After the Trade War, a Real War with China?

After the Trade War, a Real War with China?

Remarks to the St. Petersburg Conference on World Affairs

Ambassador Chas W. Freeman, Jr. (USFS, Ret.)
Senior Fellow, Watson Institute for International and Public Affairs, Brown University
St. Petersburg, Florida, 12 February 2019

I’m here at your kind invitation to discuss China, how bad our relations with it may get, and how the contest we’ve initiated with China is likely to play out.  Let me take a minute or two to set the context for this discussion.

Five hundred years ago this month, Hernán Cortés began the European annihilation of the Mayan, Aztec, and other indigenous civilizations in the Western Hemisphere.  Six months later, in August 1519, Magellan [Fernão de Magalhães] launched his circumnavigation of the globe.  For five centuries thereafter, a series of Western powers – Portugal, Spain, Holland, Great Britain, France, Germany, Russia, and, finally, the United States – overturned preexisting regional orders as they imposed their own on the world.  That era has now come to an end.

In the final phases of the age of Western dominance, we Americans made and enforced the rules.  We were empowered to do so in two phases.  First, around 1880, the United States became the world’s largest economy.  Then, in 1945, having liberated Western Europe from Germany and overthrown Japanese hegemony in East Asia, Americans achieved primacy in both the Atlantic and Pacific.  Almost immediately, the Soviet Union and its then-apparently-faithful Asian companion, Communist China, challenged our new sphere of influence.  In response, we placed our defeated enemies (Germany, Italy, Japan), our wartime allies, and most countries previously occupied by our enemies under American protection.  With our help, these countries – which we called “allies” – soon returned to wealth and power but remained our protectorates.  Now other countries, like China and India, are rising to challenge our global supremacy.

President Trump has raised the very pertinent question: Should states with the formidable capabilities longstanding American “allies” now have still be partial wards of the U.S. taxpayer?  In terms of our own security, are they assets or liabilities?  Another way of putting this is to ask: Do our Cold War allies and their neighbors now face credible threats that they cannot handle by themselves?  Do these threats also menace vital U.S. interests?  And do they therefore justify U.S. military presences and security guarantees that put American lives at risk?  These are questions that discomfit our military-industrial complex and invite severe ankle-biting by what some have called “the Blob” – the partisans of the warfare state now entrenched in Washington.  They are serious questions that deserve serious debate.  We Americans are not considering them.

Instead, we have finessed debate by designating both Russia and China as adversaries that must be countered at every turn.  This has many political and economic advantages.  It is a cure for enemy deprivation syndrome – that queasy feeling our military-industrial complex gets when our enemies disorient us by irresponsibly defaulting on their contest with us and disappearing, as the Soviet Union did three decades ago.  China and Russia are also technologically formidable foes that can justify American R&D and procurement of the expensive, high-tech weapons systems.  Sadly, low intensity conflict with scruffy “terrorist” guerrillas can’t quite do this.

No one in the United States now seems prepared to defend either China or Russia against the charge that they, not we, are responsible for our current national dysfunction and malaise.  After all, we’re the best, Russia’s a rogue, and China’s an unfair competitor.  Our patriotism is admirable, theirs is malign.

It must have been the Russians who overcame our better judgment and made us vote against Hillary Clinton and for Donald Trump.  Who other than China could have caused our companies to outsource work to places with cheap labor, instead of upgrading equipment and retraining their workers to meet foreign competition?  A pox on all foreigners, not just Mexican rapists, European rip-off artists, Japanese free riders, Russian trolls, immigrants from “shithole” countries, and Chinese cyber burglars.  Why worry about how to boost our own competitiveness when we can cripple the competitiveness of others?

Today our government is trying to break apart Sino-American interdependence, weaken China, and prevent it from overtaking us in wealth, competence, and influence.  We have slapped tariffs on it, barred investment from it, charged it with pilfering intellectual property, arrested its corporate executives, blocked tech transfers to it, restricted what its students can study here, banned its cultural outreach to our universities, and threatened to bar its students from entering them.  We are aggressively patrolling the waters and air spaces off its coasts and islands.  Whether China deserves to be treated this way or not, we are leaving it little reason to want  to cooperate with us.

Our sudden hostility to China reflects a consensus – at least within the Washington Beltway – that we need to wrestle China to the ground and pin it there.  But what are the chances we can do that?  What are the consequences of attempting it?  Where are we now headed with China?

