The US and China: Entente discordiale

The US-China relationship is a strange beast. The world’s two biggest national economies, which together account for more than a third of global output, are locked in a close economic and financial embrace, but are also strategic and (to a much lesser extent) military rivals. This makes the relationship more intricate than any the US has had with a number-two country since it rose to the top of the world economic charts in the late 19th century. Britain was the genial uncle from whom it would inherit the scepter of global domination. The Soviet Union was a pure villain, to be worn down by a long battle of political containment and economic attrition. Japan was a reliable if often incomprehensible vassal. China is authoritarian and militarily independent, but not an enemy; economically indispensable, but not a friend.

These complexities tend to turn meetings between the two countries’ leaders into an uncomfortable variety show of political shadow-boxing and economic acrobatics.

This week’s state visit by Xi Jinping to the US is perhaps the most extreme example yet. It starts in Seattle with a forum at which the leaders of some of America’s leading technology firms will be forced to endure a sanctimonious speech by Chinese internet czar Lu Wei, who oversees a system of censorship and techno-nationalism that has effectively made it impossible for American internet giants such as Facebook and Google to operate in China, clearing the way for the growth of Chinese internet champions such as Alibaba, Baidu and Tencent. One of the attendees will be Tim Cook, whose company—Apple—has become the most valuable on earth in part because China’s fast-growing middle class enthusiastically pays high prices for Apple gadgets assembled by low-wage Chinese workers, with the profits flowing to American capitalists.

The highlight of the visit will be a White House state dinner which was probably saved from cancellation only because Beijing dispatched a last minute delegation to beg Washington to delay the imposition of economic sanctions to punish China for its aggressive cyber-intrusions and industrial espionage. At the preceding press conference, it’s possible that we will get announcements of a landmark agreement to restrict cyber-warfare, a reaffirmation of the two countries’ commitment to push for a strong global climate agreement, and progress towards a bilateral investment treaty (BIT) that would substantially increase flows of direct investment by US firms in China.

The BIT nicely exemplifies the contradictions of the bilateral economic relationship. American big business, via the US Chamber of Commerce, has loudly condemned China’s protectionism, discriminatory anti-trust enforcement, and persistent disrespect for intellectual property. Yet many of these same businesses, through the USChina Business Council, have been equally loud in their demands that Washington accelerate talks on the BIT, so that they can put even more money at risk in China.

Two key points are worth remembering as we head into the week’s theatricals.

First, pragmatism trumps ideology. The outward political relationship between the two seems as chilly as it has ever been.

Yet the underlying economic dynamics remain positive, and for all the bluster on both sides, the level of cooperation remains substantial. Some of this cooperation is grand: the US-Iran nuclear deal would have been impossible without China’s willingness to adhere to strict economic sanctions against Tehran. Much is mundane: the design of China’s deposit insurance system, launched in May, depended on years of consultations with the US Federal Deposit Insurance Corporation. The point is that the conversation that goes on behind the headlines is far more active, and far more productive, than most people in either country are aware.

Second, what ultimately stabilises the relationship is that the US remains vastly the more powerful nation, despite all the stories about America’s decline and “the inexorable shift of power from West to East.” A key reason, often overlooked, is that the US magnifies its power through the edifice of the global institutions it built after World War II, including a robust network of alliances; 700 military installations in nearly 40 countries; and multilateral organisations such as the OECD, the World Bank and the International Monetary Fund, whose importance stems less from the money they disburse than from the ideas they propagate.

China, meanwhile, is a solitary country with no alliances and no institutions through which it can influence global opinion. Its much-touted “replacements” for US institutions, such as the internationalised renminbi and the Asia Infrastructure Investment Bank, remain sketches on the drawing board, with little practical impact.

China has essentially one card to play, which is access to its large and fast-growing market. It has played that card skillfully for many years. In the end, though, it knows it can only thrive by coming to terms with its biggest customer. The snubs and recriminations will continue, but so will the economic symbiosis.