On January 19th, the Institute for China-America Studies (ICAS) co-hosted a public event in Atlanta with the Carter Center, Emory University and the National Institute for South China Sea Studies to discuss the outlook for U.S.-China relations and how the U.S. midterm election results may have impacted it. Given that the foundations of U.S.-China cooperation were shaken to its core in 2018, the framework of this conference sought to reflect on the milestones achieved since the normalization of U.S.-China relations, and thereby honor the far-sighted vision and accomplishments of President Jimmy Carter and Deng Xiaoping. That said, old and new challenges will continue to shape one of the world’s most important bilateral relationships in 2019, and these challenges must be addressed constructively. The team at ICAS had the opportunity to speak on several of these delicate issues in Atlanta, furthering the dialogue necessary to creating a pathway forward towards healthy cooperation and competition between the two nations.
Opening Remarks
Panel I: U.S.-China Political and Security Issues
It was the panel’s view that U.S.-China relations are currently poised at a critical juncture. Not since the normalization of relations 40 years ago has the bilateral relationship been tested so severely. There have been a few instances during these four decades when U.S.-China relations faced significant near-term turbulence, such as in the immediate aftermath of the Tiananmen Square Incident. But at these moments, senior policymakers at both ends were determined to mediate disputes more responsibly and guide the bilateral relationship onto a healthier track. That does not seem to be the case any longer. At least on the U.S. side, that mature supervision is lacking today –in turn, weakening the structural foundations of the relationship and opening it up to dangerously adversarial possibilities.
Within the U.S., there is broad and bipartisan support for a markedly firmer policy towards China. The ‘China threat’ theory is real, has bipartisan appeal, and needs to be fully internalized by Beijing. U.S-China relations, at least as seen through Washington’s lens, can no longer be characterized as win-win cooperation. At best, it could be framed as ‘win-win competition’, with healthy competition hopefully leading to productive outcomes. But far worse outcomes could also ensue.
The blame for the deteriorating state of the bilateral relationship should not be laid only at the doorstep of the Trump Administration. It is true that the Administration has been erratic in its China policy and is guilty of poor management of the relationship. But there is ample blame to go around and both sides need to bear their share of guilt. Ever since the aftermath of the global financial crisis of 2008-09, China has steadily broken its shackles and insistently asserted itself in its own neighborhood and beyond. The civic space for political openness has been reversed during this past decade. These are noteworthy issues of concern that U.S. policy makers simply cannot glaze over. This backsliding on China’s part also erodes the broader political and civic foundations on which the bilateral relationship is constructed.
Looking ahead, the need of the hour in U.S.-China relations is for honest and direct talk with one another. Appeal to the shared interests among the two countries is insufficient. The hard political, strategic, economic and civic/human rights issues that divide the two countries, and societies, must be grappled with head-on. And particularly on this front, China must adopt a laser-like focus to comprehensively address the drivers of the U.S. (and European) business community’s grievances with China’s policies and practices. Bilateral economic ties, and the U.S. business community in particular, has been the ballast that has steadied the ship of U.S-China relations over the past four decades. Without Beijing addressing the growing basis of their discontent and disenchantment, U.S.-China relations will be a lot more unsteady for the next few decades, going forward. The U.S., on the other hand, must commit to the responsible management of this relationship, and champion the joint equities that underpin it and make the relationship critical not just from a bilateral perspective, but also regionally and multilaterally. Furthermore, the U.S. should display more respect towards China’s core interests, with the Taiwan issue at the head of this list of inalienable interests.
Panel II: U.S.-China Trade, Investment and Economy Issues
It was the panel’s view that the U.S.-China trade, investment and economic relationship, akin to the broader political relationship, is facing challenging times and is at an important inflection point. The 90-day truce called by President Trump and President Xi is a welcome breather from the aggravated tensions that have characterized the trade and economic policy interactions over the past twelve months. But unless this period is utilized wisely by both sides, the aggravated tensions could yet return and fundamentally disrupt the four-decade long period of productive commercial exchange and co-existence.
The Trump Administration’s decision to impose tariffs on Chinese exports was not a wise one. The tariffs serve as a tax on American consumers and it has only had modestly-negative employment and growth effect on the Chinese economy. The tariffs have not made any significant dent on the U.S.’ overall trade deficit either. The trade re-direction channel has ensured that China’s export losses have become developing Asia’s (Vietnam, Thailand) export gains. And the foreign supply chains located on Chinese soil are unlikely to pack-up and leave the country just because of the imposition of tariffs.