Realism is out of fashion in Washington even if it’s alive and well elsewhere in America.  It should give us pause that our new enemy of choice is a very different, larger, and more dynamic country than any we have unbefriended before.  China had a couple of bad centuries.  But forty years ago, the Chinese Communist Party and government began to evolve what turned out to be a successful model of economic development that blended state capitalism with free enterprise.  This unleashed the entrepreneurial talents of the Chinese people.  The results have been staggering.   Per capita income in China today is twenty-five times what it was in 1978.  Back then, well over 90 percent of Chinese lived in poverty, as defined by the World Bank.  Today, less than two percent do.  China’s GDP is now sixty times bigger than it was forty years ago.

China is no longer isolated, poor, or irrelevant to affairs distant from it.  It is a society with capabilities that rival and are beginning to overtake our own.  China faces many challenges, but its people are resilient, resourceful, and optimistic that the lives of their descendants will be vastly better than their own – this at a time that we Americans are unprecedentedly pessimistic about our own country’s present and future condition.

Despite increasingly problematic policies, the Chinese economy is still growing almost three times faster than ours.  By some measures, it is already one-third larger.  China’s manufacturing sector accounts for over one fourth of global industrial production and is one-and-a-half times bigger than that of the United States.  China’s ability to defend itself and its periphery against foreign attack is now formidable despite its spending less than two percent of GDP on its military.  If pressed to do so, China could spend as much on defense as we do – and that’s a lot: almost $1.2 trillion when you add up all the military spending that is hidden like Easter eggs all over non-Defense Department budgets.[1]

China is slightly larger than the United States – 6.3 percent of the world’s landmass vs. 6.1 percent for the U.S.  But there are 1.4 billion Chinese, with only one-third the arable land and one-fourth the water we Americans have.  If we had the same ratio of population to agricultural resources that the Chinese do, there would be almost 4 billion Americans – about 600 million of them over sixty-five – most of them probably planning to retire in Florida.

I suspect that, if there were that many people crammed into the United States, Americans would have a much lower tolerance for social disorder and a different attitude toward family planning than we now do.  We’d also be more worried about the prospects for individual security and survival.  Sixty years ago, perhaps 30 million Chinese died in a man-made famine known as the “Great Leap Forward.”  Chinese are acutely aware that they have narrow margins for error.  This makes them naturally risk averse and, in most respects, a more predictable actor in foreign affairs than we now are.

Until we suddenly launched a trade war last year, China was our fastest growing export market.  It is, after all, the largest consumer of a vast array of commodities and products.  China consumes 59 percent of the world’s cement, 47 percent of its aluminum, 56 percent of its nickel, 50 percent of its coal, 50 percent of its copper and steel, 27 percent of its gold, 14 per cent of its oil, 31 percent of its rice, 47 percent of its pork, 23 percent of its corn, and 33 percent of its cotton.  It consumes about one-fourth of the world’s energy.  It provides one-third of the global market for semiconductors.  Its companies’ demand for these has been growing around 16 percent annually. Microchips have become China’s largest single import – around $110 billion this year.  China has been the main market for U.S. chips, one of the few products of industry  we Americans still monopolize.

By slapping tariffs, quotas, and export bans on China, the United States is throwing these markets away as well as raising prices and reducing choices for American consumers.  Food security has been an obsession for every Chinese state over the course of the last 2,500 years.  No responsible leader in China is again going to commit his or her country to long-term dependence on the U.S. for its feed-grain, wheat, corn, cotton, pork, or fresh fruit supply.  Erratic behavior in business makes one the supplier of last resort.  Whatever the short-term outcome of the trade war we launched against it, in future China is going to look elsewhere for critical imports.

No “wall” is in prospect on the US-Mexican border, but the United States is surrounding itself with a moat full of protectionist measures aimed at denying China not just sales in the U.S. market, but opportunities to invest its rising wealth in U.S. industry, agriculture, and services.  This is in part a response to a real but far from unprecedented problem.  In the 19th century, encouraged by Alexander Hamilton and others, Americans pioneered the art of technology theft from Britain and other more advanced manufacturing economies.  As the 20th century began and we became a net exporter of innovation ourselves, we renounced intellectual property crime.  Japan and Taiwan then took over our role.  When Japan got rich, it too retired.  Taiwan moved its pirate industries across the Strait to the China mainland.

China took up the by-now, well-established practice of upgrading its industrial base by lifting technology from wherever it could.  But, like the U.S. and Japan in earlier days, China is now itself becoming an exporter not just of capital but advanced, innovative technology.  With a lot of competition among its own enterprises and an increasing share of the world’s intellectual property, Chinese companies have become very concerned to secure their innovations from pilferage.  This has made them responsive to our pressure on them to clean up their act.  In their own interest, they are almost certain to do so whether we make a deal with them or not.  Like the proverbial generals, we may be fighting the last war, not the one to come.

