The United States and China must find ways to cooperate if the rebalance of American policy toward Asia is to succeed. New leaders in Washington and Beijing should put aside their mutual mistrust, learn to avoid unhealthy competition, and find ways to cooperate. Only then can the Obama administration address troubling territorial disputes and regional tensions, forge a new approach to North Korea, and enact an ambitious economic agenda.

Douglas H. Paal
Paal previously served as vice chairman of JPMorgan Chase International and as unofficial U.S. representative to Taiwan as director of the American Institute in Taiwan.
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The next U.S. administration will inherit America’s huge and growing stake in the Asia-Pacific region, one that offers the greatest promise of any region for the American economy through trade and investment and some of the greatest challenges for U.S. foreign policy and diplomatic relations. The region is vast and diverse, something that bumper stickers cannot encompass.

America’s relations with each nation in the region are important and require tailored care. It is a unique historical moment, however, where no bilateral relationship will be successful if Washington fails to handle relations with China wisely. And the greatest challenges facing this relationship—a deficit of trust, regional tension over territorial sovereignty disputes as well as U.S. and Chinese domestic hurdles—have implications well beyond the bilateral aspects.

The peace, stability, and continued economic growth of all Asia-Pacific countries are at stake. China’s renaissance poses huge challenges and opportunities, which cannot be left to chance, political whim, or amateurs. The age of entrusting U.S. foreign relations to transatlantic veterans must yield some space to talents of wider experience and scope.

China’s neighbors assess its renaissance with a combination of admiration and concern. They have profited from China’s economic growth, and China has recently provided sources of economic dynamism no longer found in the United States or Europe. At the same time, after two hundred years of weakness, China’s behavior as a newly strengthened state under Communist Party rule provokes anxiety. China is becoming more assertive in its responses to territorial sovereignty disputes, and its influence on international and regional affairs is growing.

The United States must learn to forge a pattern of relations with China that will pass the test of support from its regional friends and allies.

In order to manage Chinese prerogatives as well as American imperatives in the Pacific, the United States must learn to forge a pattern of relations with China that will pass the test of support from its regional friends and allies. This policy should have at its core upholding the stability and rules-bound system that has delivered growing success for small and large powers alike for decades while accommodating the reemergence of China as an increasingly important power with a voice in regional and global affairs.

America’s friends do not want to be forced to choose between the United States and China, with which they have profitably increased their interdependence. If they need to choose, it is in the U.S. interest that it is because Chinese misbehavior pushes them closer to the United States.


For decades, Asia has been the setting for American claims of fostering success stories. Asia’s developing economies improved the standard of living for their citizens beyond imagination and for the most part avoided cataclysmic conflicts. The United States has been unchallenged militarily and economically, and truth be told, it was the consumer of last resort that fueled the region’s rise.

Paul Haenle
Paul Haenle holds the Maurice R. Greenberg Director’s Chair at the Carnegie Endowment for International Peace and is a visiting senior research fellow at the East Asian Institute, National University of Singapore. He served as the White House China director on the National Security Council staffs of former presidents George W. Bush and Barack Obama.

Eight presidents of both political parties chose a policy of engagement with China that spread benefits widely. This engagement was combined to varying degrees with a hedging strategy in case the bet on China’s peaceful development began to go wrong.

China’s rise to the status of the world’s second-largest economy over the past eighteen months roughly coincided with the downgrading of America’s credit rating for the first time in its history. The financial crisis in the West and robust growth in China have contributed to feelings of resentment and triumphalism in the United States and China.

Many Chinese see a window of opportunity to assert themselves and challenge American economic and geopolitical predominance. But these shifting trends have also fed Chinese fears that the United States will seek to prevent China’s rise in every possible way and nurtured American resentment of Chinese gains at the expense of U.S. workers and influence. In the U.S. presidential campaign and China’s contemporaneous hidden political process, neither country’s leaders earned awards for educating their publics beyond these simplistic judgments.

Of course, these were not the only developments in the Asia-Pacific region that shaped the situation the new Obama administration must manage.

Elections are under way in South Korea, and the North Korean transition to a youthful dictator continues with deflating optimism for change. In the absence of a political mandate, Japanese politics drift dangerously toward a rightist, hawkish new government with elections coming soon. Myanmar is staggering to catch up with its more advanced Southeast Asian neighbors, even as the Association of Southeast Asian Nations (ASEAN) struggles to remain cohesive in the face of Chinese separatism. And Australia is formally debating the nature of its future relationships with the United States and China, even as it is deepening cooperation in its security treaty with New Zealand and the United States.

