China and the United States are experiencing growing challenges in their trade and investment ties because of heightened security and geopolitical tensions. In the U.S., there remains a lack of agreement on how to recalibrate the economic and trade dynamics with China and how to judiciously balance geopolitical, security and economic considerations. At present, U.S. perspectives on China-U.S. economic and trade relations fall into three main categories:
1. The restrictionists: They see the relationship as a zero-sum game. In their view, while China capitalizes on the U.S. technological sectors for strategic advantages, the U.S. gains only transient and minor benefits. With the American technological lead potentially waning, they advocate stringent measures, such as significant cutbacks in bilateral technological interactions and trade. Mike Gallagher, chairman of the U.S. House Select Special Committee on China, opines that U.S. investments in China equate to sowing the seeds of America’s own decline. He champions curbing investment in areas pivotal to national security and China’s technological ascent.
Among the most stringent proposals is one from Matt Pottinger, former U.S. deputy national security adviser, suggesting a reduction in U.S. foreign investment by an order of magnitude. Senator Tom Cotton calls for a comprehensive research embargo on China, stringent export controls on elite semiconductors, tough sanctions equated to “capital punishment” on China’s forefront companies and the nullification of permanent normal trade relations for China.
2. The cooperationists: They interpret the China-U.S. relationship as non-zero-sum, emphasizing that collaboration and dialogue are in America’s best interest, thus advocating the continuation of bilateral exchanges. This group consists of select business stakeholders, technology pundits, global campaigners and progressives. Their apprehensions pivot around potential U.S. overreactions, inflated threat perceptions and an excessive reliance on restrictive measures.
A study by the Peterson Institute for International Economics postulates that when U.S. companies leverage China’s cost-effective labor, it allows for domestic investments in advanced versions of similar products, fostering resilience and broadening employment. It further cautions that curtailing trade and investment with China poses risks, potentially undermining America’s competitive edge and hampering future growth avenues for American businesses.
The Semiconductor Industry Association contends that sweeping restrictions on the export of commercial semiconductor technology to China might jeopardize its enduring leadership in this domain. Numerous independent tech specialists and activists continue to champion the vision of technological globalization, viewing any decoupling efforts as detrimental.
The World Wide Web Foundation, with members such as Amazon, Facebook, Microsoft and X (formerly Twitter), raises alarms about internet fragmentation and technological protectionism. Meanwhile, the Internet Association underscores that prioritizing political motives over technological ones deviates from the foundational spirit of the internet.
3. The centrists: They synthesize views from both the restrictionists and cooperationists, opting for a balanced middle path. Distinct from the hawkish sentiments of the restrictionists and the global outreach of the cooperationists, the centrists are primarily political moderates, state and regional leaders and prominent think tank scholars. They believe the China-U.S. dynamic encompasses elements of both competition (zero-sum) and collaboration (non-zero-sum).
The U.S. must navigate this relationship with a blend of realism and foresight, fine-tuning its engagement with China. In fact, the United States has to consider both the pursuit of higher-level free trade and the risks of further deepening the global division of labor and the unified international market. On the other hand, it also needs to contemplate a complete shift toward exclusive market segmentation and technological control, acknowledging the costs of disrupting the global supply chains it once helped establish.
Thus, the U.S. should adopt a gradual approach based on current uncertainties and recognize the fact that mutual dependence may continue to exist. While guarding national security and being wary of China’s technological advancements, the U.S. aims to minimize its potential losses.
To the administration in Washington, the China-U.S. economic and trade interplay is both an avenue to strengthen bilateral ties and an instrument to regulate them.
In the initial phase of President Joe Biden’s term, there was a notable effort to diminish the rhetoric of decoupling. U.S. Trade Representative Katherine Tai said in her description of the new direction of trade policy with China that both nations ought to pursue “re-coupling” and a “lasting coexistence.”
This indicates that the Biden administration, in its early approach to China-U.S. trade, straddled the sharply contrasting positions of the restrictionists and cooperationists, largely drawing from the centrist perspective. They recognized the potential catastrophic repercussions for both nations, and potentially other regions, if there was a total economic split.
As a result, they implemented more pragmatic and viable strategies, encapsulated by the idea of "small yards with high walls,” suggesting that technological controls would be applied primarily in areas of utmost sensitivity and strategic significance, while areas of lower technological value and those more commodity-driven would maintain their ties with China. Moreover, they hoped for collaboration on significant global challenges.
Recent months have seen a series of visits to China by top U.S. officials, including Secretary of State Antony Blinken, Treasury Secretary Janet Yellen, Presidential Climate Envoy John Kerry and Commerce Secretary Gina Raimondo. The frequency of these high-level engagements has infused a constructive dynamic into the China-U.S. trade dialogue. These developments underscore America’s renewed acknowledgment of the crucial nature of its trade ties with China.
While trade engagement with China has rejuvenated diplomatic channels, concrete progress remains elusive in areas such as restoring military communications, mitigating the fentanyl issue and easing tensions in the South China Sea. To some extent, the trade relationship between China and the U.S. acts as a stabilizing force despite the uneven bilateral dynamics. As competitive elements in the relationship are amplified, the scenario becomes multifaceted and ever-evolving.
Overstressing or exaggerating this competition could be misleading. Hence, the China-U.S. trade connection, being a constructive avenue, plays a vital role in effectively managing competition and curbing extreme swings, confrontations and strategic misjudgments. Essentially, while the U.S. has ramped up measures such as export controls on China, it simultaneously needs to reinforce its economic ties to ensure controlled competition. At the same time, the U.S. aims to harness the interdependent nature of China-U.S. trade relations to navigate disagreements and prevent miscalculations.