Stopping the Downward Slide in U.S.-China Relations Xingda Annual Conference October 2019

Thank you. My name is Michael D. Swaine, and I am a senior fellow at the Carnegie Endowment for International Peace in Washington, DC. It is a pleasure to speak with you at the Xingda Annual Conference, an important event that brings together hundreds of VIP business leaders from China and other Asian countries, Europe, and the United States. In our current troubled times in relations between these regions, it is all the more essential for business leaders to meet and discuss ways to best manage the resulting challenges.

I am not a business person, but as a senior researcher in two major think tanks, Carnegie today and the RAND Corporation from 1989–2001, I have for thirty years studied closely the security, economics, and politics of Asia—and China in particular—especially in its relations with the West.

I was asked to give you my take on the increasingly contentious U.S.-China relationship, as arguably the primary driver of uncertainty and turbulence for the global economy and security order today. So, in my brief time with you, I will do three things:

• identify the domestic and external forces driving both competition and cooperation in this critical bilateral relationship and their relative influence;

• point to the strengths and considerable shortcomings of current U.S and Chinese perceptions and policies in managing these two areas of interaction, especially as they relate to economics/trade and sources of political/security friction; and

• say a few words about where we should and where we likely will in fact go in the near- to medium-term future.

What is Going On

It has become somewhat trite but nonetheless true to state that the United States and China stand at a critical inflection point in their relationship, with major implications for global growth and stability; national security; and the lives of individual Americans, Chinese, and others.

In fact, this critical relationship could move toward mutually corrosive, deepening zero-sum rivalry, beyond mere competition, increasing the chances of crises and even conflict. Or it could develop into a more stable set of interactions—a kind of bounded, often positive-sum competition that maintains needed deterrence and reassurance on vital issues and controls or avoids crises while also expanding cooperation where necessary for both nations and the globe. The obvious need is to move in the latter direction, which does not currently appear to be happening.

The dangers that are pushing us along the former trajectory derive largely from the intersection of two sets of domestic instabilities and insecurities, occurring within a larger Asian and global environment of deepening interdependence, integration, and yet destabilizing power shifts. This is a rather complex picture, but I will be brief.

The United States

In the United States, political polarization and dysfunction and social tensions marked by demographic shifts toward people of color, job losses linked to globalization, the emergence of politically extreme social media, the rise of shareholder capitalism and income inequality, the stagnation of the middle class, and the 2007–2008 financial crisis have together created enormous insecurities and uncertainties about the future strength and prosperity of America and its role in the world.

These domestic anxieties are compounded by the rise of China and (to a lesser extent) other economic power centers that cast doubt on the continued ability of the United States to lead globally and to militarily and economically protect and reassure both Americans and U.S. friends and allies.

This polarization, paralysis, and insecurity has led to a strong tendency for U.S. leaders to seek domestic political support and to increase politically beneficial defense spending in their districts by exaggerating and distorting the genuine threats and challenges posed by both privileged domestic economic elites and foreign forces such as China. In the process, leaders ignore or downplay the increasing need to overcome bipartisan differences and to find meaningful ways for the United States, China, and all countries to cooperate to solve an arguably growing array of common problems, such as global warming, pandemics, the proliferation of weapons of mass destruction, and the state of the global financial system.

This insecurity and anxiety have also caused U.S. leaders to refuse to recognize that, in the future, no single power will dominate globally in the way the United States has since World War II. Instead, they rather naively prefer to insist that the United States can double down and stay well ahead of China in virtually all areas.

China

In China, in many ways, a somewhat similar, negative dynamic of insecurity and blame has emerged, also driven by global and domestic social and political instabilities, albeit within the context of a very rapidly developing economy and a one-party authoritarian system. China’s rapid reform-driven development and social change over the past nearly forty years have produced many anxiety-inducing pressures on the Chinese government and society, including:

• high levels of corruption and social unrest resulting from years of accelerated growth and dislocation;
• the additional burdens of an aging society;
• the need to avoid the middle-income trap; and
• the external challenges to the People’s Republic of China (PRC) and its government’s rule posed by the collapse of communism, the Color Revolutions, and the rise of social media and open information systems across the globe.

Moreover, such problems, when combined with China’s increasing dependence on the global economy, have intensified historical fears of outside intervention and interference centered on and often still directed toward a still powerful United States.

These factors have all combined to increase both Chinese national power and an increasingly chauvinistic sense of nationalism among many Chinese citizens, while at the same time stoking the insecurities of the Chinese Communist Party (CCP) and many ordinary Chinese.

As with the prevalence of China blaming in the United States, there is a tendency in China to blame the United States for many of China’s ills, centered on the notion that, as a declining power, Washington will increasingly seek to weaken, contain, or undermine Beijing, despite its need to profit from China’s dynamic growth. Among the Chinese leadership, this long-standing distrust was heightened greatly by the Tiananmen Square Massacre of 1989; various political-military crises such as the 1999 U.S. bombing of the PRC embassy in Belgrade; and most recently the Hong Kong protests, in which many Chinese believe the United States is playing a decisive role.

All of this has led Chinese President Xi Jinping and the Chinese elite to double down on Leninist CCP controls and personalistic ideology over more durable, long-term processes of institutionalization and information flow. In my view, this is a losing strategy for a country that desires to be in the front ranks of modern global powers by mid-century through high levels of technological innovation requiring free information flows. China cannot separate itself in important ways from the global economy and information world without reversing its growth and undermining its domestic stability. I think many in China know this.