That said, there are fundamental issues pertaining to Chinese policies and practices which are of concern to American business. These concerns should not be taken lightly. In fact, the U.S. business community has reached a tipping point regarding its disenchantment with Chinese practices and Beijing is at risk of losing its strongest advocate within U.S. policy circles. These concerns range from relative lack of market access, allegedly-coerced technology transfer, pressures to license valuable intellectual property (IP) on non-market terms, the anti-competitive and oligopolistic practices of Chinese state-owned enterprises (SOEs) in the marketplace, non-market considerations-based industrial subsidies doled out to SOEs and other state-linked companies, vague and arbitrary administrative and regulatory practices, and alleged state-linked commercial espionage. Many of these policies and practices sit awkwardly with – or outright do not conform to – China’s WTO obligations.
To cope with the market-distorting effects of these Chinese policies and practices, the Trump Administration and the U.S. Congress rewrote its foreign inward investment screening law as well as its export controls law. Two-way commerce in ‘emerging and foundational’ technologies between the two counties is likely to be significantly impacted as a result. There has already been a sharp decline in Chinese cross-border mergers and acquisitions activity in the U.S. – although many smaller deals continue to be finalized beyond the public glare.
Looking ahead, there is a ray of optimism, nonetheless. At bottom, both countries share self-regarding economic interests that are aligned. For the U.S., particularly US business, there is far too much money on the table (goods to be sold in the Chinese marketplace) over the next quarter century to walk away from this market. But it cannot be at the expense of compromising on basic fairness. For China, a level-playing field and liberalization of its inward investment regime is essential for its transition to a new productivity-led development model, whose growth drivers could deliver the country to the doorstep of its developed country aspirations. With prudence, patience and reform, both sides could yet use the 90-day truce to their mutual advantage.
Panel IV: U.S.-China Maritime Issues
It was the panel’s view that a stable but unsatisfactory equilibrium obtains in the geopolitics of the South China Sea. It is a stable equilibrium because this body of water is not about to degenerate into a shooting war anytime soon. There will be no kinetic action in the South China Sea and the fear that miscalculation by any one side in this multi-cornered contest will lead to the outbreak of hostilities is somewhat over-blown. It is an unsatisfactory equilibrium however because the underlying disputes in this body of water, involving both regional and extra-regional countries, will not be resolved anytime soon. Worse, as a result of the mutual mistrust between the U.S. and China, the South China Sea issue has been transformed from one related to competing sovereign rights and jurisdiction claims to one involving geo-strategic competition in the Western Pacific. A full-blown security dilemma that reaches to the very well-springs of their rival strategic cultures has taken hold in the South China Sea. As a result, the top priority for both the U.S. and Chinese, and for their respective navies, is to exercise prudence and exemplary risk management measures so as to lower the level of persistent tension.
The South China Sea arbitration case was a key tipping point in the geopolitics of the South China Sea. It was also an unfortunate episode. Of course, it has gravely damaged China’s standing on this subject within the global community of nations. Besides, some of China’s maritime claims in the South China Sea, particularly its Nine-Dash Line, are hard to justify and deserve to be criticized. But that said, the arbitration case has also been a setback to the cause of international law. The tribunal should never have, in the first instance, found jurisdiction to even rule on the case – given China’s Article 298 reservations. Just as the US has consistently opposed the assumption of jurisdiction by international tribunals without adequate proof of consent, so also was China right to be critical of the tribunal’s excessive jurisdictional reach. Going forward, it would be useful if the principle that the Article 298 reservations are self-defining can be confirmed. Not only would this vindicate China’s reasonable reading of Article 298 but even more significantly it would enable China to return to maintaining its maritime claims but without enforcing them. Hopefully, along the way, China too will revisit some of its non-conforming maritime claims (baselines related particularly) and navigational practices.
The Law of the Sea-related practices in the Arctic area, under the aegis of the Arctic Council, could provide some refreshing implications and ideas for managing the quarrels in the South China Sea. Perhaps the most important takeaway from the Arctic Council’s practices is that member states of the Council chart the (LOS-consistent) parameters of engagement and cooperation for all parties while extra-regional observer states defer and operate within these parameters. Applied wisely, this principle could stabilize interactions among, both, claimants in the South China Sea as well as interactions between coastal states and extra-regional states in the South China Sea. Separately, the Arctic is also an arena where the U.S. and China for the most part enjoy converging interests, including on issue areas that touch upon aspects of the Law of the Sea – be it conservation and climate change, marine scientific research, or construction of port and infrastructure facilities. The two countries should aim to realize such cooperative activities, which could play a useful role in stabilizing the troubled state of their current ties.
