The US-China relationship: From Peaceful Coexistence to Economic Insecurity

A road to somewhere?

The Chinese word for contradiction is “máo-dùn” (矛盾). It is the amalgamation of  矛 (máo), the Chinese character for “spear”, and 盾 (dùn), which stands for “shield”. It goes back to a story in the 3rd century BC Chinese philosophical book Han Feizi:“A man trying to sell a spear and a shield claimed that his spear could pierce any shield, and then claimed that his shield was unbreakable. Then, asked about what would happen if he were to take his spear to strike his shield, the seller could not answer.” 

Janet Yellen’s visit to China is not devoid of such contradictions. During her four days stay in China, the US Secretary of the Treasury tried to diffuse some of the tensions boiling over between the two largest economies of the planet. Yellen’s visit came just a few weeks after Secretary of State Antony Blinken flew over to Beijing to deliver a special message from President Biden to President Xi. In substance, “Let’s keep doing business together while we disagree on a range of issues”. 

Yellen dashed any hopes of an across-the-board elimination of the tariffs imposed on Chinese goods five years ago by the Trump Administration. Let us recall that Donald Trump waged a commercial war and imposed successive rounds of tariffs on China in 2017-2018, in line with his November 2016 Make America Great Again (MAGA) electoral campaign. Trump accused the Middle Kingdom of exporting heavily subsidized goods to the United States, stealing American jobs in the process, and exercising unfair competition on US companies. In addition to the commercial war, Trump’s “dream team” of hawkish advisors and Cabinet members - most notably Steve Bannon, Robert Lightheiser, and Peter Navarro - also revived some Reagan-era policy tools and put together a Containment strategy aimed at hindering China’s access to critical technologies, like microchips, while pressuring US allies to relinquish their partnerships and dealings with China in High Tech. 

It is important to understand that while Donald Trump had his own style and views, the Anti-China rhetoric was shared across the political spectrum. Ever since the Great Financial Crisis, the DC political elites started to capitalize on a rising Anti-China sentiment among Americans. Hundreds of thousands of jobs were lost in manufacturing following the GFC, as a result of the Obama Administration's failure to support a swift recovery of the US economy and to understand how fast China gained in competitiveness. The COVID-19 pandemic added fodder to the Anti-China sentiment in the US, with popular explanations relayed on social media platforms that linked the origin and spread of the virus to the Chinese government. 

The Biden administration carried over that strategy and made it even more comprehensive and more sophisticated, as it sought to preserve US technological leadership in advanced microprocessors and in other components of the electronic industry value chain, at a time when China managed to create homegrown tech behemoths - the likes of Telecom equipment makers Huawei and ZTE, and Internet conglomerates Ali Baba, Tencent and Baidu. 

To be honest, this also coincided and came in reaction to increasingly assertive political campaigns - Made in China 2025 and Global Dominance by 2049 - waged by President Xi domestically, as he moved to consolidate his power grip on the Chinese Communist Party and on the broader Chinese society. Xi secured a third term and a potentially lifelong mandate by changing the institutional consensus that had been in place in China since the departure of Deng Xiaoping from power.

Peaceful Coexistence redux 

It is fascinating that Yellen talked at some point of “peaceful coexistence”, during her trip to China. This expression has been unused and unheard of in international politics ever since the end of the Cold War, and even before so. It is actually a translation from the Russian Мирное сосуществование - which has been theorized and used in the Soviet Union by Nikita Khrushchev. After his accession to power, following Stalin’s death and a bitter power struggle, Khrushchev used the peaceful coexistence concept to bring down his opponents and to reassure and assuage the West about the Soviet Union’s intentions, at a time when the latter finally managed to develop its own nuclear weapons and to achieve strategic deterrence, on par with the United States, a decade after a couple of Hydrogen bombs were dropped over Hiroshima and Nagasaki. 

At that time, Communist China also promoted its own version of peaceful coexistence. Notably, it was one of the core principles enshrined in the 1954 Sino-Indian Agreement. It was extended to all socialist and non-aligned nations at the Bandung conference in 1955 and then to the “Capitalist devil” - the United States - in the late 1960s and early 1970s. Nixon’s 1971 visit to China is often viewed as a pivotal moment in US-China relations. 

The Biden Administration’s China Problem

Coming back to Yellen’s visit to China, it is fair to say that expectations were low on both sides. The visit epitomized the internal contradiction or the dilemma that the Biden Administration has to manage in its relationship with China. 

