Imagining Engagement, Part II: Making the Case for 'Why'
A second part of a three-part series: Making the case for the benefits of US-China engagement.
Bilateral engagement is a moving target. That’s especially the case when it comes to the United States and China, where conflict escalation has taken on a life of its own in the past seven years. Last week, I underscored five parameters of an ideal engagement: aspirational goals, common ground, a mutual policy agenda, people-to-people exchange, and a security-based verification framework. In what follows, I will focus on the “whys” to the case for engagement — specifically, why this outcome is in the best interests of both the United States and China. Part III will conclude with an examination of the realpolitik of engagement — what it will take in practice to shift the relationship dynamic from conflict escalation to conflict resolution. Apologies for the length of each of these missives.
The crux of the case for US-China engagement involves a rejection of autarky. That implies, of course, a re-commitment to some form of globalization. Over the years, globalization has occurred at many different levels, including country-to-country trade in goods and services, financial capital flows, exchange of digitized information, and cross-border labor flows. Since 2018, conflict escalation has sharply diminished US-China engagement on all these counts, putting the two superpowers on a path to all-around decoupling. At a minimum, the case for re-engagement rests on a recognition of the benefits that might be realized if such a decoupling were to be avoided. In the end, two great powers should, of course, aspire to much more than the minimum.
Economics and trade. Economics and trade have long played a critical role as the anchor to the modern US-China relationship. To a large extent, this rests on the key Ricardian pillars of globalization — that the benefits of cross-border exchange of goods and services reflect the comparative advantages that both nations bring to the arena of international trade. Reflecting China’s extraordinary economic development, this dimension of engagement has evolved dramatically over the past fifty years. In the early days of engagement, China became an important source of relatively low value-added products, like shoes and toys, that not only enabled its own export-led growth but also expanded the purchasing power of America’s hard-pressed, income-constrained consumers. As China moved up the value chain, cross-border trade of goods and services followed suit for both nations, turbocharged by the “unbundling” of product-specific exchange into piecemeal components of global value chains.
By 2017, prior to the onset of the first round of Trump’s tariffs on China, US-China engagement had blossomed into the most important economic relationship in the world. The United States had become export-led China’s largest source of foreign demand and China had become America’s third largest and most rapidly growing major export market. At the same time, China filled an important void for deficit-prone, saving-short America, surpassing Japan in 2015 as the largest foreign holder of US Treasuries. This enabled the United States to live beyond its means — as those means were delineated by domestic production and income generation — by effectively borrowing surplus saving from a consumer-short Chinese economy.
Initially, this was a mutually beneficial codependency, with both nations relying on each other to satisfy their economic growth imperatives. But the successes of Chinese development altered the rules of engagement between the two nations. Increasingly, America’s growth struggles were framed in terms of a “China shock,” focusing more on allegations of China’s unfair trading practices, including but not limited to, intellectual property theft, forced technology transfer, unfair subsidies to state-owned enterprises, and predatory practices of Chinese multinational corporations. This one-sided characterization overlooks saving-short America’s own responsibility for its massive trade deficit. Developing a deeper understanding of the macroeconomic forces behind US-China trade imbalances is a first-order challenge to re-engagement between the two nations.
Collaborative problem solving. Today’s world is hardly lacking in existential threats. Climate change, post-pandemic health concerns, cyber security, and artificial intelligence all pose formidable challenges to sustained global prosperity. Global problems require global solutions, enabled by multilateral collaboration to frame and develop those solutions.
Just as there is no room for an “America First” resolution to this confluence of global challenges, the same can be said for Chinese domination. This will require both nations to face up to the fallacy of single-country solutions to the world’s growing agenda of existential problems.
It won’t be easy for the world’s two leading nations, the United States and China, to find common ground in addressing the formidable problems they both face. In large part, that is because both nations have sharply different perspectives on the values and forces that shape their respective approaches to global governance. Xi Jinping’s so-called Three Global Initiatives — the Global Development Initiative, the Global Security Initiative, and the Global Civilization Initiative — seem very much at odds with the Western perspective of a rules-based international order. Resolving the conflict between China’s Party-based ideological approach to governance and the West’s value-based perspective is crucial to remove a key impediment to re-engagement. A middle ground framed around the operational functionality of shared principles might be far more effective in unlocking the benefits of collaborative problem solving required of re-engagement.
Institutional catalysts. Finding such a middle ground on contentious issues between two countries is hard enough. Resolution at the global level is much tougher to achieve. Unfortunately, it often takes a wrenching crisis, even a war, to spur collective global action. In theory, the operational functionality of shared principles is best achieved under the structure of existing multilateral institutions such as the United Nations, the World Trade Organization, the World Health Organization, and the Paris Agreement of the UN Climate Change Conference (COP21). But theory and practice are two different matters. While multilateral institutions are designed to deal with the big existential issues that the world is facing, they are constantly in need of upgrading and even revamping as shifting circumstances dictate. Unfortunately, such reforms are often lacking.
