The Sino-American Quasi-War and its Collateral Damage

The Sino-American Quasi-War and its Collateral Damage
Remarks to a Forum organized by the Shanghai Academy of Social Sciences
and the Shanghai Institute of American Studies

Ambassador Chas W. Freeman, Jr. (USFS, Ret.)
Visiting Scholar, Watson Institute for International and Public Affairs, Brown University
By video from Exeter, New Hampshire to Shanghai China, 7/8 December 2022

Seven decades ago, the United States and the People’s Republic of China were enemies.  Then, fifty years ago, shared fears brought us together.  In time, we became friends but not allies.  Now we are adversaries but not yet enemies.  How this came about is something I will leave to the historians.  I suspect they will have some very unkind things to say about the attitudes, calculations, and deportments of both sides.

These days, it’s hard to say anything confident about Sino-American relations.  Last month in Bali, the leaders of China and the United States agreed to maintain contact and to authorize discussions between lower-level policy officials.  That is better than shunning each other.  But neither side has altered course.  There is no evidence that the two countries are on a path to agreement about much of anything, still less the most important issues dividing us.  We are still headed toward a clash neither country wants.

Over the past fifty years, both China and the United States have benefited greatly from the growth in our interactions and the remarkable deepening of ties between our peoples and businesses.  The replacement of bilateral affability and cooperation with adversarial antagonism menaces rather than buttresses the prosperity and security of both countries.  It promises to slow economic growth, retard innovation, and impoverish both cultures.

Each nation now has the capacity to destroy the other.  Neither has any desire to do so.  Still, war between us is increasingly imaginable.   We must hope that the diplomatic dialogue our leaders have scheduled for next year will prove more fruitful than previous encounters.

In addition to its bilateral effects, the renewed hostility between our two countries has begun to change and reshape the world order.  This has major implications for our respective national interests and policies.  We both deny that we are demanding that our partners and friends choose between us, but, in practice, our policies force them to make choices they don’t want to make between:

• Aligning with the United States against China – or declining to do so.
• Relying on Western – or Chinese technology for future development.
• Boycotting – or joining the new banks, funds, and regional dispute-settlement mechanisms that China and others have sponsored to supplement the Bretton Woods legacy institutions and the World Trade Organization (WTO).
• Following the United States in abandoning international standards by imposing national security restrictions on trade and investment – or opening to greater trade with each other and an ever-more prosperous China.
• Pricing goods and services in U.S. dollars, settling trade in them, and managing investments in them – or doing so in national currencies, through currency swaps, alternative currencies, or previously nonexistent clearinghouses.
• Relying on laissez-faire policies in domestic markets – or adopting various kinds of industrial policies.
• Siding with – or against the U.S. and EU position on Ukraine’s membership in NATO.
• Denouncing Russia for its assault on Ukraine – or refraining from doing so.
• Supporting the Western-dictated “rules-based order” now advocated by the United States and the G7 – or insisting on 20^th century international law as written in the UN Charter and international treaties and conventions.

These are not inconsequential choices.  Chinese and American diplomacy is increasingly focused on influencing third countries as they wrestle with them.  Each side reacts badly to the efforts of the other to counter its agenda.  You can draw up your own scorecard to determine how each is doing.

But regardless of who’s ahead in what in this zero-sum game, the clash between the United States and China is inadvertently creating a new set of world orders in which:

• Humanity is failing to rise to the challenge of managing planetwide problems like climate change, sea level rise, droughts, floods, crop failures, pandemic diseases, starvation, dispossession, political destabilization, mass migration, and dislocation.
• National economies are decoupling from each other to evade arbitrary economic coercion from those on whose markets they rely or on whose exports they depend.
• Supply chains are snapping, and economic efficiency and prosperity are declining as trade patterns reflect geopolitical factors as well as comparative advantage.
• Innovations are guarded and kept at home rather than shared internationally with others.
• Technology standards and markets are increasingly walled off from each other in distinct technospheres.
• Existing international organizations and financial institutions are languishing or are being displaced by new forums and systems designed to meet needs that legacy bodies have failed to fill.
• Currency values are realigning to reflect purchasing power and balances of trade and payments, rather than benchmarking to the dollar or another international currency.
• Most countries are rejecting inclusion in a bipolar politico-military international system in favor of an independent, self-reliant, and assertively nationalistic posture that rejects dominance by the United States, China, or any other great power.
• Arms markets and indigenous military-industrial complexes are expanding as countries adjust to the reality that international law no longer inhibits violations of sovereignty as it once did, that protection by previously reliable great powers is no longer assured, and that military self-reliance is thus a contemporary necessity.
• Alliances are fracturing as the interests and values of their members diverge and localized and proxy wars are more frequent.
• Weaker countries are seeking safety in the development of nuclear weapons and long-range delivery systems to counter even distant great powers.
• Multiple culturally and religiously determined regional norms are supplanting the universal human values posited by the European Enlightenment and imposed on the world by Western imperialism.
• State-imposed restrictions or popularly enforced standards of political correctness implemented through social media are stifling freedom of speech.
• Relative performance in delivering domestic tranquility, the common welfare, and national standing in relation to other nations is replacing ideology as the basis of prestige.

