By Ann Lee
The direction of US-China relations under the Trump Administration has been a popular topic of speculation. While forecasts are by definition a risky business, Ann Lee attempts to read the tea leaves by examining the historical relationship between the two countries and the forces that factor prominently in their decision-making.
Since President Trump’s meeting with President Xi in April this year, the direction of US-China relations has assumed a prominent position of speculation and opinion. Insofar as the two countries have some of the largest mutual trading economies in the world, this naturally is of critical importance to each as well as to a host of allies, alliances, regional, domestic and individual businesses. President Trump’s forceful campaign rhetoric vis a vis China seems in stark contrast to the decorous and civil meeting at Mar-a-Lago. Is one witnessing a policy change, evolution or is there a more straightforward exercise in political or strategic posturing at work? Reviewing a broader context seems initially a reasonable first step to speculate on just what is going on.
A number of world leaders have met with the new President weighing in on hopes, preferences or cautionary advice on China. After assembling his Cabinet, the new President has had the opportunity and the time to have a more thorough review of the situation. For instance, his meeting with President Xi was preceded by that of Prime Minister Shinzo Abe of Japan. One can only speculate a similar process is ongoing in the Chinese Foreign Ministry on behalf of President Xi. Thus, while campaign rhetoric is what is it is, President Trump has hardly rushed in without the input of a variety of various sources. As a man more from the business community rather than the political one, reflected no less in his choice for Secretary of State, his initial bias will be a business one. President Trump likes to win, but in what contest? In the end, one hastens to remember the famous quotation of the chairman of General Motors from the 1920-1930s time frame that the business of America is business.
Nonetheless, for both countries, history also has a say in how both countries are where they are and may go or seek to go. A number of books recently published have reviewed US China relations as far back as the 1780s. The 20th century however is likely to provide the most important collection of events upon which each country assesses the other. At the beginning of the 20th century in the waning days of the Chinese Imperial system, US posture to Asia had been to have an open trading environment. Many European countries had blatant enclaves and while the US had possessions from the Spanish-American war (Philippines), it had no specific territorial posture in Macau, Hong Kong, or the international quarter in Shanghai. Yet Chinese nationalism was at least initially practiced as far back by the late empress in the Boxer Rebellion, although suppressed by combined western militaries.
Into the 1930s, China was left to its own devices initially while Japan engaged in a military buildup. Eventually this led to the Panay incident and later the Japanese invasion of Manchuria and then China. The initial US response led to the Roosevelt administration’s oil embargo used by Japan to instigate the onset of WWII. Pearl Harbor did not occur until 1941 by which time large swaths of China had already been brutalised (Rape of Nanking, 1938) by the Japanese with, once again, a foreign enclave, Manchukuo. With the US initially siding in with the Kuomintang (Chiang Kai Shek) against the Japanese, eventually both the Kuomintang and the Chinese Communists were armed nearly equally. The defeat of Japan left China with an unresolved civil war which stalemated in the Nationalist’s retreat to Taiwan (Formosa, a former Japanese possession).
Since the dollar is the world’s reserve currency, the US deficit has been supported by the world, thus floating the US economic budget and system.
With WWII ending with a divided Korea, conflict between the North and South could be seen as an inevitable step child of the larger Chinese civil war with the sides already picked. Again much history has been written with both sides passionately determined to their end state positions. Direct combat between US and China left both with lessons learned and memories selected. Meanwhile, Japan had become an economic powerhouse whose example is now rivalled by China after reforms starting with Deng Xiaoping’s, not the least directly or indirectly set in motion by President Nixon’s “opening to China” ostensibly a part of great power politics.
Thus for much of the 20th century, China has evolved both societally, economically, and militarily as has the US. Some themes remain consistent however and the foremost is US anti-communism and a track record of military engagement whether by alliances, forward basing of forces, or by trade policies designed to advantage the US. A by-product of WWII and the collapse of the Soviet Union has left the US in an unparalleled position as the world’s dominant super power. Since the dollar is the world’s reserve currency, the US deficit has been supported by the world, thus floating the US economic budget and system. The telecommunications revolution which started in the US first, spread its culture or at least the perception and reputation of its culture, around the globe. It is no surprise that the unified position of the US is that global peace by an unstated Pax Americana will ensure a worldwide adoption of liberal economies and democracy. Pax Americana has changed the Chinese and Russian economic paradigms which has been both a source of admiration and a source of resentment.
Pax Americana has changed the Chinese and Russian economic paradigms which has been both a source of admiration and a source of resentment.
