Biden face à la Chine, document

Election campaigns are rarely the place to look for reasoned geopolitical analysis, and the 2020 US presidential election was no exception. In fact, it featured even less disciplined thinking than usual, with Donald Trump decrying the “Chinese virus” and Joe Biden calling Chinese President Xi Jinping “a thug.”

Nonetheless, now that Biden is president and COVID-19 vaccines are being administered widely, America has more bandwidth to think afresh, particularly about the Sino-American relationship, which will be the central US foreign-policy issue for at least the next decade. If there was ever an international dynamic that demanded a cogent and credible strategy, this is it. But with emotions running dangerously high in both countries, the careful consideration such a strategy demands has been hard to discern.

With the list of mutual grievances growing longer by the day, changing the trajectory of the US-China relationship will not be easy. There are many questions, none of which admits of an easy answer. Indeed, where might an effort to restore relations even begin?

Does the problem lie simply with Trump’s unpredictability over the past four years, or is it rooted in US misjudgments going back decades, as Trump and his acolytes allege? Is America the more culpable party because it has refused to share the global stage with an emerging China, or have both countries simply lost patience with each other?

On one hand, Xi’s “China Dream” perhaps does represent a threat to the rest of Asia and to democracy worldwide, as many in the Trump administration believed, and as many of Biden’s advisers tacitly acknowledge. On the other hand, China’s ostensible strengths and Xi’s bravado may be masking fatal flaws that have yet to become outwardly apparent.

Students of international politics learn early on that it is important to disentangle cause and effect across different “levels of analysis.” Following a methodology first outlined by the political theorist Kenneth Waltz, the key is to consider whether international conflicts are best explained by the character of national leaders, the interests and interaction of domestic political forces, or the balance of power within the international system.

Was World War I triggered by Kaiser Wilhelm II’s inferiority complex, the militarism of European elites, or the Anglo-German race for naval preponderance? Was the US invasion of Iraq in 2003 the product of George W. Bush’s righteous pursuit of vengeance after the September 11 terrorist attacks, a well-intentioned security mission based on bad intelligence, or the hubris of a hegemon that believed it could impose its will on a troubled region? The answers to such questions are rarely simple or straightforward.

Following the transfer of power from Trump to Biden, however, there is a brief window of opportunity for both the United States and China to examine how they reached their current impasse. For US policymakers, now is the time to consider how much of the friction can be blamed on Trump’s confrontational style, how much is rooted in US and Chinese domestic pressures, and how much reflects the inevitable clash of global powers. Only after answering some of these questions can we think about what constitutes a more effective strategy for Biden to pursue.

TRUMP’S CHINA SYNDROME

The twists and turns that produced the Trump administration’s China policy fill Superpower Showdown, a lively account by two gifted Wall Street Journal reporters. Building on daily reporting during the first three years of the Trump presidency, Bob Davis and Lingling Wei have framed their narrative against the broader backdrop of US bureaucratic engagement with China since Deng Xiaoping’s famous 1992 southern tour to kick-start his “Reform and Opening-up” strategy.

Superpower Showdown

Moreover, the book benefits from each reporter’s personal perspective on the Sino-American trade war. Whereas Davis is the son of a man who enjoyed great success in the luggage business until relentless Chinese competition wiped out that industry in America, Wei is the granddaughter of an aide to Mao Zedong during the iconic Long March. Though she and other American journalists were expelled from the country last year, she still considers China her “motherland.”

Davis and Wei trace the current confrontation back to China’s accession to the World Trade Organization in 2001, when US and other world leaders hoped that opening Chinese markets would lead to domestic political liberalization. In March 2000, then-President Bill Clinton distilled this attitude when he dismissed China’s aspirations to control the internet as tantamount to “nailing Jell-O to a wall.” As Davis and Wei wryly point out, it was right around this time that a Chinese computer scientist “was figuring out Jell-O nailing” with technology that would block foreign messages and censor domestic users.

Without resorting to psychoanalysis of either leader, Superpower Showdown shows how a difficult relationship turned dramatically worse when Xi, an ardent Chinese nationalist, confronted Trump, the “America First” populist. Through his “China Dream,” Xi envisions a future in which his country will dominate everything from the South China Sea to the global artificial-intelligence industry. And for his part, Trump’s focus on Chinese trade abuses may be the one constant principle of an otherwise inconsistent political career.

Taking stock of the new Trump administration as best they could, Chinese officials in 2017 catalogued 142 items under dispute between the two countries. Of these, they deemed only 20 to be non-negotiable from China’s perspective, suggesting that they were prepared to reach an agreement with Trump, the self-proclaimed dealmaker. But, as Davis and Wei tell us, the Chinese soon became infuriated that the trade talks were proceeding against a backdrop of incendiary presidential tweets, tariff hikes, and vague US hints of subjecting China to Iran-like financial isolation.

