Page 2 of 2 The highs and lows of Sino-US relations
By Jing-dong Yuan
multiple dimensions, as does its influence over regional - and increasingly
global - affairs, including the critical issues of nuclear arms control,
disarmament and non-proliferation.
Washington's responses to China's rise have varied from constructive engagement
of the first Bush and Clinton administrations to the George W Bush
administration's early viewing of the country as a strategic competitor, to the
current policy of engaging while hedging China in what is described as a
candid, constructive and cooperative bilateral relationship. To a great extent,
the policy is largely driven by the ongoing debates
on the future direction of China and US preoccupation with the global “war on
terrorism”, in particular its deep entanglement in both Afghanistan and Iraq.
To Bush's credit, he is leaving the next administration a relationship that is
stable as much as it is complex.
It's all about economy
Perhaps the one certainty in Sino-US relations in 2008 is the continued growth
in their economic interdependence in trade, investment and now, to use former
secretary of treasury Larry Summers' terms, the "balance of financial terror"
as a result of the recent crisis that hits China and the United States alike.
Despite the growing deficits, US-China trade continues to grow. In 2007,
bilateral trade registered a record of $386 billion, placing the United States
as China's second largest trading partner after the European Union. This year,
where statistics are available, two-way trade in the first 10 months reached
$345 billion, likely to project the annual total to well over $400 billion.
Whether or not that threshold can be crossed remains questionable given the
recent slow-down in Chinese exports, due, in large part, to the global
recession in the aftermath of the subprime and housing crisis, bank failures,
massive layoffs and subsequent consumer contraction.
China and the United States have never been this interdependent in their
bilateral economic ties. American companies have invested in - and relocated
manufacturing to - China, thanks to the country's liberal policies to attract
foreign direct investment. Accumulated US investments in China are estimated at
$57 billion through the end of 2007. US companies have established over 20,000
equity joint ventures, contract joint ventures and wholly foreign-owned
enterprises in China. This close economic interdependence has benefited both
countries but also created friction. Trade imbalance is front and center among
other disputes.
Indeed, with rare exceptions over the past three decades, the US has
consistently registered ever growing trade deficits with China. In 2007, this
amounted to $256 billion and in the first 10 months of 2008, the US trade
deficit stood at $223 billion and was well on its way to surpassing last year's
figure. Understandably, this perennial trade imbalance has always been and, in
recent years, become even more prominent, in bilateral economic relations. In
the past, the US government resorted to threats of imposition of tariffs in
response to what Washington considers to be market noncompliance behavior and
policies, such as export subsidies, restricted market access to US goods and
companies and an undervalued Chinese currency. In addition, intellectual
property rights violations, product quality and food safety have also become
serious economic disputes Washington has with Beijing.
Since late 2006, the two governments have sought to address these disputes
through the establishment of the SED. So far, five rounds of meetings have been
held and important documents signed. What Washington has sought, through the
process, is to focus on three themes in particular:
Maintaining sustainable growth without large trade imbalances.
Continued opening of markets to trade, competition, and investment.
Cooperation on energy security, energy efficiency and the environmental and
health impacts.
Criticisms as well as praise for the SED process abound. Beijing hopes that
dialogue would serve as a predictable way of managing the growing friction -
which it blames on the US as much as it pledges to address some of the issues
raised - without resorting to trade wars. Indeed, on the issue of imbalance,
Chinese officials consider US figures as exaggerated. In addition, US
consumption patterns, low saving rates, multinational corporations' global
sourcing strategies and the US government's reluctance in relaxing restrictions
on high-tech exports to China also contribute to its trade deficits. And
Beijing finds it unfair to shoulder all the blame since total US trade deficits
with East Asia have actually declined in the last decade compared to other
regions.
Beijing and Washington also dispute the real value of the Chinese currency.
Since 2005, the Chinese government has allowed the yuan to float within a
certain band width against other major foreign currencies and subsequently it
has appreciated over 20 percent and continued an upward trajectory until the
recent economic recession in developed countries, which have reduced demand for
China-originated goods. In response, Beijing has introduced export-stimulating
mechanisms, including tax reduction and currency devaluation.
Looking forward
The Obama administration faces both challenges and opportunities in responding
to China's continued rise as a political, military and economic power on the
global stage. Beijing and Washington have been able to cooperate on a number of
issues that advance both countries' security interests. At the same time, there
remain significant differences and obstacles to further cooperation given
Beijing and Washington's differences over the priorities, approaches and some
substantive issues in managing current and future proliferation challenges.
Failing to manage these differences could have serious long-term implications
for regional stability and the prospect of peaceful transition for both China
and the United States.
While Beijing and Washington have many differences due to history, ideology and
geography, growing economic interdependence and shared regional interests also
offer opportunities for cooperation. China and the United States produce 40% of
global greenhouse gas emissions and are the world's the top two oil consumers.
Their policies have important impacts on the environment and energy security.
To their credit, they have developed the 10-year Energy and Environment
Cooperation Framework that could help address these important issues. The Obama
administration would be well served to continue and expand the existing
bilateral security and economic dialogue to manage differences and avoid
conflicts. In these difficult times, it is especially critical not to succumb
to trade protectionism.
The Obama administration should continue to encourage China's integration into
the international system and its growing role in global and regional affairs as
a stakeholder. It should be pointed out that Beijing has no intention, at least
for the next two decades, to openly challenge core US interests; nor does it
harbor any ambition to replace the US as the reigning superpower. While
advocating a multipolar world, China is fully aware of its own limitations and
the risk of alarming its neighbors should it launch a bid for global dominance.
Its utmost priorities remain economic development and growth so as to maintain
domestic harmony and stability.
But Washington must also be sensitive to and cognizant of Beijing's core
interests and its desire to be recognized and treated as an equal partner with
regard to the Taiwan issue and in Northeast Asia. Most critically, it needs to
be assured of US intentions in the region as Washington strengthens its ties
with Tokyo, Seoul, Canberra and New Delhi. This requires better and more
regular channels of communication between the two countries.
China is rising and there are important implications for the United States that
require Washington's attention and policy adjustments if need be. First, at the
strategic level, is the need to understand and assess the nature and the
trajectory of the rising Chinese power, and patterns and likelihood of future
Chinese diplomatic behavior, its exercise of power resources in areas affecting
US interests, and the limitation of that power. Will China's approaches to its
allies offer unique insight into how Beijing may likely behave in the future?
Second, from a policy perspective, China and the United States may share common
but not necessarily identical interests on many global and regional issues, and
can differ in significant ways on priorities and approaches due to differences
in threat perceptions, interests, and cost-benefit calculations. And
perceptions, interests and preferences can change because of changes in
international, regional and domestic circumstances. Recognizing the complexity
of the bilateral relationship, Beijing and Washington can still - and should -
make it a cooperative, candid and constructive one.
Dr. Jing-dong Yuan is director of East Asia Non-proliferation Program at
the James Martin Center for Nonproliferation Studies, and an associate
professor of International Policy Studies at the Monterey Institute of
International Studies.
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