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'Silver Anniversary' for China-U.S. Trade: Divorce or Renewal?

Apr 25, 2019
  • Ma Xiaoye

    Board Member and Founding Director, Academy for World Watch

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Economic and trade arrangements are fundamentally different from other bilateral ties, in that conflicts in this field are always solvable by exchanging interests. At this moment in China-US relations, trade has turned from a ‘ballast stone’ into a ‘steering rudder.’ It is a wise choice to prevent conflicts over trade — a realm usually prone to mutual accommodation — from dragging the overall bilateral relationship into a downward spiral. This time around, comprehensive readjustments in the two countries’ bilateral relations are likely to start in economics and trade, showing some signs of wisdom on the part of decision-makers. 

Over the past 25 years, China and the US have been able to stabilize their economic and trade relations through negotiation. In that time, China-US ties have developed into the most important bilateral relationship in the world. On the occasion of this “silver anniversary,” the couple should be sufficiently familiar with each other to consider their relationship from a new perspective. Yet their options are limited: to divorce, or to maintain the marriage with a new negotiated agreement? A loving marriage offers a haven, while a loveless marriage is no different from a prison.

Hopefully major trade frictions will be resolved through negotiation. A negotiated agreement would mark the first step in a comprehensive readjustment of Sino-US economic relations. For China’s economy, with its complex industrial structure and extensive industrial capacity, pressures generated by negotiated compromises must be absorbed by numerous local municipalities across different sectors. However, as long as market competition mechanisms remain robust, changes in any particular area as a result of outside pressure may well bring about new opportunities in adjoining areas. This is why trade negotiations in general tend to produce win-win outcomes for the economy as a whole. Of course, the Chinese government will have to deliberate and decide how to answer a series of questions: Do the parties bearing the pressure need any assistance? What are the options for assistance? Is it possible to identify opportunities in adjoining areas and facilitate movement of market resources in favor of those opportunities? Is it possible to implement a trade agreement by merely fine-tuning existing policies? These are all new challenges that China will face after making various promises in the negotiation process.

The greater economic interdependence and the more industrial connections there are between the two sides, the more topics will arise during any trade talks. When readjusting a complex relationship, it’s impossible to find a one-stop solution. In this vein, negotiations on specific issues and efforts to shape and run in new rules, both bilateral and multilateral ones, will further unfold, involve an increasingly wider scope, and go well beyond tariffs and other border measures.

The initial resolution of economic and trade frictions marks only the first step in readjusting relations between the two big countries across various fields. It will be critical to maintain the political will to resolve conflicts throughout the negotiation process. There is one commonality between China and the US that differentiates them from some Western countries: in diplomatic affairs, decisions are made at very high levels with the head of state assuming primary responsibility. Besides the fundamental role of political will, creative work by the negotiation teams is also crucial if any sustainable agreement is to be reached.

A new comprehensive set of readjustments in China-US relations will only kick off upon the successful conclusion of a trade deal. To follow up, many more readjustments are necessary in various aspects of the relationship. Here is a very rough list:

1. The two sides lack a common language in ideology and politics. As such, some common political interests could likely provide a basic starting point to improve their relations. For now, it seems that much effort is still needed to identify intersections in the political field.

2. Should there be a stand-off over a military or security question, due to its special nature, neither side would have much room for concessions or compromise. As such, military matters constitute a peculiar area, almost independent of human will.

3. The two sides have been exploring points of converging interest in non-traditional realms such as cybersecurity. Hopefully the two sides are close to finding common ground in this realm.

4. With regard to a series of regional hotspots, all possibilities are on the table: readjustment, collaboration, competition, or confrontation. What kind of note will be struck by a new set of readjustments? How will ties evolve over these issues? We will have to wait and see.

5. If China and the US, the two large trading nations in the world, decide to address their bilateral imbalances through ‘managed trade,’ even partially, the global multilateral trade regime may also have to readjust itself, likely resulting in reforms to the world’s system of free trade.

A tentative resolution of economic and trade frictions seems to offer a fairly good start for readjusting bilateral relations. What course to follow may not be solely up to the political will of the relevant leaders. We must ask: Is the foundation for mutual trust between Americans and Chinese of all walks of life strengthened or undermined by the current status of Sino-US ties? This is no light matter, and it merits further observation.

In the history of international relations, open diplomacy has oftentimes intensified negative perceptions. Some scholars believe that this was the cause of World War I. Now, with the Internet fueling populism, open diplomacy has become a powerful driving force. It cannot be ruled out that this openness may make things difficult for bilateral relations and steer them towards a direction that is in neither country’s fundamental interests. Every step taken to readjust China-US relations will result in some change in the structure of their national interests. If the resulting changes lead to bitterness and grudges instead of increased mutual trust, hatred will pile up among citizens of both countries—first and foremost in those groups prone to emotional extremism. If so, the consequences might be disastrous. Then it will be of no avail to appeal to the other side’s goodwill.

Development in recent years has increased the complexity of economic structures. There are long transmission chains for economic variables, thus allowing greater room for readjustments in response to policy changes. Economic and trade ties are different from other aspects of China-US relations: some other areas may fundamentally permit no room for compromise on some issues, with no new balance achievable even through mutual compromise; whereas, economic interests are exchangeable and deals are thus possible. At this point when China-US relations are about to start a process of comprehensive readjustment, we stand at a watershed moment for the future course of bilateral development. Over the past forty years, the two governments and peoples have, like Sisyphus, rolled the stone of their bilateral relationship uphill. Now it is very easy to push it downhill, and increasingly difficult to continue pushing ahead.

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