Nonetheless, the US is not the sole great culture and people of world history, an understated acknowledgment to the late Samuel Huntington. As the 21st century begins, the US finds itself with a large dependency on China for manufacturing needs. And while there seems to be a revolving door of China buying American sovereign debt as a consequence of the US consumption of manufactured products, China has diligently used this dynamic to bring over 300 million of its citizens up to US standards of living. It has roughly 700 to 800 million more to go since it is just a matter of time before that group demands the same standard of living as its brethren on the coast. As China attempts to earn its way to the status as a developed nation by deleveraging state owned industries while simultaneously promoting a consumer and services driven economy, the US is falling into a crisis of confidence over its own abilities to stay ahead. While China needs more consumers and services, the US needs more productivity and rebalancing of its use of resources. Both countries face liabilities politically if they don’t get this right.
Besides the economy, the military capability and political intentions of each are also a source of concern between the two nations. While the enormous size of the US economy makes any percent of expenditure a large number, the US has two oceans to overcome and two continental landmasses to affect before it can begin to have a conversational seat at the table. Meanwhile, China traditionally has not been a global expansionist military power but it has acted regionally, as has Japan. Yet to deal with the US locally, it is forced to deal with the US in a global arena, although trade and infrastructure foreign assistance is the preferred mode at present. Although China has no interest in engaging in any military arms race against the US, history has taught China that without technological equivalence, it could become a vassal state again. Since China does believe that competition for scarce resources is both inevitable and important given the 800 million Chinese citizens that still need to be uplifted from poverty and also knows that great power agreements change over time as the 9 Dash Line has proven, both powers will likely default to the existing status quo of balancing each other militarily with progressing economic cooperation.
One exception may be North Korea. As noted in the beginning of this commentary, since the election of President Trump, the world and North Korea have taken notice and made their calculations. And while the economies and politics of the major powers have changed, North Korea’s response has been more missile launches, nuclear tests, and bellicose rhetoric. The world has a moral dilemma as to what to do about the North Korean people when there is a serious risk of collapse with profound negative consequences. At the very least, the economic cost of rehabilitating East Germany suggests a Korean re-unification without the Kim dynasty will be a multi-decade affair. At the same time, the US can point to its support of Russia in the critical Yeltsin years showing both support and restraint, as a model for China to consider.
Both Presidents have likely reassessed the North Korean situation knowing full well that they can ill afford to have a mutually beneficial deleveraging process derailed without profound societal peril. The military balance of power in northeast Asia is also greatly dependent on the security of the South Korea and Japan. To avoid destabilisation, China would need to accept that the current balance of power arrangement does not equate to vassal-hood. A UN protectorate for North Korea overseen by China, South Korea and the US (below the 38th parallel with food guarantees) is eminently doable depending on the relationship the Chinese military has with the North Korean military. It would be wise to avoid the mistakes of the Iraq demilitarisation that led to ISIS.
If these two leaders are able to navigate successfully the forces that want to derail them, then the world has a chance to survive the sword of Damocles and anticipate a second Renaissance.
Much has been written of the influence of the “Neocons” in the formulation of US foreign policy. To be sure, they do not want to relinquish the US’s position hard won in a century of war, economic support, and overseas investment. However, there is also a worldwide constituency that sees their efforts as imperialism by another name. Both sides are dealing with and will have to deal with an evolving world. Thus far, President Trump appears to be promoting the American economy in order to further enhance the US military position by consequence as well as by design. That policy is consistent with his campaign which seeks to shift traditional statecraft by linking regional and global economic interests with longer term regional balance of power alignments based on trade and currency as opposed to relying on gunboat diplomacy. This strategy is the polar opposite to the futile Naval London treaty of 1923 and its pre-WWI predecessor fixing the number of battleships amongst the US, UK, Germany and Japan. The Peloponnesian war was the West’s first lesson in imperial military overreach that led to economic collapse. A seminal policy by the late John Maynard Keynes writing in “The Economic Consequences of the 1919 Peace” as a delegate to the Paris Peace conference strongly urged a post WWI European Common market and avoidance of a “Carthaginian peace” which he predicted correctly would result in another War. President Trump’s dealings with China thus far appears to avoid going down that road because he seems to be tying foreign policy to economic stability. Likewise, President Xi, who faithfully represents a blend of China’s history and current success, also has the opportunity of avoiding that similar fate. If these two leaders are able to navigate successfully the forces that want to derail them, then the world has a chance to survive the sword of Damocles and anticipate a second Renaissance.
Featured image: Chinese President Xi Jinping (R) waves to the press as he walks with US President Donald Trump at the Mar-a-Lago estate in West Palm Beach, Florida, April 7, 2017. JIM WATSON / AFP
Ann Lee is a former Visiting Professor at Peking University and a partner of two multibillion-dollar hedge funds. She is a recognised authority on China’s political economy and author of the award-winning international bestseller What the US Can Learn from China and Will China’s Economy Collapse?