Meanwhile, Team Trump could not agree on what it wanted from China. Secretary of the Treasury Steven Mnuchin focused on pressing for more market access. US Trade Representative Robert Lighthizer stressed the importance of an enforcement mechanism that would invariably intrude on Chinese sovereign decisions. And trade adviser Peter Navarro pushed for full isolation to reverse China’s historic ascent. Though the steadfast Chinese negotiator Liu He seemed prepared to compromise, he often found himself hemmed in by political pressures back home.Make your inbox smarter.

After three years of frustrating engagement, both sides settled on a narrow deal aimed at closing the bilateral trade deficit – Trump’s primary obsession. For the Chinese, this limited arrangement at least would stabilize the situation, even if many of the newly introduced US tariffs remained. And for Trump, China’s “concessions” were a vindication of his unorthodox negotiating style.

In reality, the deal did precious little to change China’s behavior or stymie its growing economic might. If anything, Davis and Wei argue, the entire frustrating ordeal further reinforced China’s determination to accelerate investments in key technologies and free itself from economic or trade dependence on America.

CHINA’S BALANCING ACT

Arguably, America’s democratic system, in which powerful interests have long favored Chinese trade flows, should have imposed more limitations on Trump. Yet, as Davis and Wei note, many US businesses had themselves grown frustrated with China, and thus welcomed Trump’s tougher line. And when they did complain about unpredictable US tariffs, Trump simply turned a deaf ear.

As for Xi, despite having amassed more power than any other Chinese leader since Mao, he faced bureaucratic and ideological checks on his policy decisions. Although the Chinese economy has grown almost twelvefold over the past two decades, there have been repeated threats of a cascading debt crisis since he rose to power in 2012. In this context, Trump’s declaration of a trade war affected not only the Chinese economy but also Xi’s political standing.

Thomas Orlik, a veteran Beijing correspondent for both Bloomberg and the Wall Street Journal, takes up the issue of Chinese debt in China: The Bubble That Never Pops. He begins by recounting a 2017 meeting of Chinese elites where Xi himself warned, “I know why you don’t want to do it, but if you can’t control debt while maintaining social stability, I will question if you are up to the job.”

China

That choice, Orlik tells us, is just the latest version of a trade-off that China’s leaders have grappled with through three decades of rapid expansion and high leverage. The country is pretty much always faced with a choice between constraining growth and risking political upheaval, on one hand, and fueling expansion and risking a cataclysmic financial bust, on the other. Yet, so far, China has managed to avoid the choices that economic logic would seem to dictate.

It has done so most recently through a series of “supply-side” reforms designed by Liu, serving in his capacity as Xi’s principal economic adviser. Rather than boosting supply through deregulation, as former US President Ronald Reagan famously preached, the Chinese government rolled out bold administrative measures, which in turn called for managed mergers of steel giants to reduce capacity and boost profits. Chinese authorities also deployed macro-prudential restrictions to shore up the banking system, and provided targeted support to boost demand and to make real-estate debt more sustainable.

Yet for all its leaders’ deft economic management – including during the 1997 Asian financial crisis and following the 2008 collapse of Lehman Brothers – China still has an economy that is showing signs of fragility. Moreover, not every reform has succeeded. Following a botched 2015 attempt to introduce exchange-rate flexibility, there was a sharp sell-off of the renminbi, leaving Chinese monetary authorities with a black eye.

The value in Orlik’s careful account is that it casts aside the misleading certitude of headlines and slogans to delve deeply into the complexity of China’s rapidly evolving economy. Analysis of China often veers toward what he calls “sinophrenia,” alternating between depictions of an inevitably rising juggernaut and a basket case on the verge of collapse. In fact, China is neither, even though it exhibits clear signs of both.

EXPORTING POPULISM

While internal imbalances shape and constrain Xi’s choices, global imbalances affect the broader international agenda that Xi must confront. On this point, Matthew C. Klein of Barron’s and Michael Pettis of Peking University offer a provocative argument in Trade Wars Are Class Wars, making a direct connection between today’s international confrontation and rising domestic inequality within the world’s largest economies.

Trade Wars Are Class Wars

Specifically, Klein and Pettis contend that because Communist Party of China (CPC) elites chose to constrain domestic consumption and boost exports, US manufacturers suffered, and their displaced and disaffected workers then mobilized to deliver Trump the presidency in 2016.

Of course, in this analysis, China isn’t the only source of global trade imbalances. German policies matter too, insofar as they have constrained wages and fueled Europe’s trade surpluses. Moreover, wealthy elites on both sides of the Atlantic have long benefited from the massive expansion of financial flows that were needed to sustain the imbalances.

