How China and the US went from ‘90% Cooperation to 90% Competition’

Political scientist Elizabeth Economy gives her view on the big issues in the relationship and why US policy on China has changed.

Elizabeth Economy of Stanford University lays out the new path in US China Relations

· US government is investing US$39 billion into manufacturing, and an additional US$13 billion into R&D, but it has attracted over US$400 billion in private sector investment.

· Export controls are having mixed success.

· China has found supporters for its views on the primacy of economic development rights as opposed to individual, political and civil rights.

· Immigration is clearly an issue that the US needs to address. Some people have forgotten that, with very few exceptions, all Americans are immigrants and have been the lifeblood of our economy. We have thrived as a country because we attract the best and the brightest from all over the world.

· The United States has strong economic and political fundamentals, but to continue to play a leadership role globally, it will need to develop a vision of itself and the international system for the 21st century that is broadly appealing and reflects the interests and needs of others.

· if you want to understand why US policy towards China has changed, it is because China has changed.

[ABS News Service/30.09.2024]

Joe Biden’s administration has launched policies on semiconductors such as the Chips and Science Act, expanding export controls and forming new partnerships. How effective has this strategy been?

The Chips and Science Act is about ensuring that the United States is not overly dependent on any one source, namely Taiwan, for such a critical technology, and about ensuring that the United States can remain competitive, not only as an innovator but also as a manufacturer. So at the heart of the Chips and Science Act is bringing back advanced manufacturing to the United States, and ensuring US competitiveness and supply chain resilience.

The US government is investing US$39 billion into manufacturing, and an additional US$13 billion into R&D, but it has attracted over US$400 billion in private sector investment into manufacturing as a result of the Chips and Science Act. It’s moving at an incredibly aggressive pace, and I would say that has been quite successful to date.

In terms of export controls, those are really directed at chips and equipment that the United States believes can be used for military applications that would undermine US national security.

I don’t think that we have seen a full study of the efficacy of export controls. My preliminary assessment based on what I’ve read is that the export controls are having mixed success. But I think that more work needs to be done to assess the real implications or the ramifications of the export controls.

So it might be a little too early to tell?

Yes, I think so. It is also important to note that China is an incredibly innovative society, and coupled with IP theft and forced technology transfer, whatever delays the country may face are likely to be reasonably short-lived because it will find ways to advance its own industry.

Do you think the emphasis on national security has crossed the line?

China has had a much longer history than the United States of significantly limiting foreign trade and investment on the grounds of national security. The United States has come much later to the game. And because this is a new area of policy, there is the potential to swing too wide, and then to have to recalibrate.

China has been on a more consistent trajectory of having national security be the priority through programmes, for example, such as military-civil fusion. There have also always been sectors in China that have been largely closed to foreign investment, such as the media sector.

Policies are going to evolve in the United States, and different people will have different lines that will represent a bridge too far. Once we are talking about consumer goods or services that have no national security applications, you have definitely crossed the line.

How much room is there for business on both sides to thrive in this climate, and how has it changed US-China economic ties?

There’s no doubt that both countries have significantly ramped up their rhetoric and expanded their rules around what parts of the economy need to be protected in trade and investment on the grounds of national security.

But it is important to find the right balance.

There is an enormous amount of space to continue to trade and invest with China. [Commerce Secretary Gina] Raimondo has also said that the US wants its companies to succeed in China. There is no reason that we don’t want Starbucks selling lattes. We want non-security oriented trade and investment to continue and to thrive. It is an important source of civil society connectivity. But I think that’s not a message that either country has made clearly and strongly enough. There’s room to do more on that side of the ledger.

Washington has accused China of having an overcapacity problem on solar sales and EVs, and tariffs have been imposed. What economic or trade policies can Beijing expect from Washington in the rest of Biden’s term?

It is important to recognise that this issue of overcapacity with China is not simply an issue for Washington. We tend to frame everything in a US-China competition narrative. But the truth is that this isn’t even just an advanced economy issue. We’ve seen Brazil, India and Mexico also raise concerns about Chinese overcapacity in the clean energy sector.

This is not about the United States versus China, but actually an issue of how China is developing its economy, the choices that it makes, and the impact of those choices on the global economy.

