Increased competition on all fronts between China and the US has narrowed the space for cooperation and amplified the risk of confrontation, which is likely to become a defining feature of bilateral relations for decades to come.
During the Trump presidency, Sino-US relations went from bad to worse. After experiencing robust economic success to become the world’s second largest economy in 2010, China’s confidence was then punctured by a bruising trade war with the US. The once triumphalist political atmosphere inside Beijing’s corridors of power was dampened. In the US, attitudes towards China hardened across the political spectrum; even Democrats who detested President Trump have since embraced many elements of his policies on China. This shift in thinking preceded the COVID-19 pandemic. Areas such as economics, technology, global governance and security have entered a phase of structural competition between the two sides.
The long view
President Richard Nixon’s overtures to China in the 1970s led to nearly five decades of rapprochement. However, China’s global influence has since grown in a way that has fulfilled some of Washington’s worst fears. Many elements of the bilateral relationship, such as military and technology cooperation, are now evolving into a far more competitive phase while some of the existing strengths, such as trade and investment, are rapidly diminishing. The relationship has transitioned from the cooperation and relative stability that existed under US President George Bush and Chinese President Hu Jintao in the early 2000s, into one characterized by volatility and competition.
As many senior Chinese officials have repeatedly suggested, ‘bilateral economic ties are the stabilizer for the overall Sino-US relationship’. However, as the Chinese economy has developed this stabilizing function has weakened. Beginning in 2010 with the 12th Five-Year Plan, Beijing has decisively shifted its economy from low-cost labour-intensive manufacturing into a model driven by innovation and advancing manufacturing exports. This transformation has reduced the degree of complementarity of the two economies, which are now in direct competition.
As President Xi Jinping has cemented his power over the last few years, his emphasis on the centrality of the Communist Party of China (CPC) in implementing structural economic adjustments has surprised many reform-minded intellectuals and policymakers, both in Beijing and Washington. Instead of greater market competition, Xi’s recipe for improving economic efficiency is to strengthen the party’s control over the economy. This is a sharp deviation from the assumptions of President Bill Clinton’s administration in the 1990s, when US officials believed that economic liberalization in China would induce a degree of domestic political change.
Instead of greater market competition, Xi’s recipe for improving economic efficiency is to strengthen the party’s control over the economy.
In addition, many US companies commercially active in China believe that their competition with home-grown Chinese companies is increasingly putting them at a disadvantage because of growing Chinese state support for domestic companies.
China’s industrial policies have also been a source of increasing economic competition between Beijing and Washington. China’s increased efforts to develop ‘indigenous innovation’ via monetary and other policy measures to boost domestic enterprises have become more prominent; yet these moves violate free-market principles and some elements of World Trade Organization rules.
For example, under the ‘Made in China 2025’ initiative, Semiconductor Manufacturing International Corps, a Chinese semiconductor producer, received a subsidy worth more than $100 million in 2017. Similar actions have further impeded foreign companies, including many US multinational corporations, that are operating in China and striving to compete effectively against their Chinese rivals.
Overall, increased economic competition between the two countries has narrowed the space for cooperation. This situation is not only a result of Xi’s economic policies but also the structural interplay between the world’s two largest economies. This structural reality is unlikely to change irrespective of who occupies the White House, now or in the future.
Rivalry across new frontiers
The world’s number one and number two economies are locked in a battle on many fronts that is unlikely to de-escalate. This rivalry extends beyond traditional economic domains, such as tariffs and unfair trade practices, and is exacerbated by a race for global technological supremacy.
Innovation and technological prowess are at the core of the Chinese leadership’s agenda for the next decade – a vision that assumes precarious bilateral relations with the US. Accelerated domestic innovation is intended to reshape China’s industrial production and supply chains, boosting the most high-value-added elements of China’s tech sector, which for now remain exposed to risks from overseas suppliers and vulnerable to shifting geopolitical trends.
In the latest (14th) Five-Year Plan, Beijing set several priorities including technology and innovation, which have become critical to national survival, rather than loose policy targets. No longer are they simply an aspiration – rather, they are vital for economic growth and sustained employment.
Throughout the plan, Beijing recognizes that its external environment is precarious and substantially different from that which existed in the aftermath of the 2008 global financial crisis. Increasing technological innovation is a path to becoming self-sufficient, which will better enable China to handle the vicissitudes of its volatile relations with the US.
As Sino-US technology competition has intensified, China is now focused on US efforts to hinder its aspiration to be a global technological champion, in particular following US sanctions against Chinese tech giants such as ZTE and Huawei. Beijing has doubled down on its goal of self-sufficiency and of overcoming ‘bottlenecks’ to continue its economic growth.
Beyond technology innovation itself, China and the US are also competing over who should set the international standards for technology usage. Beijing’s bold moves to promote its own technology standards have certainly ruffled some feathers in the US.
Foreign companies operating in China face the dilemma of whether they should accept Beijing’s technology standards as a trade-off for crucial market access. The notion of adopting Beijing’s standards in the Chinese domestic market has sparked some anger among US businesses, which have called on Washington to address the issue of standard-setting.