Indeed, any perceived dovishness toward China would carry a significant political cost for Joseph Biden as he heads toward the 2024 election. On the other hand, China is vital for a broad range of US economic and financial interests - from the likes of BlackRock and Goldman Sachs still trying to “milk the Chinese cow” before it is too late, to Tech companies like Apple and Tesla which are still lured by the expanding Chinese consumer market. Beyond Wall Street and Big Tech, millions of US blue-collar and white-collar jobs depend on trade and investment flowing across the Pacific between the United States and China. A “hard decoupling” between China and the West would be a disaster not only for China but also for the Western advanced economies and for non-Western developing economies. The recent measures taken by the Chinese authorities to curb exports of some critical minerals (cf. our previous post) have irked many US companies. This could be just a warning from China to the US to not push the decoupling thesis too far. 

The Biden administration also needs to bring China back to the negotiation table on global issues, like Climate change over which Joseph Biden put his weight and engaged a lot of credibility both on the domestic and the international levels. It is no surprise that Biden’s envoy for Climate Change, John Kerry headed to Beijing in Yellen’s footsteps. As for other international agenda like the adaptation of the US-led post-WWII multilateral system to the realities of a Multipolar XXIth century, this is another debate. Europe is perhaps more able to drive these negotiations as has been illustrated during the Paris Forum on Green and Development finance. Tactically, in this case, on a topic that has great importance for the future of the international system but very little domestic relevance and political traction, it makes more sense for the Biden Administration to “lead from behind” - to paraphrase one of Barack Obama’s favorite mottos. 

NATO’s Lazarus Moment and China Obsession

Considering the heavy weight carried by all these items, it is all the more surprising to observe the increasingly confrontational Anti-China sentiment on display at the NATO Summit in Vilnius. Since Russia’s invasion of Eastern Ukraine in February 2022, NATO has been enjoying new momentum and a newfound raison d’être. Before that, France’s President Emmanuel Macron could still half-jokingly argue that “NATO was brain-dead”, to appeal to the periodically resurfacing anti-NATO sentiment in the French electorate. The war changed all that in a stroke of weeks if not days. Like Lazarus, NATO has been resuscitated and rejuvenated with a new Strategic Concept, approved at the Summit held in Madrid on 29 June 2022. 

More than the vague promise to grant Ukraine NATO membership someday in the future, one of the outstanding flashpoints of the Vilnius Summit was the open hand extended by NATO to the so-called QUAD countries - Japan, Korea, Australia, and New Zealand - to make their military capabilities more fully integrated and interoperable with the Alliance. While stopping short from mentioning a potential NATO liaison office in Tokyo in the joint Communiqué, partnerships have been signed with the four Indo-Pacific states. 

Understandably this immediately led Beijing to suspect the US of framing a large Anti-China coalition, by closely knitting together QUAD and NATO under a unified strategic umbrella. In line with the statements issued by China’s Ministry of Foreign AffairsParty-affiliated media like the People’s Daily or Global Times have been vocally critical of such a development. This has also transpired in less politized news outlets like the Hong Kong-based South China Morning Post. 

In this regard, the European Union’s much-vaunted Strategic Autonomy, which is in itself only a watered-down version of Sovereignty - proved to be a mere chimera. From a cynical perspective, one could argue that it was just a rhetoric whistle waved by EU elites to cheer up the masses and to bring some flavor to a bureaucratic machine. However, the appeal of a geopolitical concept vanished in the face of more compelling binary polarization between a Sino-Russian alliance of Authoritarians and a virtuous Western-backed League of Democracies. In this worldview, NATO is perceived as the impenetrable shield protecting the EU Member States from external aggressors, while irremediably constraining their choices under a US-led Alliance. 

An economic security dilemma 

The War in Ukraine temporarily moved the geopolitical needle closer to an old-style Cold War - with a Sino-Russian bloc confronting a US-led Western bloc. The unprecedented financial sanctions waged against Russia by the United States and its European and Indo-Pacific Allies convinced Beijing that the West was ready to weaponize at any time against China. If and when that happens, Beijing’s first line of defense would be to rely even more on Russia and on the Sino-Russian Shanghai Security Organization (SCO). Yet, the circumstantial alliance between China and Russia should not obscure that the economic and geopolitical reality of the next decades will more likely be shaped by Multipolarity. This explains why Beijing is so keen on preserving its relationship with Russia while pushing de-dollarization - or equivalently “renminbization”. 

Going back to the China-US relationship, the moves reflect a kind of economic security dilemma. The more the United States feels threatened by the Chinese catch-up in the technology arena, the more likely it is to develop containment measures and resort to economic coercion. On the other hand, this will push China even further to impose its own retaliatory measures, while doubling down on investment and State subsidies to fasten the pace of the catch-up in the most critical technologies. At some point, a clash could be expected between these two self-reinforcing adversarial logics. Whenever the existing multilateral system and global financial architecture can no longer resolve such a clash, the conclusion is that the system needs urgent reform - not only reform but re-foundation.

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