The end of the 21st century’s second decade is a remarkably inauspicious moment for us to be severing ties with scientists, technologists, engineers, and mathematicians – so-called STEM workers – in China.  Technology advances through collaboration, not the sequestration of knowledge.  In the United States, we graduate about 650,000 scientists and engineers annually, over one third of whom are foreigners.  (In some disciplines, like engineering and computer science, foreign students account for about half of new U.S. degrees.)  Almost one third of all foreign students here are from China.  On its own, China now graduates 1.8 million scientists, engineers, and mathematicians annually.  It is about to overtake us in the number of doctorates it confers in these fields.

Already about one-fourth of the world’s STEM workers are Chinese.  This Chinese intellectual workforce is eight times larger than ours and growing six times as fast.  By 2025, China is expected to have more technologically skilled workers than all members of the OECD combined.  (The OECD is not a trivial grouping.  It consists of the world’s most advanced economies: the United States, Canada and Mexico, all non-Russian-speaking Europe, Australia, Israel, Japan, Korea, New Zealand, and Turkey.)  By severing ties with the Chinese, we Americans are isolating ourselves from the largest population of scientists, engineers, and mathematicians in the world.

The United States has always been a major importer of foreign brainpower.  Since 2000, thirty-nine percent of our Nobel Prize winners have been immigrants.  A great many of our technology companies were started by immigrants or are now managed by them.  Asian immigrants, mainly from China (including Taiwan), India, and Korea, make up about 17 percent of our current STEM workforce.  In large part as a result of the less welcoming atmosphere in our country today, less than half of Chinese graduates from our universities now join the U.S. workforce.  Most are going home to work or start companies in China rather than here.  China is now home to 36 percent of the world’s “unicorns” – start-up companies valued at more than $1 billion.

Some estimates are that the United States is already one million short of the STEM workforce our economy requires to sustain our competitiveness.  Tightening restrictions on foreign students and workers as we are now doing undercuts our ability to fill this gap.  We are reducing our openness to foreign science and technology at precisely the moment that other countries – not just China but nations like India and Korea – are pulling even with us, Europe, and Japan, or charging ahead.  China has begun to outspend us on research and development, especially in the basic sciences, where breakthroughs in human knowledge that lead to new technologies occur.

Our strategy is not aimed at upping our own performance but at hamstringing China’s.  This is more likely to induce intellectual constipation here than in China.  The Chinese are not going to oblige us by ceasing to educate their young people, halting their progress, or severing their science and technology relationships with other countries. Nor will most other countries join us in shunning them.  We Americans, not the Chinese, are the most likely to be weakened and impoverished by our growing xenophobia and nativism. Others, not Americans, will leverage China’s advancing prosperity and brainpower to their advantage.

At root, of course, our concern about China’s increasing technological prowess is about the balance of military power between us.  Since World War II, Americans have become accustomed to being the privileged custodians of the global commons, setting the rules and calling the shots in all the world’s oceans, including the Western Pacific.  We gained our primacy there nearly seventy-five years ago when we defeated Japan and filled the resulting power vacuum in its former imperial domain.

But Japan is back as a major power even if it has preferred to pretend otherwise.  South Korea, Vietnam, Indonesia, and others in East Asia have become powerful, independent states that bow to no foreign power.  There is no vacuum in Asia for either the United States or China to fill.

No country in Asia can ignore the power that China’s huge and growing economy confers on it.  None could achieve a decisive victory in a war with China.  But none is prepared to enlist in our campaign against China or China’s backlash against the United States.  None wants to choose between us.  As uneasy as China’s neighbors may be in the face of its economic and military ascendancy, they all know they must accommodate it.

For over half of the last millennium, all or part of China fell prey to a remarkable range of foreign invaders – Qiang, Jurchens, Mongols, Manchus, Portuguese, Spanish, Dutch, British, French, Russians, Austro-Hungarians, Germans, Americans, and Japanese.  Often, China was ruled by foreigners or dominated by them.  The most recent set of invasions was from the South and East China Seas.  It should surprise no one that Chinese are determined to defend the approaches to their coasts or that, to this end, they are developing what the Pentagon calls “anti-access, area denial” or A2/AD capabilities.

