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Economy

Divorce or Readjustment as China-US Trade Ties Mark “Silver Anniversary”?

Apr 25 , 2019
  • Ma Xiaoye

    Board Member and Founding Director, Academy for World Watch

China US.jpg

Economic and trade arrangements are fundamentally different from other bilateral ties, in that conflicts in this field are always solvable through exchange of interests. At this moment in China-US relations, economic and trade ties are turning from a ‘ballast stone’ into a ‘steering rudder.’ It is a wise choice to prevent conflicts in this field—usually most 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 negotiations. Over the course of that period, China-US ties developed into the most important bilateral relationship in the world. On the occasion of the “silver anniversary” of their wedding, 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? Marriage with love offers a haven, while a loveless marriage is no different from a prison. 

Hopefully the large-scale economic and trade frictions will be resolved through negotiation. A negotiated agreement would mark the first step in the comprehensive readjustment of economic and trade relations. For China, an economy with a complex industrial structure and extensive industrial capacity, pressures generated by negotiated compromises must be absorbed in local echelons across different sectors. Furthermore, in terms of economic processes, so long as market competition mechanisms remain robust, changes in any area as a result of pressure may well bring about new opportunities in adjoining areas. This is why economic and trade negotiations in general tend to result in win-win outcomes for the overall 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 the adjoining areas and facilitate movement of market resources in favor of those opportunities? Is it possible to implement the negotiation results by merely fine-tuning existing policies? These are all new challenges that China will face after making various promises in the negotiation process. 

The more economic overlaps and industrial connections there are between the two sides, the more topics there will be in any economic and trade negotiation. 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 the readjustment of relations between the two big countries in various fields. It will be critical to maintain the political will to resolve conflicts and frictions throughout the negotiation process. There is one commonality between China and the US that differentiates them from some other Western countries: in diplomatic affairs, decisions are made at very high levels and the respective head of state assumes primary responsibility. Besides the fundamental role of political will, creative work by the negotiation teams is also important to reaching a negotiated agreement. 

The new round of comprehensive readjustments in China-US relations will only kick off upon conclusion of a new economic and 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 or 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 this realm.

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

3. The two sides have been exploring points of converging interest in the realm of non-traditional security such as cybersecurity. Hopefully the endgame is close in this field.

4.  With regard to a series of regional hotspots, all possibilities – readjustment, collaboration, competition, or confrontation – exist. What kind of note will be struck in this round of readjustments? How will it evolve? 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’ at least partially, the global multilateral trade regime may also have to readjust itself, likely leading to differences in the world’s system of free trade. 

The 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 people of all walks of life in the two countries consolidated or undermined with the current solution? This is no light matter, and it merits further observation. 

In the history of international relations, open diplomacy has oftentimes intensified negative perceptions. Some researchers believed that this was the cause of World War I. Now, with the Internet combining with populism, open diplomacy has become a powerful driving force. It cannot be ruled out that this force may to a certain extent 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 interests. If the resulting changes lead to bitterness and grudges instead of increased mutual trust, hatred will pile up—first and foremost in those groups prone to emotional extremism. If so, the consequence might be disastrous. Then it will be of no avail to beg for ‘the utmost goodwill.’ 

Modern economic development has increased the complexity of economic structures. There are long transmission chains for economic variables and a 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 for some problems, or no new balance is possible through mutual compromises; whereas, economic interests are exchangeable and deals are thus possible. At this moment when China-US relations are about to start a process of comprehensive readjustment, we stand on the watershed for the future course of bilateral development. In the past forty years, the two governments and peoples have, like Sisyphus, rolled the stone of bilateral relationship uphill. Now it is very easy to push it downhill, and increasingly difficult to continue pushing uphill.

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