Keeping the Lid on US-China Trade Tensions

At their December 1 meeting in Buenos Aires following the 2018 Group of 20 summit, US President Donald Trump and Chinese President Xi Jinping managed to avert a further escalation of the US-China trade war—for a while, at least. Both governments came away claiming diplomatic victory, as Trump agreed to postpone imposition of additional tariffs for 90 days in exchange for some limited concessions from China. Now the two sides face the daunting task of turning their fragile ceasefire into a broader agreement by the end of February.

Throwing Down the Gauntlet

The prospects for a breakthrough seem dim. The Trump administration has embraced a hard-line policy targeting China as an unfair competitor, and many observers expect that policy to continue. The arrest of Huawei executive Meng Wanzhou immediately following the December 1 summit bolsters that view and the widespread perception that the current truce is unlikely to last.

The immediate cause of these rising tensions is a sharp change in American attitudes toward China over the past year or so. The shift was summed up in remarks delivered by Vice President Mike Pence at the Hudson Institute on October 4, 2018—a few weeks before he set out on his Asia trip—in which he offered a wide range of criticisms to justify the hard-line China policy the Trump administration has pursued since early 2018.

Most of Pence’s 40-minute speech was occupied with blasting China and cataloguing its offenses. “Beijing is employing a whole-of-government approach, using political, economic, and military tools, as well as propaganda, to advance its influence and benefit its interests in the United States,” Pence warned, stressing that America’s grievances extend far beyond the bilateral trade imbalance. He accused Beijing of masterminding the theft of US technology and called China a threat to global security, freedom of religion, democracy, and the international order.

This was three days after Matthew Pottinger, a senior director for Asian affairs on the National Security Council, took the opportunity of a National Day reception at the Chinese embassy to throw down the gauntlet. China and the United States are in competition with one another, he argued, and the White House has simply decided to acknowledge that fact instead of tiptoeing around it for fear of giving offense. “Based upon our own history and the principles that our forefathers established for what is the world's oldest democracy,” he added, “the United States is confident that we have the adaptive power to continue competing in championship form.”

A Convergence of Concerns

Neither the current China policy nor the antagonism that underlies it developed overnight. Of course, the news media have been sounding the alarm over an escalating US-China trade conflict since the spring of 2018. (In March, President Trump announced his intent to impose sanctions on China under section 301 of the Trade Act, in response to intellectual property rights violations by China, and the first round of punitive tariffs came into effect the following July, after negotiations broke down.) But signs of a shift in US attitudes were already apparent in late 2017.

The National Security Strategy released by the Trump White House in December 2017 clearly identified China (along with Russia) as a strategic competitor that poses a challenge to American power. It was also around this time that American officials began to sound the alarm about China’s use of “sharp power” to influence public opinion and undermine the political system in emerging democracies. Anxiety over competition from China for dominance in such key next-generation technologies as artificial intelligence, quantum computing, and 5G mobile communications also seemed to hit new highs in late 2017.

What we have seen is a gradual convergence of views from experts and advisers in various arenas.

One example is the June 2018 report “How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World” issued by the White House Office of Trade and Manufacturing Policy under the leadership of staunch economic nationalist Peter Navarro (who had returned to favor in the White House a few months earlier). Particularly prominent among the numerous expert opinions cited in the report are earlier statements and assessments by members of the security community. Conversely, the security community has taken advantage of rising economic tensions to make its own case for a more robust response to China. On June 1, Secretary of Defense Jim Mattis sharply criticized China for its program of building artificial islands in the South China Sea to serve as military bases. In August, the government signed into law the National Defense Authorization Act for Fiscal Year 2019, which calls for a new whole-of-government strategy with respect to China (see section 1261).

In the US Congress, there is broad bipartisan support for a tough line toward Beijing. This was evident in a sharp backlash, crossing party lines, to the administration’s May 2018 decision to rescind its ban on US sales to ZTE, a Chinese telecommunications equipment giant accused of violating sanctions against Iran and North Korea. During the summer, reports about re-education camps for Uighurs in Xinjiang received considerable attention in Congress, as well as the media. And the midterm elections did little to change this dynamic. Few lawmakers in either party see any political advantage in looking soft on China.

The End of Engagement

Washington’s new hard-line stance signals a historic change in America’s China policy. From 1972 on, that policy was built on the concept of positive engagement, which in turn was justified by expectations that China’s emerging power—if appropriately “managed” by the United States—would benefit the international order substantially, and that China’s political system would ultimately converge with that of the West. The policy had its detractors, but it also had staunch defenders in the business community and the government, who dismissed as mere noise objections raised by nongovernmental organizations and members of Congress over China’s human rights violations. It was all about managing the relationship, they insisted.