The implication is that America’s workers are victims of global financial elites and malign economic policies set in both Beijing and Berlin. But the authors do not stop there. Detailing the demise of the world’s gold standard, they argue that the dollar’s role as the world’s reserve currency makes America’s persistent current-account deficits much worse than they otherwise would have been.

Klein and Pettis’s account has some truth to it. But by painting the world’s richest country as a semi-helpless victim, they seem to have provided only a partial explanation. For all the industrial job losses that America has sustained, US households have also benefited from access to China’s markets and from cheaper imports. Moreover, manufacturing jobs were disappearing in the US (and Europe) long before the world had ever heard of Deng and his desire to open up the Chinese economy. Automation has destroyed more US factory jobs than China’s export model or Germany’s economic policies.

ENTER THE DRAGON?

Another partial explanation may lie in the broader forces that created the conditions for today’s Sino-American confrontation. The relevant grand historical narrative is that of the new power that emerges with an ambition to replace an overstretched incumbent power. Call it the “boxing theory” of international relations, which posits that the reigning champion cannot avoid a bout with the young contender forever. While he may still win a few more fights, he inevitably will fall from age and exhaustion.

The historian Paul Kennedy famously captured this dynamic in his 1987 book The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000, which drew a line from Spain and the Netherlands to the Soviet Union and the US. A more recent perspective from a similar altitude can be found in Destined for War: Can America and China Escape Thucydides’s Trap, where Graham Allison of Harvard University harks back to the war between a rising Athens and a dominant Sparta to describe today’s US-China standoff.

Now, Kishore Mahbubani has offered another fresh account of the current superpower struggle in Has China Won? A former Singaporean diplomat turned academic, Mahbubani tips his hand in the title of his book. From there, he makes an argument that, frankly, isn’t a heavy lift. The US, he observes, has no plan for itself, let alone one to deal with China, whereas the Chinese system is all about goal-oriented planning, particularly insofar as the US is concerned.

Has China Won?

Mahbubani thinks that a conflict between the two giants is avoidable. He argues that both countries have an interest in defending freedom of navigation, and that China can learn to live with a democratic Taiwan. (The first claim is far more plausible than the second.)

Mahbubani understands that China may have overplayed its hand during its emergence on the world stage. In addition to allowing local officials to abuse Western firms, it exhibited overconfidence in its economic model after its success in containing the domestic fallout of the 2008 financial crisis. Even so, Mahbubani believes that the US bears the preponderance of blame for today’s conflict, because it has waged a short-sighted campaign to resist China’s rise without fully considering why or how.

“Does America have the inherent strength and stamina to match China’s long-term game?” he asks in a line reminiscent of (Paul) Kennedy. The answer certainly isn’t obvious, considering the self-defeating decision to abandon the Trans-Pacific Partnership, a massive Asian trade deal that would have excluded China, and weaponization of the dollar to enforce extraterritorial sanctions against Iran.

The real risk to global stability, Mahbubani argues, comes from America’s own belief that its intentions are benign. If this were a replay of the Cold War, America’s rigid, unilateral, and self-defeating posture would leave it playing the role of the Soviet Union. China is poised to be the more flexible, dynamic, and nimble power from here on out.

“If the contest between China and America is between a healthy and flexible democracy and a rigid and inflexible communist party system,” he writes, “then America will prevail. However, if the contest is one between a rigid and inflexible plutocracy and a supple and flexible meritocratic political system, China will win.”

A LONG, BUMPY MARCH

In thinking about what lies ahead, it is important to remember that the US-China relationship was deteriorating before Trump’s presidency. Even if the Biden administration chooses a more predictable strategy of leveraging America’s alliances, the problems afflicting the relationship will only get harder. Patience is already wearing thin in both countries.

Indeed, the issues of tariffs, trade imbalances, and lost manufacturing jobs will start to seem easily resolvable compared to the emotionally and politically charged challenges posed by Hong Kong and Taiwan, and the perennial threat of North Korea’s nuclear program. Even more difficult will be the new issues that have emerged at the intersection of economics and politics, from cybersecurity and sanctions to climate and technology policies. One thing is already clear: lucid analyses that help us separate and illuminate these interwoven strands will prove ever more useful in the years ahead.

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CHRISTOPHER SMART

Writing for PS since 2016

Christopher Smart is Managing Director, Chief Global Strategist, and Head of the Barings Investment Institute. He is a former special assistant to the US president for international economics, trade, and investment (2013-15) and deputy assistant secretary of the treasury for Europe and Eurasia (2009-13).

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