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Foreign Policy

China’s Foreign Policy Dilemma

Aug 18, 2023

China’s National People’s Congress approved a comprehensive law regulating foreign relations effective July 1. It outlines general principles and the broad duties of various state and party organs, however, it is rather vague. As the saying goes though, the devil is in the details, particularly where the enunciated principles may be in broad conflict with each other. 

On one hand, the law extols the virtues of global commerce; international cooperation through agreements, treaties, and international organizations; and mutual non-interference in internal affairs. These provisions reflect China’s actual practice as it converted from an isolated, centrally-planned garrison state under Mao Zedong to the world’s leading trading power, a trajectory initiated by the pro-market reforms of Deng Xiaoping and continued by his successors. This reflects China’s broad support for a Liberal World Order (LWO), designed and implemented by the USA and its allies after World War II. This should come as no surprise, since China’s globally competitive economy has flourished more than most under LWO rules. 

On the other hand, a broad commercial counterattack against China’s successful rise was initiated by President Trump, continued by President Biden, and has attracted newcomers among U.S. allies. These actions prompted another thrust of the new law that authorizes the ruling Chinese Communist Party (CCP) and government to push back against any threats to its national security and territorial integrity, including Taiwan as a de jure, if not de facto, province of China. Most Western pundits have focused on these confrontational aspects of the law, rather than its broad support for the existing LWO. These two broad sets of principles – regarding national security and international cooperation – do reflect the real foreign policy dilemma China faces. 

There is some trade-off between national security and global commerce for any country. It might be marginally safer, at least in the short run, if it banned immigration, foreign study and travel, and all but the most essential foreign commerce (which includes both trade and investment). However, such temporary security, characteristic of China during the 1950s through most of the 1970s, comes at the expense of faster economic growth and innovation, which is spurred not only by international commerce, but also by scientific and educational exchange. I have personally worked within the Chinese university system, as a professor and dean in an engineering-focused university, and consulted within several private Chinese high tech companies. I saw from the inside how much Chinese technological innovation depends on extensive cooperation with foreign business and educational institutions. If “national security” concerns start to erode such foreign ties, China’s economic growth will suffer. Other Asian countries, including ASEAN members and India, could gradually erode China’s trade competitiveness. 

However, even if China is content with the LWO as it has existed for decades, the U.S.-led alliance is not willing to leave well enough alone. Washington is determined to curtail China’s benefits from the LWO by interjecting more and more security restrictions into private commercial relations. The West will no longer allow China to conduct business-as-usual. First, Iranian nuclear ambitions and Russia’s invasion of Ukraine, have politicized trade to an extent not seen since the Cold War. The proliferation of third-party sanctions, in particular, is an increasing impediment to the liberal principle of non-discrimination. China’s trade with Russia and Iran, although under 4 percent of its total trade, has prompted sanctions from the U.S. and a growing list of its allies. 

China’s core foreign policy dilemma is this: it would like to use the threat of counter-sanctions, authorized under the new law, to deter the West’s increasing resort to sanctions, but as the world’s greatest trading nation, such a decent into tit-for-tat trade feuds may just spiral out of control, threatening China’s economic and even political stability just as signs of economic weakness are proliferating. During Trump’s escalating trade war from 2018 on, China did retaliate with tariffs, but at lower rates and covering far fewer goods than the extraordinary tariffs Trump imposed. This relatively weak response had little apparent deterrent effect. Furthermore, despite campaigning against Trump’s trade war, Biden has kept nearly all the Trump-era restrictions in place, while adding new ones, especially restricting circuit sales. Chinese restraint did not deter the U.S., but it is also doubtful whether more extensive use of sanctions by China would have the desired effect either. 

Western interests are deeply divided between those of the global business enterprises that greatly prosper from trade and investment in China – internationalists – and those profiting from conflict with China – nationalists – including military-industrial interests that thrive on conflict and enterprises vulnerable to Chinese business competition. The latter now includes a substantial segment of what I call the telecom-internet-AI companies (TIA), often working in partnership to dominate global information collection and monetization. American TIA companies, include Google-Alphabet, Microsoft, Facebook-Meta, Apple, the major phone companies, and many more. On the one hand, the biggest are already globally dominant, but on the other, Chinese TIA companies are their main rivals, whose lower costs threaten the global dominance of the West’s industry leaders. TIA companies on both sides of the Pacific are increasingly appealing to governmental regulations and subsidies to bolster their competition against rivals. 

Any step China takes to retaliate against Western sanctions, even merely rhetorical, helps justify the Western contention that China is a dangerous rival at best and an enemy at worst. For example, if China tries to reduce its dependence on the U.S. and EU by deepening commercial ties with Southeast Asia, the Middle East, Africa, and Russia, Western nationalists criticize it as if these moves, consistent with a LWO, are tantamount to aggression. Criticism of China is validated, while Western internationalist business in China appears suspect. China’s retaliatory sanctions have been restrained by the fact that they tend to injure its internationalist allies abroad rather than its nationalist adversaries. Conversely, not retaliating invites further nationalist-inspired sanctions because there is always a business-motivated lobby for these, regardless of how China behaves. It’s here that we find China’s dilemma, where a weak response encourages more sanctions, but strong retaliation tends to undermine those Western interests most favorable to cooperative relations. That is the unspoken conflict obscured behind the contradictory platitudes of China’s new foreign policy law.

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