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Foreign Policy

A New Balance Point in the China-U.S. Trade War

Apr 12, 2019
  • Cui Liru

    Former President, China Institutes of Contemporary International Relations

Trade negotiations between China and the United States have begun showing progress, dispelling the haze of uncertainty in the global economy created by the trade war and economic infighting. These developments show key revelations: China-U.S. relations are now “too big to fail,” and thus the two countries must seek a new pragmatic balance in their relationship.

Revelation 1: In the era of globalization, China-U.S. relations are now “too big to fail.”

Recent economic and trade frictions are the result of two major developments in China-U.S. relations during a period of transition. First, in the bilateral economic and trade relationship, there is an imbalance caused by historical factors and differences in the level of economic development. These divides and frictions have escalated sharply due to the political evolution of the United States, creating a standoff. Second, at the strategic level, the United States’ economic situation and international position have been severely weakened by the Iraq War and the financial crisis. The United States has identified China, a rising power, as a major strategic competitor, and has taken unprecedented measures to prevent and restrict its rise. Within this context, the Trump administration has acted to suppress the Chinese economy.

However, behind the Trump administration’s pushback on China, there are two-party policy propositions and different strategic goals. First, Trump’s relatively simple goal is to fulfill his main campaign promise in the 2016 election: eliminating the huge U.S. trade deficit with China in the shortest possible time. Simultaneously his administration seeks to address so-called unequal structural issues in China’s trade policies and market opening. Second, the more ambitious goal of right-wing forces backing the China containment strategy (the main members of this faction in the Trump administration being: economic and trade advisor Peter Navarro, U.S. trade negotiator Robert Lighthizer, and Secretary of State Michael Pompeo) is to use the United States’ economic and trade relations with China as a powerful strategic means to carry out a Cold War-era containment strategy against China. Publicly this move is called “disengagement” or “decoupling.”

Since the Trump administration officially hit China with tariffs in March 2018, China and the United States have launched a fierce game of tit-for-tat rhetoric and punitive measures. We can see that after May of last year, Navarro and Lighthizer’s disengagement argument was raised from the dust, and U.S. policy shifted from Trump’s economic and trade goals to the strategic goals of more right-wing conservatives. Therefore, China-U.S. economic and trade negotiations are in a desperate situation. The general pessimism not only has a major negative impact on the economic and financial markets of both countries, but also casts a heavy shadow on the global economic outlook. The results of the U.S. midterm elections in November made Trump realize that the double-edged sword of China-U.S. economic and trade confrontation was harming the U.S. economy, which is deeply intertwined with the Chinese economy. Later, we saw the leaders of the two countries meet again, this time in Argentina, where they reached a consensus on joint efforts to find solutions through dialogue, and the bilateral economic and trade relationship was back on the normal track. The disengagement argument quietly left the stage.

In 2018, the GDP figures of China and the United States exceeded $13 trillion and $20 trillion, respectively, which together comprise almost 40% of global GDP (about $84 trillion); and the trade in goods between China and the United States exceeded $630 billion while two-way accumulated investment rose to more than $240 billion. The structural complementarity is still obvious. Considering the two countries’ reciprocal bilateral relations and their leading role in promoting global economic and trade development, China-U.S. economic and trade relations are just “too big to fail.” At the same time, this reality has become an important attribute of China-U.S. economic and trade relations in the era of globalization. The historic trade war has enabled us to more deeply understand and experience this underlying truth of how the new China-U.S. relationship is structured.

Revelation 2: China-U.S. relations are evolving towards a balance point between strategic competition and transformative engagement.

China-U.S. economic and trade relations, built upon interdependence, have been transformative for both societies. However, this interdependence under the new relationship structure has one key difference compared with that of the old relationship: the rise of strategic competition between China and the United States. This change reflects a prominent feature of China-U.S. relations during the transition period: strategic competition has become the dominant aspect of this complex relationship. Trump’s goal is to put China-U.S. strategic competition in a vague and flexible position so that the United States can maximize economic and trade benefits; while right-wing forces attempt to use the strategic competition to contain China’s rise by cutting China-U.S. economic and trade relations. If the China hawks are successful, China-U.S. relations will likely slip into a new Cold War, which may be their goal. However, the situation is developing faster than people have expected, and pragmatism shows more power. In this round of the game, after experiencing the danger of the situation, the decision-makers in China and the United States have found a balance between strategic competition and transformative engagement, avoiding a lose-lose outcome.

It should also be pointed out that this is an interactive process and the result of joint efforts by Chinese and U.S. decision-makers to find a balance point in their great game. Under the new relationship, strategic competition has risen to become the dominant facet of China-U.S. relations, because the United States regards an ascendant China as a peer competitor. For China, this is an unprecedented challenge, but it is also an opportunity to play a greater role. The key to turning a challenge into an opportunity is not to show strength or to show weakness, but to judge the situation well enough to know when to advance and retreat accordingly. This insight requires the nuanced understanding to grasp both the macro situation and the micro details of the ever-more-complex China-U.S. relationship.

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