The Obama administration has sought to rebalance American policy toward Asia since the middle of 2011. The rebalance, or misnamed “pivot,” is usually depicted in military or security terms, with America shifting its focus and resources from the wars in Iraq and Afghanistan back to the Asia-Pacific region, where U.S. economic and security interests are greater. In fact, rebalancing was originally an integrated strategy with military, diplomatic, and economic initiatives intended to strengthen U.S. involvement in the region, symbolized by President Obama’s ten-day trip through Asia in November 2011.

Douglas Paal

Over the course of 2012, however, this strategy largely disintegrated as regional events and the U.S. election cycle unfolded. The free trade initiative of eleven nations, known as the Trans-Pacific Partnership, was kept quiet to avoid controversy over trade during the elections. The diplomatic initiative to return the United States to the center of Asian efforts to build a regional security and economic architecture marked time. Meanwhile, the Department of Defense marched forth dutifully with declarations of intent to strengthen military ties and sustain the U.S. military presence. Despite ritual U.S. protestations, the latter was seen in China and some other places as an effort to counter China’s rise.

Unforeseen events complicated the picture. Tensions erupted between the Philippines, Vietnam, and China in the South China Sea, between Japan and China in the East China Sea, and between Japan and South Korea over disputed but relatively insignificant territorial claims. The United States became entangled in these disputes, further straining U.S.-China relations. Nationalist sentiment was roused throughout the region, forcing relatively weak governments to take stances that are tougher than they are wise.

These developments reinforced strategic mistrust between the United States and China, especially between their political and security establishments. The two militaries started as enemies in the Korean War and have never achieved stable levels of trust. Repeated crises since China’s Tiananmen incident in 1989, combined with China’s determination to expand its military capabilities, have increased both U.S. concerns about future tensions and China’s resolve to reduce its vulnerabilities.

The New Administration’s Agenda

The incoming administration faces a cascade of decisions that will largely be viewed as relatively low priorities in the American domestic context but that could prove supremely important in terms of the future of great-power relations and the future of the American economy if they are mismanaged. If Beijing and Washington, despite their many complementarities, fail to manage their very real differences, the potential costs are unimaginable. The trick will be to exploit the complementary aspects of the U.S.-China relationship to resolve, contain, or, if deterrence fails, defeat the threats that differences may produce.

The new administration needs to decide how to position the United States in relation to China. This will not be a binary process, but one with many complicating factors, starting with the formulation of policies to revitalize the American economy. A confident and growing United States will have few impediments to exercising its influence.

Restoring U.S. competitiveness requires an end to talk and the implementation of a coherent strategy to make the American revival a reality. This will be enhanced if, as seems likely, China’s skyrocketing growth trajectory encounters the transitional difficulties that other states that followed the Asian development model have met after the initial takeoff phase.

The Politics of the U.S.-China Relationship

The agenda going forward has political, economic, and military dimensions. Politically, the newly reelected American administration will be dealing with a newly recast leadership in Beijing. Early interactions between the two sides will assume outsized symbolism as indications of the directions in which new leaders may seek to proceed.

The leadership transition in China, which seemed to be confidently in hand in late 2011, became much more uncertain as 2012 unfolded, following the disgrace of the Communist Party chief in Chongqing, Bo Xilai. As the struggle unfolded behind the scenes, China’s external diplomatic behavior continued to grow more outspoken, increasingly in contrast with the late Deng Xiaoping’s cautionary approach of having China take a low profile and bide its time.

The ability of China’s new leadership to consolidate power, maintain legitimacy, and manage dealings with its neighbors will be significant in determining the success of future U.S.-China relations.

This trend has been gaining strength since about 2008, and it was abetted in 2010–2012 by China’s neighbors’ actions as well. Outsiders do not know, however, how much external events influenced China’s internal politicking, and vice versa. The ability of China’s new leadership to consolidate power, maintain legitimacy, and manage dealings with its neighbors will be significant in determining the success of future U.S.-China relations.

But American policymakers would be wise to carefully consider how their actions and words are perceived in China, lest they produce unintended negative results. In the case of the Obama administration’s rebalancing, what began as an integrated approach to the region increasingly became seen in China as a military and economic effort to hold China’s development and destiny in check. This was never the American intent, but insensitive word choices and symbols sent a different signal.

People in the U.S.-Asia Nexus

Whatever the fluctuations in China’s leadership or that of other major countries in the region, they tend to rely on professional bureaucracies for practical advice on how best to advance their own country’s interests internationally. These bureaucracies can be very effective in bridging the gaps between meeting the domestic needs of their masters while maximizing the benefits and minimizing the costs of their foreign relations.

China is about to field a new team of foreign policy managers, though largely composed of familiar and knowledgeable figures. For the new American administration, the challenge is to bring forward the best possible team to assist U.S. leadership as the United States deals with a landscape of evolving geopolitics.

