17 Jul 19
A strange sort of calm has descended over the U.S.-China relationship. Officially, Washington and Beijing have agreed to a truce in their escalating trade war and are searching for the outlines of a possible agreement. But it’s looking increasingly likely that the cease-fire won’t hold—and a conflict far greater than the trade war itself looms. Last week, Beijing announced that it would sanction U.S. companies involved in selling arms to Taiwan. On Monday, meanwhile, the government statistics agency announced that China’s GDP growth in the first half of 2019 was the lowest since 1992.
The comparison is unsettling: In 1992, China was still reeling from the 1989 Tiananmen Square massacre, and its market reforms faced so much opposition that Deng Xiaoping had to abandon a bridge tournament—his favorite hobby—in Beijing to reassure wavering officials in Guangdong province. As a sign of this grim new normal, Washington has found a favorite term to describe the state of U.S.-China relations: searching for the floor.
After two major rounds of tariff increases, pecuniary visa restrictions on both sides, and the ominous appearance of a noted warmongering phrase—“don’t say we didn’t warn you” (wuwei yanzhi buyu)—in the official Communist Party newspaper, the People’s Daily, it might seem as if the floor can’t be too far below us. But the reality is that both sides could fall much, much further. Something close to economic and social decoupling is now a likely outcome, and the risk of open confrontation continues to rise. Policymakers in Washington, Beijing, and elsewhere need to take a deep breath and reconsider where they’re headed—and just as importantly, why.
The first thing to understand is that the drift in U.S.-China relations isn’t about Xi Jinping and Donald Trump. Truth be told, while the United States and China now find themselves staring deeper into the abyss than at any time since the Korean War, relations have been on a downward slide at least since the 2008 financial crisis. In the decade after, China’s leaders made three fateful decisions. First, they dropped the veil on their ambitions to challenge U.S. military and political supremacy in Asia. China’s militarization of the South China Sea and investment in weapons like hypersonic missiles send a clear message that Beijing doesn’t believe the Asia-Pacific is big enough for two superpowers to share. Second, China’s leaders tightened the screws on domestic dissent, extinguishing the fond, if overly optimistic, hopes for progress toward political reform. Third, and most consequentially, Beijing made a U-turn on its commitment to market liberalization, capping decades of currency manipulation, intellectual property theft, and hidden subsidies with crushing restrictions on market access for foreign firms.
For China’s supporters in the United States, this was the final straw. By losing the trust of the business community, Beijing completed its systematic alienation of every major constituency in favor of friendly relations. Congress, alarmed by Chinese espionage, foreign-policy assertiveness, and military expansion, happily let Washington’s long-suffering China hawks out of their cage. China hands, meanwhile, smarting from the Communist Party’s crackdown on anything resembling independent thought, were left with few good arguments with which to justify patience with an increasingly tyrannical regime. And so Washington now lobs rhetorical pebbles downward into the darkness, searching for the floor.
Of course, the United States is hardly blameless in producing this sorry state of affairs. Though it had some successes, the Barack Obama administration’s China policy ultimately proved feckless, failing to deter China from militarizing the South China Sea, halting its cybertheft, or discriminating against Western firms. But the Trump administration has gone a good deal further off the rails, doing its level best to paint Xi into a corner and ensure he has no realistic option to change course. Indeed, an important source of the present predicament is that while anti-China animus has become more virulent across the U.S. political spectrum, the hollowing out of the State Department under Trump has also rid the government of its natural bureaucratic antibodies.
The prospect of open conflict remains, for now, a good way off. But the recent experience of Canada provides an indication of how unpleasant things could become short of a South China Sea skirmish. For the cardinal sin of serving a warrant on the well-connected Huawei executive Meng Wanzhou, Canada suffered the detention of two of its citizens, one a former diplomat, on trumped-up charges; the arbitrary imposition of a death sentence on a Canadian in Chinese custody; and punishing import restrictions. To be sure, the United States has a few more arrows in its quiver than does Canada. But just to be on the safe side, American CEOs are cutting down their trips to China—especially after stories of new harassment came to light in recent weeks.
Even if unexpectedly cool heads prevail, at current course and speed the United States and China are heading for economic divorce. An increasingly plausible, if deeply cynical, explanation for the Trump administration’s China policy is simply that it wants to force just such a decoupling. Needless to say, the world’s two largest economies can never entirely disentangle themselves from each other. But a combination of tariffs and political risk looks set to dramatically scale down investment on both sides, and a growing number of U.S. companies are shifting more production outside China. Even the hundreds of thousands of Chinese students studying in America, the only major noneconomic link between the two countries, are now treated like pawns in their growing rivalry.
It looks as if both sides of the Pacific are resigned to a certain amount of economic and political decoupling. But the economic costs will be significant. American consumers will pay more for virtually everything that’s manufactured. U.S. companies will lose access to talent and ideas from their Chinese partners and workers—contrary to popular wisdom, intellectual property is in fact a two-way street. Just as significantly, the United States and China will lose both capability and motivation to deal with climate change, pandemic disease, and a host of other global challenges.
There is, of course, a better way. In the near term, Washington and Beijing need to find an offramp from the tariff tit for tat. The best hope is probably for a combination of pledges for China to buy more U.S.-manufactured goods and provide stronger intellectual property protections for U.S. firms—a step it’s already planning to take. But even if trade tensions ease, the United States and China will likely continue to go their separate ways on politics, economics, and much else for the foreseeable future.
To face this future, the two countries need to build a three-speed relationship. On some issues, like global economic stability, there’s no alternative to deep cooperation. On others, like defense and access to markets in Belt and Road countries, competition is the name of the game. But on other matters, Washington and Beijing need to build better capacity to coordinate.
Emerging technologies are a good example: U.S. and Chinese interests on artificial intelligence and biotechnology diverge in most areas but are in near-perfect alignment on the need to prevent terrorists and rogue actors from developing autonomous weapons systems and treatment-resistant superviruses. Coordinating U.S. and Chinese regulation, law enforcement, and other actions will be just as critical to preventing 21st-century technocatastrophes as U.S.-Soviet diplomacy was to preventing nuclear war in the 20th.
The U.S.-China relationship is in dangerous straits. But the floor still lies far below where the two are at present, and cooler heads must prevail to prevent the world from falling further into the depths.