Taken together, and despite a growing need for China and the United States to cooperate, these two sets of negative factors affecting both countries are increasing mutual suspicion and distrust and undermining efforts to accurately assess the challenges and opportunities confronting the relationship and any effort to develop a set of mutually beneficial policies that can effectively balance deterrence with reassurance.

Probably the most dangerous dynamics arise from two factors: first, efforts to decouple the two economies and societies (including their deepening technological interdependence) and second, growing friction over the changing power distribution in the critical Asia-Pacific toward an unstable balance of power. Either could produce major damage to the global economy and even a political-military crisis.

What Should Be Done

This situation cries out for a more realistic, balanced, more competitive, yet mutually beneficial form of engagement, requiring significant changes on both sides. This type of modified engagement should involve:

• no demonizing, zero-sum rhetoric;
• clearer red lines (along with some continued ambiguities on topics like Taiwan);
• more credible efforts at both deterrence and reassurance on vital interests;
• a deliberate effort to balance, not dominate, in Asia;
• more robust efforts at Track 1 and Track 2 dialogue to deepen U.S.-China crisis management capabilities; and
• a restoration of America’s ability to compete effectively and inspire others as well as renewed efforts to work alongside other nations and organizations in creating a stable and productive U.S.-China relationship.

The result should be a relationship marked by competition and cooperation, not hostility and threats—a relationship defined by balance, not domination. Although recent U.S. polling indicates an increase in Americans’ concerns about China, it also suggests that much of the U.S. public would support the above commonsense approach to Beijing.

Beyond the above recommendations, an approach to the relationship driven more by common sense could include a variety of additional, specific initiatives that both governments should consider.

United States

To be specific, the United States ought to consider steps such as:

• pushing for revisions to the rules governing the World Trade Organization to more explicitly cover technology and investment issues and to accelerate the dispute resolution process, as bilateral trade deals are not the best way forward.

• pressing for a bilateral U.S.-China investment treaty that has measurable and verifiable goals—the two countries were close to this under the Obama administration, and technology decoupling would be both mutually damaging and virtually impossible to sustain.

• increasing the U.S. capacity to compete economically, especially in Asia by considering policy options such as revisiting the Trans-Pacific Partnership and undertaking government initiatives to contribute to multilateral economic forums in the region while increasing government support for much-needed civilian and military R&D.

• joining, not undermining, the Belt and Road Initiative (BRI) and seeking to influence it from within, as has occurred with the Asian Infrastructure Investment Bank.

• working with Japan to create positive trilateral relations with China, given that Tokyo will not sign onto a zero-sum containment stance toward Beijing that seeks to seal off the Chinese economy from the West and Asian democracies.

• robustly working to reduce the growing level of animosity between America’s two most vital allies in Asia: South Korea and Japan—Beijing might think this trend serves its interests, but an increasingly unstable Northeast Asia would worsen the North Korean nuclear crisis and deepen Sino-U.S. suspicions.

• strengthening defense coordination with Tokyo, as part of a transition toward a defense-oriented, denial force posture in the Asia-Pacific, while exploring the possible middle ground that might be achievable with Beijing regarding military deployments and activities in the Western Pacific, both as part of a possible future stable balance in Asia.

China

China, meanwhile, ought to consider doing things such as:

• supporting serious, high-level civilian and military interactions with the United States in the short to medium term on crisis avoidance and crisis management understandings and mechanisms.

• making the BRI vastly more transparent and inclusive, with a genuine stress on correcting its many deficiencies, using outside (including U.S.) expertise—setting up an international board or oversight committee could be a step toward beginning this process.

• making it abundantly clear that China’s drive for advanced technologies is not intended to supposedly dominate global technology spheres, but to be among the best. Beijing ought to do this by showing a willingness to share certain types of advanced technologies, by being more open to cooperative technology innovation in certain nonsensitive areas, and by drastically curtailing or ending cyber intrusions for commercial purposes, as Xi has pledged to do.

• making a clear, unqualified commitment to not employ force to dislodge other claimants from disputed maritime territorial areas or to establish exclusionary no-go zones outside of territorial waters in the Spratly Islands; all claimants should make such a commitment, but China should lead the way.

• stopping or drastically reducing current repressive policies toward some ethnic minorities such as the Uyghurs. This is a gross Chinese overreaction to a real but manageable problem that is driving deepening suspicion and distrust in the West well beyond the human rights arena.

• supporting the development of discussions with the United States and its allies over the long term on the creation of a stable balance in Asia.

A genuine change toward this more commonsense policy approach will require political and military leaders in both countries to look at the current worsening situation in a more fact-based, objective manner and recognize the highly corrosive effects of the hostile status quo that is emerging. I seriously doubt whether this can occur under the current leaderships in both Beijing and Washington, but it must happen.

If this is not done, more negative events, including increasingly dangerous crises and/or the damage done by a worsening economic relationship, will likely serve to force a reconsideration of existing policies. Hopefully such events will force both sides to step back and work to turn the relationship around. But I fear they could just as likely deepen existing animosities.

In any event, a more stable Asia, much less a more stable overall Sino-U.S. relationship, will not develop overnight. This transformation can only take place over a period of years, under the direction of experienced diplomats, business leaders, and military officers who possess a strong sense of the high stakes involved and a clear understanding of the dangers of allowing the corrosive status quo to continue. We need to insist on having such leaders, whether at the ballot box or in party conclaves.

Thank you.