‘US-China relations is at a pivotal point’
On Tuesday, January 8, 2021, the US Senate passed a $250 billion legislation described as one of the largest industrial bills in U.S. history in a bipartisan effort to ensure that the U.S. remains competitive with China. This measure is a part of intensifying debate among pundits, policy makers, and the media of all political persuasions over China’s foreign policy. This debate has increased in intensity and frequency in recent years and its decibel level conjures up memories of the cold war. Alarmed by China’s rising power, the focus has shifted to its ambitious economic embodied in the Belt and Road Initiative (BRI), and its political assertiveness in the South China Sea and over Taiwan, and its handling of internal dissent in Hong Kong and Xingang. Such is the state of the global order that G-7, which meets in the UK this month as the group of the seven largest world economies, meets to discuss, of all things, such weighty issues as the global economy, Covid-19, and China, among other issues. The irony of excluding the world second largest economy from such meetings and from the Group’s membership altogether cannot be lost on China, whose economy nearly equals that of the collective economies of six members of the G-7, save for the United States.
Strategy
Yet, the rhetoric over China lacks the kind of coherent strategy that George Kennan articulated in his 1946 “long telegram” and his Mr. X article in Foreign Affairs regarding Russia. China is not the Soviet Union, and a defeat of China, isolating it or its breakup are not realistic endgames. Instead, a well-articulated strategy that aims to keep the US-China relations at a competitive level, while avoiding a slide into a Thucydides trap, is critical at the stage. Formulating such a strategy must include an understanding of Chinese history and its and Taoist Confucian cultures, which inform China’s motives, particularly its century of humiliation at the hands of foreign powers. It took China nearly a century and a half to reclaim the Hong Kong territory ceded to Great Britain in the two Opium wars. No Chinese leader will ever want to preside over the repeat of such humiliation. The debate over China further ignores its proud history in which it dominated the global economy for two millennia until the onset of the industrial revolution. Historian may well conclude that the past century was a historical aberration, and that China is only reclaiming its past status. Finally, often overlooked are the constraints China faces in assuming its proportional role in governance of the rules-based institutions, such as the Bretton Woods organizations and the regional development banks. Until recently, China had a smaller voting power at the International Monetary Fund (IMF) and the World Bank, for example, than that of Italy or Saudi Arabia. Even today, China still lags Japan, whose economy is nearly a third of China’s, in voting power at the IMF, the World Bank, and other regional development banks. At the World Trade Organization (WTO), where China has lost most of the cases brought against it, it was the US that sidelined the WTO by blocking judicial appellate appointments and by imposing unilateral tariffs. Today, even the composition of the G-7, that is meant to represent the largest global economies, is a relic of the past, whose combined economies, except for the US, barely equals that of China. Such factors are important drivers for China’s promotions of its own sponsored financial “clubs”, which are often viewed with skepticism. A recent Council on Foreign Relations report has echoed the widespread belief in concluding that the BRI’s risks to the US and recipient countries “considerably outweigh its benefits”. Nonetheless, such initiatives have grown in size and scope to be dismissed as merely political ploys.
The US-China tension centers around four areas of conflict, namely, security, economics, technology, and ideology. While these issues are legitimate areas of concern, they do not help identify a tangible endgame. Ironically, the 1972 Nixon approach to China was designed to drive a wedge between China and the Soviet Union. Today, the current policy has succeeded in reversing that policy by bringing Russia and China closer together. China will always be China and its economic and technological gains are nearly irreversible. It already has an estimated over 70% of the world’s 5G base stations and 5G smartphone users, and its advances in Artificial Intelligence and supercomputing, etc. assure its sustainability. Although its past growth has been augmented by alleged intellectual property violations, a recent report by World Intellectual Property Organization shows that China has recently surpassed the US in trademark and patent applications.
Goals
Though China has no record of proselytizing, it pursues its own national interest through a foreign policy that is heavily grounded in economic programs with three implicit goals: access to energy and raw materials; markets for its products and companies; and strategic spheres of influence. Still, its muscular foreign policy has contributed to the anti-China rhetoric, which has bifurcated into political (Taiwan, South China Sea, ideology, and human rights), and security (technology, cyberattacks, trade, and military) issues that threaten to create a “one-world, two systems” by adopting competing standards of technology and changing supply chains. While this outcome has the benefits of creating competition and mitigating the risks of an adversarial confrontation, it is costly, has an uncertain outcome, and it may be already late. Nonetheless, the model of competing technologies, along with the continuity of strategic ambiguity over the One China policy, may offer a practical interim solution, which game theory describes as the Nash Equilibrium, in which both sides behave within pre-determined norms from which neither side would deviate. In otherwise, it is a form of competitive coexistence.
A recent Economist magazine labeling of Taiwan as “The Most Dangerous Place on Earth” is a sobering reminder of the inherent risks in global tensions. It is also a stark reminder of Norman Angell’s seminal 1909 book “The Great Illusion”, on the eve of WWI, where the British Parliamentarian argued against the possibility of war because the economic cost of war was so great and the economic interdependence among countries would be “the real guarantor of good behavior”. Angell was both right and wrong. Let us hope that this time is different.
Dr. Findakly bio:
He is Vice Chairman of the Clinton Group. He was Group Head of International Capital Markets, Managing Director, PaineWebber Inc.; CEO, Potomac Babson; and, Chairman, Dillon Read Investment Management. Prior to Wall Street, he was the Chief Investment Officer of the World Bank Group.
His early career was in academia as a member of faculty of MIT, and as Organization of American States Professor at the Catholic University in Rio de Janeiro, Brazil.
He is a graduate of Baghdad University (B.Sc., Civil Engineering, Magna cum Laude), and the Massachusetts Institute of Technology (MIT): Master of Science (S.M., Systems Analysis), and Doctor of Science (Sc.D., Decision Theory).