The United States is in the midst of trying to develop its own clean tech sector. It passed the Inflation Reduction Act and is investing heavily in clean tech here at home. But it also has seen significant investment from European and Asian advanced economies into the US clean tech sector as a result of the IRA. In that context, it is very challenging to have heavily subsidised Chinese clean tech companies exporting but actually not making profits and swamping other markets. That’s why you’ve seen these new tariffs put in place.

Beyond that, we will likely see the administration put out a final ruling on the outbound investment. We will probably see additional export controls. And there may be additional secondary sanctions on Chinese companies that are exporting restricted products and technologies to Russia. I don’t see any let-up in the use of US defensive economic tools before the election.

The US and other G7 members unveiled the Partnership for Global Infrastructure and Investment in 2022. What’s your assessment of PGII as a counter to China’s Belt and Road Initiative?

PGII is not going to be a counter to the Belt and Road Initiative. It is an effort to do investment differently – with stronger financial and political governance standards. It is not going to attain the same level of financing and investment that the belt and road has.

Maybe over a very long period of time, it could be a true alternative to the Belt and Road Initiative, depending on what happens to belt and road support in China.

China has a state-directed model of the Belt and Road Initiative. The US is a larger source of overall investment in Africa, Southeast Asia and Latin America than China, but it’s private sector investment. The US has enormous investment by foundations – the Gates Foundation in Africa, for example. But that doesn’t get counted as US investment.

And so the implications of it both in terms of policy and in terms of just brand recognition don’t redound to the US government in the same way that the Belt and Road Initiative redounds to China.

A recent Gallup report said the US had lost its place as the most influential global power in Africa, while China and even Russia gained ground. What’s driving these changes?

China and Russia as governments appear more present in Africa. The US image has also suffered throughout much of the world as a result of its strong support of Israel.

There are also specific countries in Africa where the United States has taken actions that are unpopular. For example, Washington removed Uganda, Niger, Gabon and the Central African Republic as beneficiaries of the African Growth and Opportunity Act for human rights violations.

Frankly speaking, these polls tend to go back and forth year after year. A better measure of influence and popularity might be where Africans want to go to study and live. When China and Russia supplant the United States on that metric, I will be concerned.

Let’s move on to the economy – how do you see the state of China’s economy overall?

I’ve always understood the Chinese economy as being very complex, like the United States, which means that it is quite reasonable to have strengths in some parts of the economy and weaknesses in other parts.

I also think of the Chinese economy as two economies. There is much of the coastal economy and some major interior regions like Chongqing, which essentially operate at the level of advanced economies. They possess world-leading talent and technology, and have incredible innovation and manufacturing ecosystems.

Then there is most of the interior part of the country and some parts of the coastal economy that have, in many respects, been left behind in terms of the Chinese economic miracle.

So it wouldn’t surprise me to see positive growth as a result of significant government investment in technology and advanced manufacturing in the already developed part of the country but at the same time continued weakness in much of the rest of the country.

Xi Jinping is not investing heavily in bolstering the social welfare net and building up consumer demand. So I would anticipate, again, that you’re going to see big growth numbers based on government investment and the coastal economy’s success, but this growth is not necessarily going to be felt by the average Chinese consumer or the interior parts of the country.

What is your judgment on China’s economic development and what does it mean for the alternative order touted by Beijing?

In 2017, Xi Jinping said that China offered an alternative model to that of market democracy. In that context, how China’s economy develops, how it distributes the benefits and wealth of its economy, the strides that it makes in cleaning up its environment, the relative degree of political liberalisation – all of these things play into how appealing the rest of the world might find China as a model.

The strength of the Chinese economy is one of the most important elements in terms of other countries’ interests in emulating China. It is also what enables China to continue to pursue its Belt and Road Initiative, which has been very successful and helped fill the gap in global infrastructure needs, but also has had some challenges in terms of the way that it’s been implemented.

There have been many protests in belt and road recipient countries around the lack of environmental and labour safeguards, the lack of transparency in deal-making, and in the level of debt some countries have incurred.

But overall, it’s had a big impact and it’s been important to China’s overall ability, as Xi Jinping says, to move towards centre stage or reclaim a degree of centrality on the global stage.

