The Sino-American Split and its Consequences

The Sino-American Split and its Consequences
The Foreign Policy Association’s Centennial Lecture Series

Ambassador Chas W. Freeman, Jr. (USFS, Ret.)
Senior Fellow, Watson Institute for International and Public Affairs, Brown University
New York, New York, 13 June 2019

We Americans are working hard at making xenophobia great again.  Every day now brings reminders that few phenomena are as discomfiting as the sight of the American people in one of our periodic fits of nativism.  Contemporary Know-Nothingism is enriched by the guesstimates, conjectures, a priori reasoning from dubious assumptions, and media-generated hallucinations that populate our social and niche media.  These fantasies now largely star China, along with a cast of lesser demons — Russia, Iran, Cuba – all of whom are said to have recently taken up residence in Venezuela.  That is, of course, a socialist snotbag a mere 1,600 miles from our southern shores.  It is famous for beautiful women, and not terribly credible as an enemy – unless you invade it.

But, finally, in China, we Americans have a cure for enemy deprivation syndrome – the sick feeling that affects military-industrial complexes when their adversaries unexpectedly throw in the towel, leaving them without a diabolical enemy to keep them in shape and in the money.  The Soviet Union is dead, but China is having a comeback!  Praise the Lord and pass the ammunition — and the cash to buy more of it!

Sadly, however, Moscow’s surprise default on its Cold War contest with Washington is not a reliable predictor of how a struggle with Beijing will turn out.  If you’ve seen one communist, you’ve not seen them all.  Unlike Russian Marxism-Leninism, East Asian Market-Leninism works.  Rather than collapsing, China is more likely to continue to gain in wealth and power.  Washington’s policies seem designed to ensure that China’s rise benefits U.S. defense budgets much more than American companies, consumers, and technologists.

No one can be sure how fast or how steadily China will rise, but it seems destined, in time, to resume the preeminent position on the planet that it enjoyed in the millennia before Europeans, Americans, and Japanese humiliated it in the 19th and early 20th centuries.  This means that China will displace the United States from the international primacy our country has enjoyed over most of the past 140 years, when we became the world’s largest economy.  No longer unmatched, Americans will have to engage and share power, including with Chinese and others previously under the Western thumb.

China has been guilty of some highly objectionable behavior, including the sometimes-brazen theft of corporate intellectual property.  But, as Stephen Wertheim, a historian at Columbia University, put it Sunday, “the anti-China turn of the past year has been triggered more by American anxieties than by Chinese actions.”[1]   American Sinophobia has at least as much to do with the factors that fuel populism in U.S. politics as it does with Chinese transgressions.

Many Americans feel slighted by the well-to-do elites who govern them and run the banks and corporations that dominate the U.S. economy.  Americans of all ethnicities resent the collapse of social mobility in the United States, the concentration of wealth in the “one percent,” the stagnant or declining standards of living they are experiencing, and the obscene extent to which the U.S. corporate and financial elite now feathers its own nests.  They blame that elite for abolishing well-paying industrial jobs and transferring them to workers overseas.  Lower-middle class Euro-Americans are particularly unnerved by their imminent reduction to minority status in an America with leaders who often no longer look like them.  They are angered by political correctness that protects every other sort of American from inadvertent offense while dismissing them and their beliefs as “deplorable.”  They are vulnerable to demagoguery that attributes their distress to selfish corporate collusion with China.  Blaming China for their distress may alleviate it.  Sadly, it will not fix it.

The combination of domestic malaise and the ongoing eclipse of our international authority is a severe strain on the American psyche.  It is also a test of American resilience, realism, and willpower.  We know we must reform and redirect tax, investment, labor-management relations, and education policies to reinvigorate America.  Some insist on calling this challenge a threat and fighting the scenario rather than coping with it.  They imagine that China must long to dominate the world as the United States has since World War II.  But, when you take the time to listen to what Chinese say among themselves about their aspirations, it appears that what they want is respect and a bit of courteous consideration by formerly scornful foreigners.  Like their ancestors before them, they demand a status of dignity that induces others to let them prosper in domestic tranquility.

