activist Navalny dies in jail

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Joe Biden warned Vladimir Putin that there would be “devastating” consequences for Russia if opposition activist Alexei Navalny were to die in prison after “open” and “frank” talks aimed at stabilising relations between the two countries.

In their first face-to-face meeting as leaders, the presidents agreed to begin bilateral talks on preventing cyber attacks, restart talks on arms control, restore their ambassadors to their respective embassies and explore a potential exchange of citizens held in each other’s prisons, Putin said.

Billed as a meeting riddled with difficult topics and mutual grievances, Putin told reporters following talks that lasted three and a half hours that there was “no hostility” and the conversation was “efficient . . . and constructive”.

“This was a productive meeting,” Putin said. “It was fruitful. It was to the point, and it took place in an atmosphere that was enabling . . . it gave us glimpses of confidence and hope.” 

Putin praised Biden’s moral qualities and described his approach as pragmatic and well balanced, but said it was “hard to say” whether relations would improve as a result.

Biden told reporters he had handed Putin a list of “certain critical infrastructure [that] should be off limits” from cyber attacks, which comprised 16 entities including the energy sector and water systems.

“I said: ‘How would you feel if ransomware took down the pipelines that run from your oilfields?’” Biden said.

But he echoed Putin’s comments about the tone of the meeting, which he said was “good, positive . . . There wasn’t any strident action taken.”

He added that he raised the issue of Navalny’s detention with Putin and what would happen if the activist died in prison. “I made it clear to him the consequences of that would be devastating for Russia.”

Navalny was arrested and sentenced to prison recently after returning to Russia. “Human rights is always going to be on the table,” Biden said.

Putin had answered questions about Navalny by saying that he had broken Russian law and knew he would be jailed if he returned to Russia, and claimed that his political activity was seeking to weaken Russia.

The meeting started at about 1.30pm local time with a handshake between the two leaders at the 18th-century Villa La Grange by Lake Geneva, and ended just after 5pm, more than an hour earlier than aides had predicted.

US secretary of state Antony Blinken, US president Joe Biden, Russian President Vladimir Putin and Russian foreign minister Sergei Lavrov
From left: US secretary of state Antony Blinken, Biden, Putin and Russian foreign minister Sergei Lavrov at Villa La Grange © Brendan Smialowski/AFP/Getty

Cyber warfare was one of the biggest irritants before the summit, following a major hack of US government agencies last year by Russia-based groups, and alleged disinformation campaigns in the US by Moscow-backed organisations.

Biden had described Putin as a “worthy adversary” ahead of the meeting and said he was going to clarify to the Russian leader “what the red lines are”. Russia was seeking to drive a wedge in transatlantic solidarity and the US was experiencing an increase in malicious cyber activity, Biden added. He promised to respond in kind if necessary.

“We believe cyber space is extraordinarily important in general and in particular for the US, and to the same extent for Russia,” Putin told reporters.

The agreed bilateral government talks on cyber security will be a first for the US and Russia, and have previously been resisted by Washington.

Biden and Putin also grappled with a long list of accusations, complaints and charges against one another, including alleged Russian meddling in US elections, US sanctions against Moscow and the Kremlin’s misgivings over Nato military expansion in eastern Europe.

Other difficulties in the relationship are torn-up arms control agreements and war in Ukraine.

Biden travelled to the Swiss city after a week in Europe meeting G7, EU and Nato allies. The response to threats posed by Russia was continually raised in talks with western leaders. The EU warned in a foreign policy paper on Wednesday of a “negative spiral” in EU-Russia relations.

The US president said world leaders had thanked him for holding the summit, which some analysts have criticised as handing Putin a diplomatic victory.

Biden said at the outset of the meeting: “As I said outside, it is always better to meet face-to-face to try to determine where we have mutual interest; co-operate, and where we don’t, establish predictable and rational” relations. He added: “Two great powers.”

Putin said that his ambassador would return to Washington, and the US ambassador would return to Moscow following the talks.

The respective diplomats left their posts earlier in the year after a chain of events prompted by Biden agreeing with an interviewer that Putin was a “killer”.



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