The Chinese People’s Liberation Army’s rapidly strengthening capabilities have become a formidable impediment to anyone planning to mount an attack on China or on shipping approaching or leaving Chinese ports.  The United States has repeatedly declared that we see China’s new ability to control its periphery as a threat to us.  The Chinese take this, our plan to “pivot” much of our military to their frontiers, and our aggressive patrols of their defenses as ipso facto evidence of U.S. preparation for war with them.  The United States and China are caught in a classic “security dilemma,” in which each side’s defensive moves are seen as threats by the other.

The contest between our determination to defend our continuing military primacy in the Indo-Pacific and China’s imperative of keeping potentially hostile armed forces like ours at bay is clearest in the South China Sea.  Though long claimed by both China and Vietnam and fished in by the Philippines, this was traditionally a no-man’s land – part of the regional commons where fishermen from all the littoral countries felt free to ply their trade.  But, in the late 1970s and early ‘80s, Malaysia, the Philippines, and Vietnam seized most of the land features in the Spratly Islands in an effort to secure its seabed resources for themselves.  A decade later, China took the few rocks and reefs that were left.  It has since turned these into islands with secure harbors, garrisoned them, and built airfields on them.

The U.S. and PLA Navies are now engaged in escalating games of chicken around these artificial islands as well as along the coasts of the China mainland.  Both navies are highly professional.  The danger of an accident is therefore low, but the risk of miscalculation is high.  Should actual combat between our armed forces occur, it could rapidly widen.

In the East China Sea, the United States has pledged to back Japan’s claims to the Senkaku (or Diaoyu) islands.  These are barren rocks about one hundred miles east-north-east of Taiwan and two hundred and fifty miles west of Okinawa.  Chinese in both Taiwan and the mainland claim them as part of Taiwan.  Armed Japanese and Chinese coast guards began patrolling them a decade ago..  At least for now, both seem determined to manage their differences prudently.  Neither wants a war.  Still, there is a decided risk that we Americans might be dragged into a bloody encounter between Chinese and Japanese nationalism.

But the greatest danger of a Sino-American war is Taiwan.  Taiwan is a former Chinese province that was recovered from its Japanese occupiers by Nationalist China at the end of World War II.  In 1949, having been defeated everywhere else in China, Chiang Kai-shek and his Nationalist forces retreated to it.

The universal expectation at the time was that the People’s Liberation Army would cross the Taiwan Strait and unify China by finishing off Chiang and the Nationalists.  But, when the Korean War broke out, the United States intervened to prevent its widening through a PLA invasion of Taiwan or a Nationalist attempt to retake the China mainland.  We Americans thus suspended but did not end the Chinese civil war.  To this day, we remain committed to preventing war in the Taiwan Strait.  To this end, we continue to sell weapons to the island.  China sees this as hostile interference in a quarrel among Chinese in which foreigners should not involve themselves.

Behind its U.S. shield, over the course of seventy years, Taiwan emerged as a prosperous democratic Chinese society with decidedly mixed feelings about whether it should be part of China.  The island is now ruled by a political party that is deterred from declaring independence from China only by its realization that this would trigger a violent resumption of the Chinese civil war that would almost certainly destroy Taiwan and its democracy.

Chinese on the mainland see their country’s continued division as an artifact of U.S. policy.  While they have pledged to try to resolve their differences with Taiwan peacefully, they remain determined to erase the humiliation that the continued foreign-supported separation of Taiwan from the rest of China represents.  War is not imminent, but it is an ever-present danger, with the potential to produce a nuclear exchange between China and the United States.

Taiwan illustrates the dangers of managing disputes by relying exclusively on deterrence to the exclusion of diplomacy.  Deterrence can inhibit the outbreak of war, but it does nothing to resolve its underlying causes.  In the case of Taiwan, the United States lacks a diplomatic strategy to encourage the parties to the dispute to address and resolve their differences.  In default of a strategy, we are now doubling down on our politico-military support of Taiwan.  But if Beijing loses confidence in the possibility of a peaceful reconciliation with the Taiwan authorities, it will be increasingly tempted to use force.  This is precisely the trend at present. We have no plan to deal with that trend other than to prepare ourselves for combat.

China enjoys widening military superiority over Taiwan.  Many judge that it could already defeat an effort by us to defend Taiwan.  The PLA need not invade Taiwan to devastate it.  Taiwan would be the main loser in any conflict whether the U.S. supported it or not.

A Sino-American war over Taiwan could quickly escalate to the nuclear level.  China has a policy of no-first-use of nuclear weapons but it could deliver a devastating counterstrike on the U.S. homeland if we attacked it.  There is very little substantive contact between the U.S. and Chinese militaries, and there are no mechanisms for escalation control in place.  It is not clear how either side could fend off domestic pressures for escalation if we come to blows, as we may.  Instead of exploring means of establishing and managing a strategic balance with China, we are withdrawing from the Intermediate Range Nuclear Forces (INF) Treaty in part to enable us to deploy nuclear weapons closer to China.