Americans’ difficulties in dealing with this demand arise from China having become rich and strong enough to have stopped kowtowing to U.S. regional and global primacy.  The Chinese no longer see doing so as an acceptable price for being left alone.  It doesn’t help that, in a unique combination of paranoia and complacency, the United States seems determined to retain its supremacy – not by correcting its own deficiencies – but by tripping up and immobilizing China.  While insisting that China become more open, America is itself becoming more closed.

This is an inauspicious dynamic.  The chances that the United States will either leave China alone or that Americans can retain global dominance by crippling China are poor to nonexistent.  Attempting to bring China down is more likely to weaken and impoverish America than to halt China’s advance.

So, what’s now in prospect in Sino-American relations?

Let me begin by agreeing with a key element of the piece Jeremy Halt wrote for the 2019 “Great Decisions” program.  GDP does indeed fail to compare like with like in ways that are relevant to international competition.  It tells us nothing about how economic activity is distributed.  It misses something important when it equates the value added by ditchdiggers or buck-passing financial engineers to additions to national capital by steel workers or Nobel Prize winners.  GDP has its uses as an index of gross economic size and rates of growth, but it doesn’t predict much, if anything, about how a contest will turn out.

Relative economic size is not irrelevant, but national fervor, pride, will, and stamina decide how determinative it is.  When Japan attempted to cripple U.S. military power in the Pacific with its December 7, 1941 attack on Pearl Harbor, its GDP was barely ten percent of America’s.  And yet Japan held the United States at bay for nearly four years, succumbing at last only to nuclear attacks it could not then answer in kind.

So, whether stated at nominal exchange rates or in purchasing power parity (PPP), comparisons of gross economic indicators between China and America are mostly beside the point.  It is far more relevant that Chinese industrial production, now a fourth of the entire world’s, is over one-and-a -half times that of the United States – more than America, Germany, and south Korea combined.  And it matters that the Chinese workforce involved in so-called “STEM” (science, technology, engineering, and mathematics) work is also already one-fourth of the world’s, eight times larger than America’s and growing more than three times faster.

It probably is also an advantage for China that, unlike the United States or the late, unlamented USSR, it is not ideologically messianic.  Chinese do not seem to give a hoot how foreigners govern themselves, though they are, of course, flattered if non-Chinese seek to emulate them.  China is for autocracy at home.  Propagandistic assertions by American ideologues notwithstanding, it does not push autocracy or oppose democracy abroad.

The Cold War is long over.  In the new world disorder that has succeeded it, ideological alignments are weak to non-existent.  The appeal of systems of government depends almost entirely on how well they deliver effective leadership, prosperity, and domestic tranquility to those they govern.  And countries can no longer be forced into allegiance to a great power.  They are free to choose their international partnerships and rivalries and to deal with their foreign partners and adversaries issue by issue.

Without exception, China’s neighbors are apprehensive about the degree to which its rising wealth and power will require them to defer to it, but none fears invasion by China.  Despite American efforts to imagine one, there is no Fulda Gap with East Asian maritime characteristics.  Overwrought American threat-mongering about China is selling much better at home than abroad.  Even in countries traditionally suspicious of China, it has little traction, perhaps because they see next to no benefit and considerable harm from yielding to U.S. pressure to choose between China and the United States.  Tempering alarmism with sycophantic presidential flattery of Xi Jinping and other autocrats is not turning out to be much of a substitute for diplomacy.

China is the largest trading partner of all its neighbors.  It is becoming their biggest source and destination for investment.  It is in their region.  It is not going away.  They don’t want to pick a fight with it.  They won’t join the United States in doing so.

China has century-old claims to islets, rocks, and reefs in the East and South China Seas.  Other claimants to these seized most of them during the Cold War, when China was contained by the United States.  Thirty years ago, China finally occupied the few land features other claimants had not.

For their part, Malaysia, the Philippines, and Vietnam do not seek to dislodge China from the strongholds it has built to establish an immovable presence alongside them.  Despite differences with the United States Navy over how to draw territorial baselines around its bastions, China does not threaten freedom of commercial navigation in the South China Sea.  After all, two-thirds of the shipping there is en route to or from Chinese ports.  It’s hard to ignore these facts unless the prejudicial narratives of the American media miasma prevent one from seeing them.