Policymakers are adjusting diplomacy and security postures to accommodate and moderate China’s new capabilities and intentions, yet the United States retains huge economic and military advantages that make this far more than a zero-sum game in which China rises and the United States declines. Confident and skillful people are needed to manage America’s interests as the situation in the Asia-Pacific region becomes more complicated.

Confident and skillful people are needed to manage America’s interests as the situation in the Asia-Pacific region becomes more complicated.

There are key positions to be filled at the level of assistant secretary of state for East Asian and Pacific affairs, National Security Council staff senior director for Asian affairs, and assistant secretary of defense for Asian and Pacific security affairs. These should be viewed as a team with deep experience that is balanced to complement each other’s strengths in the region.

Finally, there is a huge surplus of mistrust between the peoples of the United States and China, especially in their militaries. The U.S. president’s cabinet would benefit from having at least one or two officers with hands-on experience in the Asia-Pacific region. Choices of commanders in the armed forces are complex, but adding qualifications of Asia work experience for certain positions is essential.

Sustaining and deepening military-to-military interaction can only help both camps demystify the other side and hopefully improve communications to reduce misunderstandings. China’s greater military reach, especially at sea, but also in the air, space, and cyber domains, will challenge the U.S military and its partners to adjust doctrine and strategy.

The United States will transition from the post–World War II posture in the western Pacific of near impunity to one more familiar in history in which powers seek to balance each other and must calculate a new mix of risks and benefits in protecting America’s interests. This will challenge commanders and policymakers in an increasingly constrained budgetary atmosphere. Burden sharing with allies and partners will play a larger role.

The Economic Agenda

Beyond returning America to better economic health, there will be a multifaceted economic agenda in the Asia-Pacific region. The Trans-Pacific Partnership, which was an idea from four regional countries, has grown to include eleven, including Mexico and Canada. In the wake of the collapse of the Doha round of global trade talks, this high-quality and ambitious negotiation has the potential to both unlock growth and help the United States stay abreast of proliferating regional and subregional free trade arrangements.

The U.S. negotiating team will need strong support from the president and related agencies to carry the negotiation to completion. The public, moreover, needs to be educated about the value of such an agreement after political campaigns that paid little attention to the positive aspects of international trade.

Washington needs to quickly get past any talk about declaring China a currency manipulator. China’s surplus was 10 percent of GDP in 2009 when Treasury Secretary Timothy Geithner pleaded with his Chinese counterparts that they revalue the currency and get the surplus down to 4 percent of GDP. Today, that surplus has shrunk to a normal 2 percent. Currency is not the issue.

The Trans-Pacific Partnership has the potential to both unlock growth and help the United States stay abreast of proliferating regional and subregional free trade arrangements.

But there are plenty of trade issues to take up with China and other regional trade partners. American business is largely prospering in China and China is America’s second-largest trade counterpart and fastest-growing export destination. As the United States seeks to restore economic dynamism at home, these facts must not be forgotten.

At the same time, China’s pace of domestic economic reform has slowed over the past five to seven years, and this has imposed trade and investment impediments that are preventing or reducing market access. The new administration requires a strong team of trade negotiators who can target the 100 or so market-access bottlenecks in China.

Moreover, China is at the beginning of what promises to be a massive campaign of outward investment that could benefit American workers. Administration representatives will be asked to review potential investments many times for their impact on national security. It is imperative that these reviews are as transparent as possible and that they do not end up sending the mistaken signal that no investment is welcome in the United States. That implication would be completely incompatible with U.S. national economic priorities, inconsistent with the American tradition of welcoming and benefiting from foreign direct investment, and likely invoke reciprocal constraints on U.S. investors.

Regional Architecture and Territorial Disputes

The Obama administration did well to embrace the Asia-Pacific hunger for a new regional security and economic architecture. Secretary of State Hillary Clinton will long be remembered for her early and continued commitment to deep engagement in the region. The president’s decision to travel to Southeast Asia to attend the East Asia Summit and visit Thailand and Myanmar shortly after his reelection reinforces this engagement.

But the job is not done. China and the United States, both probably unlikely to win the other over with an architectural plan devised by itself, acquiesced to Southeast Asian leadership under ASEAN to construct a pattern of summits and ministerial meetings to address security-related issues.

ASEAN has always been more amorphous than sharply defined in its mission, probably reflecting the big gaps in development and political systems among the ten member nations. In 2012, ASEAN came perilously close to failing a major test when its leaders met collectively in Phnom Penh and could not even produce an agreed communiqué for the first time due to Chinese pressure on the Cambodian chair over territorial disputes in the South China Sea.

China perceives ASEAN’s efforts to collectively support members in their bilateral territorial disputes with China as a fateful negative move, and it used its influence to frustrate the meeting in Cambodia. Moreover, Beijing has begun to seek means to teach ASEAN a lesson that its role can be made less relevant if China judges ASEAN as less than neutral in these disputes and in its relations with Washington and Beijing.