For better or ill, the admirably liberal Chinese society on Taiwan cannot assure its security or prosperity without reaching some sort of accommodation with the much larger, authoritarian Chinese society on the other side of the Strait.  Sooner or later, Taiwan will have to negotiate a durable modus vivendi with the mainland.  Current U.S. policies help Taiwan avoid hard choices even as the balance of power shifts against it.  We are inadvertently helping Taiwan set itself up for a Chinese offer it will be unable to refuse.  Meanwhile, US-China relations are increasingly hostile politically, economically, and militarily.

What we face with China is not a new Cold War but a contest unlike any we have ever experienced in our 230 years as a constitutional democracy.  China is fully integrated into the global economy.  George Kennan’s grand strategy of containment was based on the correct judgment that, if isolated for long enough, the defects in the autarkic Soviet system would cause it to fail.  China cannot be isolated, and its economy is currently outperforming ours.

The Soviet Union was an overly militarized state that collapsed under the burden of excessive defense spending.  China has kept the proportion of its GDP devoted to its military at or below the level of our European “allies,” whom we accuse of spending too little on their defense.  The Soviet Union controlled satellite countries and sought to impose its ideology on others, including us.  The Chinese have no satellites and are notorious for not caring at all how foreigners govern ourselves.

Our competition with China is primarily economic.  It will not be decided by who has the more appealing ideology, the most aircraft carriers, or the greatest stash of nuclear weapons, but by who delivers the best economic performance and by which country’s statecraft is soundest.

Are we ready for such a contest?  Let’s look at the bright side.  Maybe it will challenge us to get our act together.  Let’s hope so.

It doesn’t seem to matter which political party controls the House or Senate.  Congress still can’t pass a budget or otherwise set national priorities.  When it’s not shut down, our government runs on credit rollovers.  Our debt is out of control.  So far this century, we’ve committed almost $6 trillion to wars we don’t know how to end.  Meanwhile, we’ve deferred about $4 trillion in maintenance of our rapidly deteriorating physical infrastructure.  We are disinvesting in our human endowment, cutting funding for our universities and scientific research.  Our government is bleeding talent.  This is not our finest hour.

And, if allies are assets rather than liabilities, the willingness of our security partners abroad to follow us is more uncertain than at any point since we became an active world power seven decades ago.  We are withdrawing from international agreements and institutions, not seeking to shape them to our advantage or crafting new ones.  Instead of asking our allies to do more to defend themselves, we are asking them to pay us to defend them.  Our Senate can no longer bring itself to consider, let alone ratify treaties – even those we ourselves originally proposed.  In short, we are not leading the world as we once did.  We’re not part of the solution to transnational problems like global warming or arms control.  Instead, we are becoming active obstructionists of solutions to pressing global problems.

The social mobility that once made equality of opportunity a reality in our country has ebbed away.  Our wealthy are getting richer; those less fortunate are not.  We have the highest percentage of our population imprisoned of any country in the world.  That superlative aside, on many other measures of international excellence, we have complacently fallen to levels of mediocrity.  Our students are thirty-eighth in math proficiency and twenty-fourth in science.  We rank forty-second in life expectancy, forty-fifth in press freedoms, nineteenth in respect for the rule of law, and seventeenth in quality of life.  Need I go on?

There’s a lot to fix at home before we can be sure we have what it takes to go abroad in search of dragons to destroy.  There is a real danger that we have taken on more than we can handle.  China is guilty of malpractice in several aspects of its trade policies.  We are right to demand that it correct these.  Experience strongly suggests that, if we work with others of like mind in organizations like the World Trade Organization to persuade China to do so, we can move China in desirable directions.  An across-the-board assault on China of the sort we have just mounted is not only likely to fail, it entails risks we have not adequately considered.  These risks include armed combat with a nuclear power.  And China is getting relatively stronger, not weaker, even as our inept handling of foreign affairs increasingly marginalizes the United States in areas of human endeavor we have traditionally dominated.

We have given inadequate thought to how to leverage China’s rise to our advantage.  Trying to tear China down will not succeed.  Neither will it cure our self-induced debilitation as a nation.

We have launched a comprehensive competition with China for which we are not ready.  We cannot afford to learn this the hard way.  Whatever we do about China, we have to get our act together and do it now.

[1] See https://www.pogo.org/investigation/2018/02/americas-national-security-budget-nearing-12-trillion/