China makes no demands on its neighbors at present, other than respectful politesse, mutual openness to trade and investment, and the avoidance of collusion with third parties in active threats to its security.  Whether they are historic American allies or not, not one of China’s neighbors has signed onto the current U.S. campaign to isolate China.  They want to use backing from America not to confront China but to strike a balanced and sustainable accommodation with it.

This disconnect in objectives is why the Trump administration’s campaigns to ostracize China have so far been more disruptive of U.S. alliances and international partnerships than harmful to China.  Rather than curbing Chinese influence, these campaigns have undermined American leadership.

Bilaterally, the current US-initiated trade war has imposed immediate costs on the Chinese economy.  Chinese retaliation has done the same to the United States.  American retail businesses and consumers can expect an escalating hit.  The short-term effects of Trump’s trade war are hard to miss.  What’s its long-term impact likely to be?

For one, supply chains and trading patterns are being permanently dislocated.  Ironically, as Chinese producers seek to avoid U.S. tariffs by relocating to Southeast Asia, East Africa, and Latin America, they are being pushed up the value chain at home.  Meanwhile, their added investment in production in other countries is boosting China’s influence there.  Russian, Ukrainian, and other countries’ agriculture is getting a big boost at the expense of American farmers.

The United States has just shown China that it can be a remarkably fickle and unreliable trading partner.  This gives Chinese compelling arguments for buying everything elsewhere.  China had been America’s fastest growing export market.  Washington is writing it off even as it seeks to curtail Chinese capital flows to the United States.

With Chinese companies largely unable to reinvest the dollars they earn from sales of goods and services in America, the Chinese government has been using them to buy treasury bonds.  In this way, China has subsidized the deficits and credit rollovers that the U.S. government now depends upon to stave off shutdown.  So, what might have been job and export-creating Chinese corporate investments in American infrastructure, industry, and agriculture have become passive support for U.S. fiscal profligacy.  The current turn toward Sino-American hostility puts even this symbiotic relationship in jeopardy.  If as some predict, China is about to become a net importer rather than exporter of capital, this will make it a competitor of the United States in global sales of debt.

Chinese financing of U.S. budget deficits aside, we can look at the example of Japan to get a sense of the opportunity costs that excluding Chinese investment in the U.S. private sector will impose on the American economy.  Japan is a U.S. ally.  But, in the 1980s, Japanese companies faced comparable, though less formidable, obstacles to investment in the United States.  As in the case of China, those opposed to Japanese investments based their objections on fanciful national security considerations.  But, before the flow of Japanese capital to the United States declined, it created 700,000 jobs for Americans and built factories that generate well over $60 billion in U.S. exports annually.  By both executive orders and acts of Congress, the Chinese capital that might do the same is now being directed elsewhere.  America’s loss is others’ gain.

It isn’t hard to guesstimate the effects on the U.S. economy of making investment by Chinese companies next to impossible.  The United States has long attracted about fifteen percent of the world’s annual foreign direct investment (FDI).  A decade and a half ago, about that same percentage of Chinese overseas investment came here.  But, as Washington has raised barriers to Chinese participation in the American economy, that percentage has fallen to about two percent of China’s overall FDI.  Over the same period, Europe’s share of global Chinese investment has risen to over thirty percent.

Had we not barred Chinese companies from putting their money to work in our economy, they would be pumping about $80 billion annually into expanding the U.S. private sector and creating jobs in America.  Now, as China ceases to export its savings to us, we Americans won’t see that money.  We better get our own savings rate up.

The Trump-Pence xenophobia is also reminding us that science and technology advance 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.  In artificial intelligence, the figure is sixty percent.  Almost one third of all foreign students here are from China.  If we make them unwelcome, as the Trump-Pence administration threatens to do, they won’t come here to work alongside Americans.

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. From 2016 to 2017, the value of intellectual property grew 19 percent for China.  It grew 10 percent for the United States. It’s clear who has the momentum in science, technology, engineering, and mathematics at present.

By 2025, China is expected to have more technologically skilled workers than all members of the OECD combined.  By severing ties with the Chinese, we Americans are isolating ourselves from the largest population of scientists, technologists, engineers, and mathematicians in the world.  Chinese corporate spending on research and development is growing at twenty percent each year, much faster than anywhere else.  Cutting the United States off from scientific and technological intercourse with China seems more likely to disadvantage American innovation than to retard Chinese progress.