These trends are bringing into being a new array of global conditions that only a few in either the United States or China will find congenial. Our progeny will have to cope with their consequences.

Is it too much to hope that, by anticipating these probable consequences of our bilateral discord, we might work together to mitigate or deflect those trends that we find most injurious or unacceptable?  Can we not disaggregate our differences and set some of them aside in the interest of pursuing shared objectives?  If we cannot act jointly, can we not coordinate to address common interests in parallel?  If cooperation is not possible at the global level, can regional or functional arrangements substitute?

In our own interests, we must find ways to solve the problems we both confront and those we are now imposing on others.

In the meantime, we and the world must deal with the pandemic; the disruption of the energy trade, shipping, and food and fertilizer exports; and other consequences of the Russian invasion of Ukraine and the sanctions the United States and its allies have imposed in response to it.

The pandemic has become the subject of absurd conspiracy theories and baseless charges by Americans and Chinese against each other.  Until the origins of COVID-19 are better documented, bilateral cooperation by our two governments will remain politically impossible.  But this should not preclude collaboration in multilateral forums and between companies in both countries.  The United States, China, and the rest of the world would benefit from cooperative research on viruses by American and Chinese scientists and medical experts.  The World Health Organization (WHO) should have the generous support of both countries as well as the international community as it tries to facilitate and coordinate such collaborative projects.

The U.S. and European sanctions imposed on Russia after its invasion of Ukraine disrupted established patterns of global energy trade.  They are now having multiple unanticipated effects, especially on Europe.  Russian crude-oil exports now flow to China and India, where they are often refined and resold at a profit to European consumers.  Russian gas exports to Europe have been interrupted first by sanctions and then by sabotage.  Sanctions aimed at impoverishing and weakening Russia are instead impoverishing and weakening Europe.

Europeans now face more than a winter without heat.  Energy shortages and price rises are making many kinds of manufacturing in the EU uneconomic.  Companies are looking to relocate production to places with lower energy costs.  The flight of European manufacturing to other countries will redistribute jobs and income to those able to attract them.  African and Arab countries with winsome policies and a record of political stability could turn out to be the beneficiaries of European “nearshoring.”

Trade in energy is shifting from pipelines to liquefied natural gas (LNG) trains and terminals.  Europe has become a major market for U.S. LNG producers, which are profiting greatly from unprecedentedly high prices for natural gas there.  As winter comes and Europe siphons off U.S. LNG supplies, some parts of the United States in which LNG is an important part of the energy mix, like my native New England, also face energy shortages and price rises.  There is a boom in everything related to LNG, from its production to the ships in which it is transported to the terminals where it is received, stored for further distribution, or decompressed and fed into pipelines.

Europe is seeing a temporary return to coal and nuclear power and an accelerated turn to long-term reliance on renewable energy, like solar and wind power.  By contrast, high prices for oil and exported natural gas have redirected American investment to fossil fuels and away from renewable energy.  Meanwhile, popular aversion to nuclear power has eliminated it as a politically feasible option in the United States.

These factors alone would slow any progress in the United States on reducing greenhouse gas emissions through conversion to renewable energy.  But the U.S. ban on imports of silicon from Xinjiang and tariffs on Chinese solar panels make it effectively impossible for American companies to cooperate with Chinese counterparts.  Since China is now the world leader in solar and wind power and appears to have taken the lead in developing commercially viable nuclear fusion power, this is a fundamental obstacle to Sino-American cooperation in slowing global warming.  I hate to say this, but until the contradictions in U.S. policy are resolved, China will have to look to Europe and elsewhere for partners in the global effort to mitigate and ultimately halt and reverse climate change.

Finally, the world faces a growing food crisis as the result of climate change and manmade disruption of trade in grains, edible oils, and fertilizers.  Absent economic nationalist hysteria about agriculture, the United States and China would be natural partners in producing more food for each other and the world.  China has both the capital and the market demand to finance the profitable upgrade of productivity in American agriculture.  But this too is now on hold.  Supply chain concerns seem likely, at least for the time being, to direct Chinese investment in foreign food sources elsewhere.  Once again, in practice, geopolitical factors are outweighing economic rationality.

These trends benefit neither Americans nor Chinese.  With our governments at loggerheads, intelligent people in our two countries need to remain in contact and to start thinking about how to deal with the many adversities our rivalries are inadvertently creating.  There is a lot at stake for both of us in depoliticizing trade and investment and rediscovering possibilities for cooperation despite broad differences.

In my lifetime, I have seen Sino-American hostility become friendship, and friendship decay into animosity.  I have also learned that no condition lasts forever.  I look forward both to a return to Sino-American friendship and to its consolidation in mutual recognition of the many common interests Americans and Chinese share.