Global governance is another area where China and the US have deepened their competition over several years. As pointed out by a former Obama administration senior official, ‘the core global governance challenge for US-China relations is that both countries are selective revisionists. Neither are status quo powers interested in maintaining the current international system, and both want to reform it, but for different reasons and in different ways’.
For Beijing, global governance agenda-setting is all about projecting China’s ‘discursive power’ as well as determining international norms and widely adhered-to standards.
The US political establishment has been largely concerned about Xi’s quest for global governance agenda-setting power. Washington policymakers fear that the prominence of the CPC under Xi has eroded limited economic autonomies that were permitted in China’s commercial sector following Deng Xiaoping’s post-1978 reforms.
Recent coercive and restrictive interventions in the domestic economy may well be extended internationally when it comes to Chinese overseas development assistance, including ultimately the promotion of the so-called ‘China model’. This model could undercut the international norms governing aid policy, namely the synchronized and parallel encouragement of good governance and democracy promotion.
Yet, China’s ‘no strings attached’ approach to official development assistance has been relatively attractive with partial but notable success in Africa, Latin America and Southeast Asia. Some scholars contend that Xi is neither promoting an authoritarian alternative nor interested in undermining democracy but rather is seeking validation of China’s governance model and ensuring that it is perceived as being as legitimate as the approach adopted by Western democracies.
In line with this interpretation, some have pointed out that it is far too simplistic to suggest that China, despite its authoritarian model of governance, is seeking to directly overturn Western notions of order. While Chinese leaders use cultural nationalism and Marxist-Leninist dialectics to bolster their legitimacy at home in conventional ideological terms, overseas they are increasingly seeking to present the history of Chinese internationalism in terms that pre-date the CPC’s rise to prominence and credit Chinese nationalists (the Kuomintang) for their defining role in helping to shape the post-1945 order.
Efforts to appropriate this history and link it to contemporary China’s policy influence in the United Nations and other international forums are an attempt to protect the country against charges that it is a non-status quo power aggressively seeking to transform the norms and principles of international politics. As one scholar observed, ‘there is discernible logic in Chinese efforts to make a legitimate case for a non-confrontational basis for its new form of global engagement’.
Notwithstanding this reframing of China’s overseas posture by Chinese officials, particularly its foreign diplomats, US policymakers remain alert to a possible convergence of China’s domestic political developments with its foreign affairs orientation via the enhanced reach of the CPC under Xi. In particular, Washington and many other G7 members fear that organizations supported by the CPC United Front Department – an initiative founded during the Second World War that has built strong connections with many overseas Chinese entrepreneurs – may meddle with or subvert the domestic politics of democracies around the world in an effort to improve attitudes towards China, whether through the activities of Confucius Institutes or by seeking to influence the views of overseas Chinese diaspora communities.
There is an emerging frontier of US–China competition being waged through a battle of ideas, if not outright ideological confrontation. This has in turn generated a vibrant debate about whether the so-called ‘engagement strategy’ of fostering increased cultural exchange between the US and China has largely failed to produce any results in terms of facilitating Chinese domestic political change.
Bilateral recalibration and prospects for reduced enmity under Biden
Over the summer of 2020, President Xi Jinping and other senior Chinese officials noticeably steered clear of direct public comments on increasingly provocative US actions. Instead, they left the foreign ministry, and particularly some hawkish Chinese diplomats, along with the nationalist Chinese tabloids (such as the Global Times) to fight back against foreign criticism. To Beijing, managing the country’s economic adjustments while maintaining social stability has been paramount to the CPC’s legitimacy. This left Xi less interested in his US counterpart’s social media presence, particularly the coordinated effort by the Trump administration to brand COVID-19 – or the ‘Chinese virus’ as Trump framed it – as the source of America’s ills.
Even as the Trump administration stoked bilateral tensions in a variety of areas, Beijing walked a tightrope: balancing its desire to avoid being seen as weak at home with the need to prevent relations with Washington from spinning out of control. That is a key reason (in the authors’ judgment) why Xi waited more than three weeks before sending a formal congratulation letter to Biden as president-elect following the 2020 presidential election. Beijing’s leaders had been nervous about the prospect of heightened belligerence and retaliation from Trump during the post-election transition period between November 2020 to January 2021.
For Chinese leaders, the Trump administration was seeking to incite irrational behaviour from Chinese officials during the presidential campaign, with the intention of weakening bilateral ties and boosting Trump’s chances of re-election by capitalizing on an anti-China message. However, neither during the election, nor subsequently, has it been in Beijing’s political or economic interests to be pitted against a Western united anti-China front reinforced by a more combative US.
Some Chinese commentators were hopeful that a Biden victory might usher in a more peaceful chapter in bilateral relations, one in which Washington and Beijing will decide to prioritize cooperation and de-escalate tensions over security, human rights and trade.