The Sino-American split the Trump administration has engineered has many potential consequences beyond those I’ve mentioned.  I’ll close by briefly pointing out a few more issues for Americans to ponder.

  • We’re playing games of chicken with China in the South China Sea. Backed by us, Japan is doing something similar in the Senkaku / Diaoyu Islands in the East China Sea.  We are only one misstep away from a naval battle with China.  This would be our first naval conflict since 1945 and our very first with a nuclear power.
  • The Chinese civil war was suspended, not ended, by U.S. insertion of the 7th Fleet into the Taiwan Strait in 1950. Our policies now seem to be encouraging some politicians in Taiwan think they have a blank check to take actions that would almost certainly reignite that war.  Meanwhile, we have no dialogue with the Chinese People’s Liberation Army comparable to that we had with the Soviet Army during the Cold War, and there are no mechanisms in place for crisis management or escalation control between Washington and Beijing.  Our politico-military strategy for China amounts to hoping we don’t get into a fight.
  • We’re well into an arms race with Beijing. China has recently tested or fielded carrier-killing ballistic missiles, rail guns, hyper-gliding warheads, quantum satellite communications systems, stealth-penetrating radars, and unprecedentedly long-range anti-ship and air-to-ground missiles, to name a few developments in an ongoing competition we do not appear to be winning.
  • We’re in a competition with China in space too. So far, we’re playing the role of the hare to China’s tortoise  While we dream of flashy adventures on Mars, China is methodically laying a basis for the mining of the moon and asteroids to build habitats and factories at the LaGrange points – gravitationally stable parking places between the Earth and the Moon.
  • We’re trying to smash China’s great technology companies, like Huawei, which we want to exclude from global 5G networks. But there is a good chance that Chinese tech giants, drawing on China’s huge domestic market and the eagerness of international markets for cheap, state-of-the-art equipment, will be able to dominate the world beyond our borders even as inferior U.S. technology retreats within them.
  • China, not the United States, wanted to balkanize the global architecture of the US-managed internet with nationally managed domains. But thanks to American nativism and cyber paranoia, Beijing is now getting what it wanted. The digital universe is being subdivided into sovereign compartments.

President Trump may or may not be making American great again, as he promised.  So far, he has undone deals, not done them, and contracted, not expanded, America’s international reach.  I am among those who think we’re better off trading what we have for what we don’t than trying to make everything ourselves.  But no one can deny that the president and the America Firsters in his entourage are fundamentally altering the world he inherited.  Many abroad now see the United States as a rogue superpower bent on destroying the world order earlier generations of Americans worked hard to create.  The Sino-American split is one of the most consequential elements of global political and technological upheaval, but far from the only one.

A couple of decades ago, Joe Nye, a Harvard professor, observed that, if the United States treated China as an enemy, it would become one.  He’s now being proven right.  Welcome to a 21st century in which the instruments of global governance are increasingly passing from American hands, the competition between great powers is ever more cut-throat, American alliances are decaying, the U.S. ability to enlist the cooperation of other nations is declining, and, despite unmatched military power, the United States has no apparent strategy for halting or reversing any of these trends.

None of this should be at all acceptable to Americans.  It reflects the replacement of strategic deliberation with tweeted decisions generated by apparent midnight hormonal surges, the substitution of militarism, sanctions, and non-negotiable demands for mutual accommodation through international give-and-take, and the repudiation of courtesy in communication with foreign nations in favor of threats, insults, and temper tantrums.  This approach has registered no successes.  Among its most notable failures is the management of relations with China, the world’s most formidable rising power.  Rather than persuading China to change objectionable policies and practices to mutual advantage, what we’re doing promises not just to entrench these but to exacerbate them.  Outright enmity is rapidly succeeding comity.

To be able to compete effectively with rising powers like China and resurgent nations like Russia; to be able to do so with the confident optimism our country has always embodied, we must fix not only our diplomacy but the domestic policies and practices that now divide and weaken us.  We have a constitutional democracy that history has shown can facilitate orderly change.  To bring the immense talents and energies of the American people to bear on the unprecedented challenges our country now faces, we must adapt to new domestic as well as foreign realities.  We Americans have done this before.  And we can do it again.

[1] The New York Times, June 8, 2019, “Is it Too Late to Stop a New Cold War with China?”

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