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Foreign Policy

Repositioning China-U.S. Relations

Dec 06 , 2018
  • Zhang Monan

    Senior Fellow, China International Economic Exchanges Center

The world is undergoing its greatest changes in a century. One of the greatest variables in this dynamic situation is the relationship between China and the U.S. which, after four decades of stability, faces unprecedented uncertainty. Against a backdrop of economic globalization, peace and development have been the themes of the times, replacing the primary conflict between systems and camps that characterized the Cold War. All countries, nations and groups of countries have come to focus on their own practical interests, especially economic and development interests, which has meant less political conflict. In the decade after the global financial crisis, however, due to the impact of international trade protectionism and unilateralism, the international economic system and order underwent profound, complex, and unprecedented changes.

This round of China-U.S. trade conflict has occurred at an important juncture, when the global economic recovery is still faltering and global trade is on the threshold of recovery, and it could have an important impact on the pattern and new rules of world trade in the future. According to a report by Morgan Stanley, the $200 billion worth of tariffs that have already been implemented as part of the China-U.S. trade war will reduce China’s GDP by 0.2-0.3 percentage points but reduce U.S. GDP by 0.3-0.4 percentage points. If global trade disputes continue to intensify, it will reduce global trade in goods by $461 billion and impact about 2.5% of global trade, equivalent to 0.5% of global GDP. If the global economic recovery weakens in 2019, the effect of a trade war on the global economy will be greatly amplified.

How can we assess the direction and prospects of the China-U.S. trade war? We believe that in the future, whether there is war or peace or there is a major war or a small war, we must pay attention to the long-term and complex nature of China-U.S. conflict and friction. China-U.S. trade issues are the result of the evolving international order and the global system created after the Second World War.

In essence, U.S. policy on China and the change in the U.S.’ strategic direction have provided the ideological and social support for trade disputes. Since President Donald Trump took office in 2016, his attitude toward China has turned hawkish. The power of groups in the U.S. who advocate engagement with China is declining in mainstream political circles as opposition forces grow stronger. A National Security Strategy released in early 2018 defined China as a strategic competitor for the first time, marking a new phase in U.S. policy toward China. It appears that the current round of the trade war is only a prelude. Fundamental changes in the U.S. position on China, and even qualitative changes in the relationship between China and the U.S., mean that a new normal of long-term conflict and friction between the two powers marked by intermittent hostility and engagement is an historical inevitability and challenge.

The relationship between China and the U.S. is neither a disaster nor a walk in the park at the moment, but this may change. So, what does the future hold for China-U.S. relations? Here are three hypotheses.

The first outcome is struggle without conflict. Although tension between the two countries has intensified, it has remained within the scope of competition. Although the balance of the relationship has shifted, there is equilibrium between differences and cooperation. Through hard work, it will be possible to find a mutually beneficial truce that both sides can accept.

The second outcome is a new cold war. It is possible that because of the trade war the two sides could suddenly sever relations and go their separate ways, leading to a new cold war. Chinese and U.S. policy researchers are currently discussing the topic of decoupling economic relations. Decoupling and competition are the opposite of the contact and cooperation experienced over the past four decades. Disintegration of the interdependence between the two largest economies in human history replaced by conflicting objectives and gradual drifting apart is hard to imagine. It is unclear whether it could really happen in the foreseeable future, but the consequences for world peace and world order are inconceivable.

The third outcome is full-scale confrontation. If the two sides are unable to manage their differences and areas of friction, or one party determinedly challenges the core interests of the other party, a full-scale confrontation could result.

Now that China-U.S. relations have reached a historical turning point, will they part ways and even engage in a cold war? Or will they sit down and negotiate, reach an agreement, and work together? It seems that the prospects for China-U.S. relations remain unclear, though Chinese and U.S. leaders have already agreed to meet at the G20 summit. In the long run, however, China and the U.S. need to outline the basis of their future relations and create mechanisms for dealing with problems.

Looking back, the economic relationship between the two major camps led by the U.S. and the Soviet Union during the Cold War was very different. China and the U.S. would find it impossible to completely sever economic ties. As the world’s two largest economies, China-U.S. “coopetition” is the norm. We must accept that there will always be strategic competition between China and the U.S., but that this does not need to be a zero-sum game. It can be healthy competition, even if it evolves from competition amid cooperation, to cooperation amid competition. If one party tries to seize advantages for itself only, it will inevitably lead to conflict and even confrontation. In the long run, the cost of destroying bilateral relations will far exceed the cost of maintaining them.

The world will need a new multilateral system in the future. The crisis in the global trading system is also a crisis of multilateralism. After the Second World War, countries engaged in global cooperation through a system of rules, common principles, and institutions. This cooperation has brought about major social progress and economic prosperity. A decade ago, countries worked together to coordinate their international macroeconomic policies to ensure that the Great Recession did not become another Great Depression. However, as the world situation becomes more complex and common challenges increase, the willingness of countries to take collective action is diminishing. We must face up to the fact that some of the rules in the current global multilateral system have long since become obsolete, and some mechanisms lag behind changes in the real world, meaning new problems are not being solved in a timely manner. This crisis is also an opportunity for reform. Reform of the global multilateral system must be accelerated and a new multilateral system that is more inclusive and sustainable must be built. 

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