Having lived and worked in the US and China, I often tell those who are interested that the people of the two nations are more similar than they are different. However, the systems of government and, less obviously, the projection of hard and soft power differ greatly between the two countries.
China is no longer content to play a regional role, and has begun creating its own spheres of influence through initiatives such as the One Belt, One Road (land and maritime connections between China, Asia and Europe), the Asian Infrastructure Investment Bank (meant as an alternative to the World Bank and IMF), its somewhat stalled attempts to make the renminbi a global currency, and a harder military stance in East and Southeast Asia.
Meanwhile, the US President promises to be tough on China, raising the prospect of economic sanctions, protectionism, and a focus on hard power.
Below we examine three key areas where the US and China have the potential to find a resolution to their differences, but could also fall into outright conflict.
Situation: The US has continued to lose manufacturing jobs. China faces challenging demographics and is continuing to try to grow its workforce. Both countries need to increase productivity, create the jobs and industries of tomorrow, and utilize global trade to each one’s benefit. China is minting college graduates faster than it can develop appropriate jobs and career paths, which could ultimately threaten social stability. At the same time, the PRC desperately wants to move up the value chain in global commerce, and develop homegrown technology leadership to be less reliant on the West.
Meanwhile, the US working class just upended the political consensus as it grew tired of largely being left out in the cold, while innovation helped advance the earning power and quality of life for the highly skilled parts of the workforce. I’ve written before that it is folly to think that the jobs of yesteryear will return in mass, but the winners in global trade will be the countries that can create jobs for those with high school diplomas as well as those with advanced degrees in those industries of tomorrow.
Path to Resolution: The US and China can both benefit from the global trade system. The US needs to create more high-value exports from areas including energy, healthcare, and technology. China is highly challenged as it tries to move its economy away from investment to consumption while maintaining stability. They key issue will be if both countries can create enough jobs for the working class while trying to innovate and create competitive advantage in upcoming sectors.
Path to Conflict: Global trade is not a zero-sum game but there are real winners and losers. Competing sanctions between the US and China or worse yet, a trade war is a definite possibility and would hurt both the US and China immensely.
Prognosis: Expect greater direct and indirect conflict on trade. President Xi championing globalization at Davos while President Trump kills the Trans-Pacific Partnership (TPP) and talks punitive tariffs is just the beginning. Whether this develops into a full-scale trade war or (hopefully) leaders of both countries come to a more balanced agreement remains to be seen.
The South China Sea
Situation: The US and most countries in Asia consider the South China Sea (SCS) international waters that are open to free passage. China considers a large area part of SCS as its historical territory and has built artificial islands to strengthen its claim. The US is concerned with freedom of navigation in a critical maritime shipping area, and countries around Asia grow nervous whenever China mentions historical claims.
Inside China, SCS is a patriotic issue of China taking back territory to which the government in Beijing has to some degree tied its legitimacy. The potential for military conflict in the near term is small, but real. China’s recent seizure of a US marine drone can be seen as an isolated incident, but ongoing tensions such as these can quickly give rise to deeper conflict.
Path to Resolution: China is likely to continue building up the Scarborough Shoal and other points in the South China Sea as it seeks to cement its territorial claims. The US will likely tolerate these to a degree, so long as freedom of navigation and airspace is maintained. An actual resolution is unlikely, but so long as both sides keep cool heads and China does not move even more aggressively to build out its presence there is likely a tenable situation.
Path to Conflict: A hard line development from China, increasing militancy in Japan or Korea, or an overly aggressive stance from President Trump could each lead to direct conflict. So long as no lives are lost, things will likely remain relatively stable. If any of the countries purposely or accidentally take actions that cause casualties, a conflict could go hot very quickly.
Prognosis: This issue concerns me more than the others as it is much more likely that we will see increased conflict rather than resolution. I am hopeful that the conflict will be in rhetoric rather than in arms, but clearly, there is going to be escalation.
Global Institutions and Soft Power
Situation: China has joined the WTO and become a larger player in the UN. However, it has long believed that the main multilateral institutions push the agenda of the US, and has therefore, created competing institutions, among them the Asian Infrastructure Investment Bank and the Shanghai Cooperation Organization. The US has long strengthened its hard military power through diplomacy and cultural soft power. China is increasingly leveraging its diplomacy and economics to project its own soft power.
While the situation is still subject to change, what is clear is that China is looking to challenge US-led institutions to better control its own destiny. The US will continue to be the major sponsor of global institutions, and the World Bank, IMF, NATO, are not disappearing anytime soon. Moreover, US soft power has no rivals with its tremendous cultural sway.
Path to Resolution: There is clearly room for multiple countries driving the global agenda. For example, while AIIB and the World Bank may have different goals, their goals need not conflict with clear coordination and criteria. The more institutions that include both the US and China as leaders the more likely conflict will be kept to a minimum.
Path to Conflict: There is also obvious potential for direct conflict. Again using the AIIB and World Bank, the AIIB appears set to pursue an agenda that is China-centric and supports the One Road, One Belt infrastructure build out. The main goal of this appears more economic than political — create jobs, and continue to support economic growth with overseas infrastructure spending. If it becomes jingoistic and the other member states do not object, the US and existing institutions will find themselves in direct conflict.
Prognosis: I am more optimistic that China will continue to play a larger role in existing institutions and its new set of parallel structures will be important in Asia without causing massive retaliation from the US or existing global institutions. On the soft power side of things, China is clearly trying to sponsor its own vision for other countries and it will find some success, while the US will likely lose some political soft power as it focuses more within its borders, but continue to be an extremely strong cultural force globally.
China and the US are entering a challenging period in their relations as the PRC flexes its economic and military muscles, and the US seeks to drive job growth for the working class while likely showcasing its hard power more regularly. Hawks in both countries are likely to be disappointed as the US is unable to contain China and China is unable to supplant the US easily — while doves will fret over increasingly tough talk and possibly action in places like the South China Seas.
I expect there to be many conflicts across trade, the South China Seas, and global institutions which will worsen relations, but it is unlikely that either the US or China will reach the extremes that could ultimately harm their own economies and nations. So we are in for a rocky road in the Trump / Xi era, but ultimately you should expect the US and China to be competitors not enemies.