The WTO is an obvious and important case in point. As the successor to the General Agreement on Tariffs and Trade (GATT), established as part of the Bretton Woods Accord in the immediate aftermath of World War II, the WTO has lost its way in recent years. Reflecting shifts in the global economy and trade relations — especially the advent of the digital economy — the WTO’s dispute resolution mechanism has been rendered all but dysfunctional as the United States has refused to approve new appointments to judicial panels of the WTO’s Appellate Body charged with mediating trade disputes. It is probably not a coincidence that the WTO problem reached a boiling point in 2019 when anti-China sentiment of the first Trump Administration gripped the political debate. Since then, the situation has gone from bad to worse, underscored by the recent introduction of congressional legislation that calls for outright withdrawal of the US from the WTO, which would deal a lethal blow to the rules-based global trading system.
As I will address in the final installment of this series, this increasingly toxic interplay between bilateral and multilateral tensions is yet another reason to underscore the potential of a US-China Secretariat to make a real difference in establishing a more robust institutional framework to deal with the seemingly inexorable rise of conflict. That is especially the case regarding the Sino-American trade conflict, which needs the full-time attention that only a permanent bilateral Secretariat can provide. The benefits of conflict resolution can only be realized if the United States and China both commit to a deeper institutionalization of their relationship, both at the bilateral and multilateral levels.
Innovation-led growth. The US body politic has a fundamental problem accepting that China may now be a peer competitor in many of today’s most advanced technologies. There is great dispute, of course, over that contention. But the broad consensus in official US circles is that China’s ascendancy as a techno-superpower has been accomplished by nefarious means through intellectual property theft, cyberhacking, forced technology transfer, and/ or other forms of industrial espionage. Yet, as my Yale colleague Yangyang Chen reminds me, the long history of innovation and invention is all too frequently punctuated by the more benign phenomenon of emulation, in effect borrowing or importing legacy technologies from others. The US is adamant that this “borrowing” has been criminal, both in terms of intent and action. Despite the deep conviction of these allegations, as I documented in Accidental Conflict, this is far from an open-and-shut case.
Moreover, as I also stressed in that book, the US federal government’s outlays on basic research R&D, long the seed-corn of innovation, has been declining since 1965. I am hard pressed to believe that it is just a coincidence that the Chinese technology threat has been elevated to such an extreme in America’s national debate at the same time the US has dropped the ball on its own investments in the key building blocks of innovation. Could this battle over innovation competition resemble other aspects of the US-China conflict, which I have traced to the confluence of false narratives afflicting both nations regarding the intentions of each other? False narratives, as I have framed them, arise both out of political expedience and fear: It is far easier to blame others for self-inflicted problems. The innovation conflict appears to be little different in this key respect.
The extraordinary AI breakthroughs of DeepSeek, in conjunction with the stunning resurrection of Huawei in the face of extremely tough US sanctions, gives considerable credence to the notion that China may well be a legitimate peer competitor in many key areas of advanced technology. America, a nation that has long thrived on meeting competitive challenges head on, needs to take the China innovation challenge seriously rather than bemoan the legalities of such a threat. A resolution of the US-China innovation conflict will inevitably require more collaboration than confrontation, both at the scientific and oversight levels. Only then can innovations be seen as a benefit to both nations rather than an advantage of one over the other.
Superpower détente. At a minimum, détente implies a reduction of hostilities. The hope, of course, is that détente will allow conflict escalation to give way to increased cooperation between the US and China. Part III of this trilogy on “Imagining Engagement” will assess what it might take to pull off this daunting transition. But first, some thoughts on the benefits of what might be gained from the more positive outcome of conflict resolution between the two superpowers.
The counterfactual is painfully easy to see: Increased conflict escalation leads to decoupling, zero-sum economic and political competition, and heighted risks of accidental conflict as a potential precursor to outright kinetic war. Détente not only avoids such worse-case developments, but it also offers possibilities of classic win-win outcomes for a challenged and complex world — namely peace and shared prosperity.
On a bilateral basis, détente between the two superpowers implores both the United States and China to crack the code of a deepening schism between two very different systems of governance and social hierarchies. The hubris of a rising China is now steeped in the rhetoric that “the East is rising while the West is declining.” Conversely, America’s growing fears of Sinophobia warn of a new Communist threat reminiscent of the Red Scare of the early 1950s. The hyper-nationalistic extremes of this new political mindset in both nations encourage suspicion, distrust, and confrontation. In doing so, that forestalls the collaboration required of renewed educational exchanges, joint scientific and medical research, and collective resolution of the shared existential threats stressed above — climate change, global health, and cyber- and AI-security. Moreover, in recent years, China and the United States have been on the opposite sides of two major wars — Russia-Ukraine and Iran-Israel — both of which pose grave threats to world peace. A superpower détente could have gone a long way in preventing such conflicts.
Engagement, or to be historically correct, re-engagement between the United States and China seems like a lost cause today. That is especially true if the relationship is framed in the psychological terms I have used in my last two books: The marriage of convenience that gave rise to a brief but flourishing interdependency, has ended in a classic conflict of codependency. Repairing the damage in an era of distrust and suspicion won't be easy by any stretch of the imagination. But I am arguing for just that. It is an increasingly urgent necessity for both the United States and China, to say nothing for a world in turmoil to think about re-engagement in imaginative terms. Can that actually happen? Am I hopelessly naïve in making the case for such a reversal in fortunes? I will attempt to take up those tough questions in the final installment of this effort.
Next: Imagining Engagement: Part III