The next crisis with China will be much harder to deflate

In his State of the Union address, President Biden alluded to the Chinese spy balloon incident in a single line that suggested an effort to contain the spillover from that episode. For its part, the Beijing government also seems to have tried to downplay it, expressing regret initially and using its censorship of media and social media to tamp down the flames of Chinese nationalism.

In the last such crisis, the Chinese government seemed to encourage anti-Americanism in its media. In 2001, a U.S. spy plane collided with a Chinese jet fighter, killing the Chinese pilot and forcing the U.S. plane to land on Hainan Island, where Chinese authorities took the crew into custody. After 11 tense days, the United States issued a letter of regret, which the Chinese characterized as an apology. Beijing then released the Americans. It is difficult to imagine an incident such as that one getting resolved so quickly and easily today.

We are watching something almost unique in history: a growing geopolitical rivalry between two nations that are also deeply interconnected economically. In the wake of the suspected spy balloon, last week brought news that U.S.-China trade in goods hit an all-time high of $690 billion, surpassing the previous record set in 2018 before the COVID-19 pandemic. That number seems especially remarkable when you consider it was achieved despite the tariffs that President Donald Trump placed on many Chinese goods, and those China placed on U.S. goods in response. It also runs counter to the Biden administration’s new rules preventing trade in certain high-technology items with the People’s Republic.

We are operating on two levels with China. One is geopolitical, where tensions have been growing rapidly. But the other is commercial, and it is determined largely by Chinese and American consumers and firms, not governments. That relationship remains deeply intertwined and interdependent. Can these two realms continue to move forward while working at cross-purposes? It seems highly unlikely.

In an essay in Foreign Affairs, former treasury secretary Henry Paulson notes during the 2008 global financial crisis good relations with China helped Washington avert another Great Depression. China held massive amounts of U.S. debt as well as U.S. housing bonds issued by Fannie Mae and Freddie Mac. Had Beijing sold those, it could have created a downward spiral for the U.S. economy with fallout around the world. But Washington persuaded Beijing not to sell, and in fact China used its own fiscal and monetary strength to boost the global economy. It is sobering to think the next global financial crisis — there will be one — will likely see none of that kind of policy coordination between the world’s two largest economies.

The geopolitical tensions are likely to grow quickly. Last week also brought news actually more significant than a wandering balloon. The U.S. Strategic Command, which oversees the U.S. nuclear arsenal, has informed Congress that China now has more land-based fixed and mobile intercontinental ballistic missile launchers than the United States. As relations between Washington and Beijing have deteriorated, Beijing has moved to rapidly build up its nuclear arsenal. It still has many fewer nuclear warheads than the United States, but, according to a Pentagon report last fall, it is on a path to more than triple its stock by 2035. At that point, we will be in a world in which three major powers each have large and sophisticated nuclear arsenals. Two of those powers, Russia and China, are allies, and both will be primarily targeting the United States.

And then there is Taiwan. We face a long-term buildup of Beijing’s military capability to invade or, more likely, blockade the island. But we also face potential short-term crises, including the one that will surely be triggered if House Speaker Kevin McCarthy (R-Calif.) does travel to the island and (even more provocatively) announces support for Taiwanese independence. Taiwan will be holding presidential elections in 2024. President Tsai Ing-wen cannot run again because of term limits, but her party has chosen as its likely candidate a man who says he is a “worker for Taiwanese independence.” So far, public sentiment suggests most Taiwanese do not want independence right now, preferring for the time being the ambiguous status quo that has allowed them to thrive and prosper. But that, too, could change if Beijing’s bullying ramps up.

Right now, Washington and Beijing have few guardrails to keep problems from escalating. China and the United States have no bilateral arms control agreements, unlike with Russia, or even ongoing negotiations about security. There are no military-to-military dialogues about crisis management. There is no continuous discussion between the two sides’ economic teams.

If the next crisis between Beijing and Washington is bigger than a balloon, it might prove much harder to deflate.