In this context, why is the Sinocentric world still less appealing to the developing world than what the US offers? How do these two models compare right now for developing countries?

Before we talk about the Sinocentric model and its appeal, we have to understand the elements of it and the different international audiences that will be affected.

The Sinocentric model includes, for example, China’s moves to reclaim territory that it considers to be its sovereign territory. That’s not something that most of its neighbouring countries find appealing, because it means that they’re going to lose territory. So that’s not an element of Sinocentrism that many countries latch on to.

If you’re talking about the desire to push the United States out as the dominant military power in the Asia-Pacific or the Indo-Pacific, I think you would also find that most countries in the region want the United States to remain as a hedge against China’s rising military power and aggression.

When you talk about the Belt and Road Initiative, there are many aspects – for example, China’s desire to embed its policies, its technical standards, its technology, globally – that many countries might find appealing.

Again, how the Belt and Road Initiative has been pursued may not be appealing, but a new high-speed rail or bridge may be very appealing.

China’s push on de-dollarising the global economy is also clearly appealing to many countries. There is a very interesting nuance to China’s policy evolution. For many years, China has pushed the notion of internationalisation of the renminbi but did not have much success.

On other areas of global governance, China has had mixed success in advancing its normative views. It has not made much progress in advancing its preference for state control over the internet or the dissolution of the US-led alliance systems. But China has found supporters for its views on the primacy of economic development rights as opposed to individual, political and civil rights.

How should the US formulate its policies in this situation, amid a pretty intense rivalry with China, and what should be the priorities?

I think the most important lesson that the United States should take from China is to develop a vision for where it wants to be in 2050 and beyond and what kind of world it envisions.

One of the challenges for the US with a four-year election cycle is that it is very difficult for any one president to articulate a long-term vision, pursue it, and then ensure that it will be maintained over time.

But it is essential. Otherwise, you are constantly in a reactive mode, responding to the impulses of the moment. You may be trying to hold on to a version of the international system that isn’t flexible or adaptable enough or that doesn’t represent the current moment as well as it should. Having a long-term strategic vision also enables you to set priorities and make more considered policy trade-offs against that vision.

China also effectively leverages its companies to realise its broader foreign policy objectives. The United States doesn’t control its companies in the same way that China does, but it could nonetheless do a better job of engaging with its private sector.

The private sector is one of the great strengths of the United States. It is highly innovative and globally recognisable. The US educational system is still among the best in the world, and many people – including hundreds of thousands from China – want to study, work and live there.

Immigration is clearly an issue that the US needs to address. Some people have forgotten that, with very few exceptions, all Americans are immigrants and have been the lifeblood of our economy. We have thrived as a country because we attract the best and the brightest from all over the world. They want to live and work in an environment that is both politically free and economically dynamic.

The United States has strong economic and political fundamentals, but to continue to play a leadership role globally, it will need to develop a vision of itself and the international system for the 21st century that is broadly appealing and reflects the interests and needs of others.

Is there a consensus in the US on China being a competitor or risk? There is more bipartisan agreement on the need for harsher economic policies on China – has that consensus been formed more or less in recent years?

There is bipartisan consensus that China is a near-peer economic and military competitor and that it is the greatest long-term strategic challenge that the United States faces.

It is important again as we are framing this to bear in mind two things.

First, as Chinese international relations scholar Wang Jisi has said, if you want to understand why US policy towards China has changed, it is because China has changed. The United States had the same policy of engagement for decades. So, this new bipartisan consensus is a natural reaction to all the changes we see in China primarily, although not entirely, initiated by President Xi Jinping. He has made China much more repressive and authoritarian at home and much more ambitiously expansive abroad.

The second thing to bear in mind is that this concern about the direction in which Chinese domestic and foreign policy has been moving is not unique to the United States. Many countries find dealing with China more challenging today than previously. They have all experienced China’s Wolf Warrior diplomacy, its secrecy around Covid-19, its military assertiveness in the Indo-Pacific and its support for Russia’s invasion of Ukraine.

Chinese overcapacity is another concern that many countries share and causes them to see China through a more competitive lens.