Like the contemporary dispute over the Senkaku/Diaoyu Islands in the East China Sea, there is blame to place on all sides for mismanagement of these minuscule and strategically insignificant specks of land. Going forward, the United States has a continued interest in not taking sides on the specific disputes but nonetheless insisting on rules-based, nonviolent means of managing and ultimately settling them. The United States will have to reckon with China’s growing sense that its fleets of civilian administration ships can successfully advance Beijing’s territorial claims through continuous presence in disputed waters while avoiding more confrontational naval deployments.

Moreover, the view has taken hold in influential Chinese circles that Beijing’s concerted efforts to assert authority over disputed territory in the Scarborough Shoal claimed by Manila have shown that American intervention in the South China Sea dispute has proved feckless and even counterproductive. Similarly, Beijing believes it has successfully diluted Japanese administration of the Senkaku/Diaoyu Islands through nonmilitary means, weakening the effectiveness of reassurances from Washington about the U.S.-Japan alliance.

Given the low strategic and economic value of the disputed territories, and the high potential costs to the United States and China of direct confrontation, China increasingly sees itself with the advantage.

The new U.S. administration will be challenged to defend its policy against charges that it is failing to stem Chinese expansionism through stealthy means. Regional partners will look for greater assistance in strengthening their capabilities against a Chinese rival with deeper pockets. Senior officials’ creativity will be tested in responding to partners’ needs and in positioning the United States for long-term competition with China. It is new, unfamiliar policy territory.

If the dream of an Asia-wide security mechanism (or mechanisms for Northeast Asia and Southeast Asia) is to become real, norms for peaceful management of disputes will need to be cultivated and enforced. Thus, the United States will likely benefit from renewing proactive diplomacy to promote internationally accepted rules of the road. To do this, the United States must find the fine balance between protecting its alliance relationships while avoiding the pitfalls of conflict over territorial disputes of marginal value even to the disputants.

North Korea

Always a special case, tragically for its long-suffering people, North Korea is enduring the second succession of its Kim Il Sung Communist dynasty, with equally unpredictable prospects. This moment is complicated by elections in South Korea, where the new president is likely to soften the hardline approach to the North of the outgoing Lee Myung-bak government.

The incoming administration will do well to allow a few months to pass for both Washington and Seoul to put personnel in place and find their policy footing before gathering bilaterally to examine policy toward North Korea.

The first Obama administration reached out to reduce tensions and to make progress toward denuclearization with Pyongyang but suffered repeated rebuffs and setbacks. Only a few Americans continue to urge the U.S. government to try again under prevailing circumstances.

The incoming administration will do well to allow a few months to pass for both Washington and Seoul to put personnel in place and find their policy footing before gathering bilaterally to examine policy toward North Korea. But North Korea can be expected to play by its own rules, and some combination of provocation and flattery cannot be ruled out.

Beijing has a role to play, but it has held back so far, fearing destabilization of the North and the loss of a buffer state between China and American-allied South Korea. These Chinese concerns run deep and will not change easily. In recent years, however, Chinese experts have grown increasingly vocal about the downsides of Beijing’s relationship with Pyongyang.

Over the first few months of new administrations in both Beijing and Washington, it will be worth testing to see whether the Chinese policy consensus on North Korea is changing and whether there is greater opportunity for cooperation to manage the North Korean nuclear and missile threat.

Getting Policy Right

The U.S.-China relationship is too consequential to move along a deliberate path of confrontation. China and the United States have shared interests in regional and international peace and prosperity and must find ways to cooperate and avoid unhealthy competition. Economic interdependence makes developing more open communication and increased trust of the utmost importance. Both countries need a beneficial and predictable relationship based on mutual respect and fairness in policy and practice.

In the final presidential debate, President Obama referred to China for the first time as an “adversary.” China’s new leader, Xi Jinping, has promoted a novel concept, which he calls a “new kind of great-power relationship” that apparently means finding a way for a rising power and an existing power to avoid conflict. Obama should seek an early opportunity in the next year to deeply probe Xi’s thinking in private to help make this a reality.

China and the United States have shared interests in regional and international peace and prosperity and must find ways to cooperate and avoid unhealthy competition.

The first scheduled meeting between the two presidents will not occur until the G20 meeting in 2013. Given the looming challenges between Beijing and Washington, Obama would do well to break with precedent and invite Xi Jinping for a long, unscripted weekend chat in Hawaii early in their new terms. This sort of exploration of their mistrust and capacity for cooperation should be welcomed by both sides. And an offer of this sort would be seen as a sign of the U.S. president’s strength, not weakness, and of respect for his Chinese counterpart, providing a constructive basis for managing the coming challenges.