Judging from the composition of Biden’s foreign affairs team (particularly the nomination of Anthony Blinken as secretary of state and the appointment of Jake Sullivan as national security advisor), one might expect a diminution in dramatic and combative rhetoric aimed at China, along with the continuation of a hard line against Chinese industrial and foreign policies. Nevertheless, any hope of a new ‘soft’ China policy is wishful thinking given the continuing intense debate over China within the US political establishment. A broad bipartisan agreement on a sharp and swift departure from a previously accommodating posture of ‘engagement’ with China appears here to stay.
Biden has made it crystal clear that his diplomatic priority is to form a so-called ‘democratic alliance’ around the world to put pressure on China to change its behaviour. Biden’s team plans to reclaim the US’s global leadership on many transnational issues, such as climate change and on global vaccine supply, which may create renewed opportunities for partnership with China. In short, in the words of one seasoned observer, the US approach towards China in the new administration can be neatly summed up as ‘confront where you can, cooperate where you must’.
More positively from a global perspective, if Biden restores the US commitment to defending a rules-based order, with a focus on fostering multilateralism and rebuilding relationships with democratic allies, the US is likely to be more secure and less fearful of the potential implications of China’s rise. However, one cannot be sure that this will be the only direction of travel, given how volatile and complex bilateral relations have become since the 2008 global financial crisis.
If Biden restores the US commitment to defending a rules-based order, with a focus on fostering multilateralism and rebuilding relationships with democratic allies, the US is likely to be more secure and less fearful of the potential implications of China’s rise.
Past expectations that China’s economic system would converge with that of advanced industrial economies have evaporated, as Beijing has developed a more explicitly state-led economy. Xi’s famous ‘new form of great power relations’ or any related form of a G2-style US–China cooperation have failed to gain much currency or popularity among Western governments and policy circles.
On the other hand, if Biden, in keeping with a more values-centred approach to foreign policy associated with past Democratic administrations, chooses to focus on normative human rights issues – such as combating repression in Xinjiang or protecting the democratic status of Hong Kong – then bilateral relations may become more fractious, especially if there is pressure from public opinion and politicians in Congress to address the values question.
For now, there appears to be widespread support in the US and around the world for a less dramatic, less overtly confrontational approach towards China but one which nonetheless seeks to address specific grievances in a targeted and calibrated manner. The US should be willing to use targeted sanctions and implement policies in partnership with allies and via multilateral institutions to manage China’s rise. This view is endorsed by many political figures from Berlin, Brussels, Tokyo and Washington.
China’s options: dual circulation
Beijing continues to practise its conservative maxim that no matter how complicated the international situation becomes, China must prioritize the management of its own affairs. This has resonated loud and clear throughout the drastic downward spiral of US–China relations. As a result, the term ‘dual circulation’ (shuang xun huan) has entered China’s domestic and foreign policymaking lexicon. The implication of the term is that China must prioritize its domestic economic demand and supply – in effect its ‘internal circulation’ (the combination of production, distribution and consumption at home) – to guard against a worsening international environment and in particular excessive reliance on the country’s export-led development strategy (the ‘external circulation’).
In presenting the ‘dual circulation’ strategy as part of the 14th Five-Year Plan, the Chinese government also stressed (without explicitly referring to Sino-US relations), that the ‘international balance of power has shifted profoundly with unprecedented challenges emerging’. For the first time, a substantial section on foreign affairs was incorporated into a policy document designed primarily for domestic economic planning.
Judging from a series of official Chinese press releases, it is clear that China’s fundamental strategy towards the US will not change. Beijing’s approach remains one of negotiating, communicating and avoiding escalation. In the words of Chinese officials and scholars, dou er bu po (‘struggle but do not break’). This mantra reflects the policy consensus in China on how to manage US–China relations with no sudden departure from previous policy.
China has announced that it ‘will favourably consider joining’ a reformed version of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), originally aimed at excluding China. Xi’s surprise signal of willingness to join the CPTPP came after China joined 14 other countries – including Japan, South Korea, and the Southeast Asian nations – in signing the Regional Comprehensive Economic Partnership (RCEP) on 15 November 2020. The RCEP envisages the creation of the world’s largest free-trade zone with a population of 2.2 billion.
The US currently belongs to neither of these two trade pacts. Biden has not yet clearly indicated whether the US will rejoin the CPTPP. There are concerns in Washington that the US withdrawal from the CPTPP consolidated China’s status as the regional economic hegemon and offered Beijing a pathway to undermine US influence in Asia, where traditional US allies are economically much more dependent on China.
The CPTPP imposes stringent entry barriers to enforce intellectual property rights protection, labour conditions and rights, and a significant reduction of state subsidies. Given this, China’s declared intention to join the CPTPP suggests that it may be willing to implement reforms that will reassure critics over its internal economic policies – and in the process defuse tensions with a frustrated US.
Beijing’s implementation of long-awaited economic structural reform is in China’s interests, just as it is in the interests of many developed countries to insist on promised reform from the Chinese leadership. By resuming stalled market reform, Beijing will reap economic benefits and will calm ties with Washington and its other trading partners.