This policy of engagement was sorely tested during President Barack Obama’s second term, and especially after 2014, as hopes for change in China faded. By the spring of 2018, the foundations of the policy had crumbled. Even longtime supporters of engagement in the government and academia lost patience with China as it persisted in efforts to undermine the existing international system and manipulate public opinion in other countries.

This is not to say that the concept of engagement is dead. It still has its supporters, especially among businesses concerned about unrecoverable costs and those heavily dependent on Chinese suppliers or customers. A conciliatory approach is still favored by many academics. Harvard University’s Graham Allison has warned that constant efforts to foster mutual understanding and reach accommodation are necessary to avoid Thucydides’s Trap—the high potential for war in a situation where a rising power challenges an established hegemon. But as a central pillar of American China policy, the four-decade-old principle of engagement predicated on expectations has been toppled by the rising tide of animosity toward China.

The Obama administration was not unaware of the threat to world security posed by China’s rise, but when urged to counter that threat with hard power, it opted to walk a thin line between engagement and long-term containment. At that time many experts believed that there was plenty of time before China amassed the structural power to seriously threaten US supremacy, and the Obama administration felt it should exhaust all diplomatic avenues first. This cautious approach was a source of deep frustration in Japan and elsewhere in the region, where Washington’s “rebalancing toward Asia” was widely viewed as a washout.

Since Trump took office, the mainstream has shifted. The predominant view now is that America cannot afford to wait complacently while China accumulates more power, that the threat from China has already reached the point where it is shaking the foundations of the international order built by the world’s leading democracies. This perception has brought about a shift in the very axis of America’s China policy.

A Strategy with No Endgame

What remains unclear is how all of this is likely to end. The broad-based domestic support for Trump’s hard-line China policy represents an alliance of convenience among politically diverse forces, including “America first” economic nationalists, old-school conservatives anxious to maintain the American-led world order, and human-rights activists. While they agree on the basic idea of getting tough with China, their long-term goals are not the same.

Nor is it entirely clear what the government’s own policy goals are. One of the salient characteristics of the Trump administration is the lack of continuity in cabinet-level leadership and the president’s impulsive interference in policymaking. Even now, it is difficult to guess what Trump’s views on China will be from one day to the next. At times he seems focused on trade negotiations. At others he erupts over alleged Chinese interference in US elections or abruptly reverses his own position by calling for an arms control agreement with China and Russia.

One possibility is that Trump will simply continue on-and-off negotiations with Beijing until the 2020 US presidential election, wresting a few economic concessions that he can tout as good deals for Americans. In the wings, security officials and aides will doubtless continue to focus on bolstering America’s military presence and capabilities, but it is unclear whether they can achieve their goals within current budget limitations.

A related issue is the apparent lack of a clear endgame or exit strategy. In both his October 4 remarks and his November 16 speech at the Asia Pacific Economic Cooperation forum, Vice President Pence stressed the administration’s desire to build a constructive relationship with China, provided that Beijing changes course. But what exactly does that entail? Would it be enough for China to erase its trade surplus with the United States and abandon what Washington regards as unfair trade practices (including technology transfer)? Or must this change of course extend to China’s political system, defense program, and human rights record?

The Trump administration has already imposed restrictions on Chinese investors and college students, and some at the White House are even said to favor steps to exclude China from the supply chain. Is the purpose of such talk simply to boost America’s negotiating position? Or is the administration seriously prepared to cross the line from competition into open conflict?

Given America’s growing dependence on investment from China and the lure of the Chinese market, it is difficult to imagine Americans reaching a consensus in favor of such a conflict. But it is not that difficult to imagine an ill-considered, extreme policy decision driven by a mounting sense of panic over China’s threat to American supremacy. Then again, it is possible that Trump will simply let the negotiations drag on. It is really too soon to hazard a guess.

Carrots as Well as Sticks

From Japan’s standpoint, it is a good thing that Americans have recognized the gravity of the Chinese threat. For the past decade, Japan has taken the lead in regional initiatives to counter China’s growing power and worked tirelessly to steer Washington’s East Asia diplomacy. It could prove a major boon to Japan and the region as a whole if the United States began according the Indo-Pacific the strategic importance it merits and responding to China’s threats accordingly.

However, it would not be a good thing for Japan or the region if excessively punitive sanctions and counter-sanctions were to trigger a major economic slowdown. Building a strong, durable regional order in which everyone plays by the rules will require a multifaceted response to China’s rise, one that acknowledges the role of inclusion and persuasion as well as competition. Japan must continue to remind Washington of that fact and urge it not to give up hope for change.

(Originally published in Japanese on December 13. 2018. Banner photo: Chinese President Xi Jinping and US President Donald Trump face off on December 1, 2018, in Buenos Aires, where the two leaders met on the sidelines of the G20 summit. © Aflo/AFP.)