Dr. Ning Liao

*This article has been featured in the State of the World publication, Issue No. 02, October 2023Since the Obama administration initiated the policy agenda of rebalancing (pivot) to Asia and China’s foreign policy behavior became more assertive under the leadership of Xi Jinping, whether the two powers are leaping into a so-called "Thucydides Trap," wherein the incumbent hegemon and its rising counterpart are engaged in an inevitable war, has been an intriguing question of at the forefront of the scholarly and policy communities of international relations.&nbsp;As the full-fledged trade spat between the United States and China is increasingly viewed as the prelude of a new cold war, the standoff between Washington and Beijing have deteriorated faster than almost anyone could have expected.&nbsp;The situation where the bilateral relationship is haunted by the specter of being bifurcated into two ecosystems begs some urgent questions in the state of the world: how come the two powers are locked in the current stalemate? What is the key to the conflict resolution in the U.S.-China rivalry?For the part of the U.S., one of the most disruptive and profound changes of Trump’s foreign policy was a revolution he orchestrated in the arena of American trade policy, and nowhere did his administration leave a greater mark on U.S. trade policy than that with China.&nbsp;The motives of launching the trade war can be largely decomposed into three different but interrelated constituencies on the U.S. side:<a href="about:blank" rel="noopener noreferrer" target="_blank">[1]</a> President Trump was obsessed with ballooning trade deficit with China.&nbsp;The U.S. business community are more perturbed about China’s alleged unfair industrial policies.&nbsp;For U.S. security and foreign policy establishment, Chinese trading practices, in light of its expanding prowess, lay bare Beijing’s aspiration to be a major economic and technological power, thereby constituting an existential threat to the incumbent global hegemon.&nbsp;Regarding China’s chronically large trade surplus with the U.S,. one should keep in mind that foreign trade is multilateral, not bilateral, in nature.&nbsp;For a country like the U.S. that runs trade deficits with more than 100 countries, whether its trade balances are concentrated among a few trading partners or evenly dispersed is far less significant than its overall balances.&nbsp;As some economists have observed, the respective trade balances of U.S. and China are not directly linked to each other.&nbsp;U.S. current account deficits started to get large in the late 1990s before moderating around 2005, when China was not even generating significant surpluses.&nbsp;In the second half of the past decade, America’s overall deficits began to decline, but China’s surpluses actually started to surge.&nbsp;While the deficit of U.S. merchandize trade with China shrunk by 26 percent from 2018 to 2020, its total trade deficit increased by 3.8 percent during the same period—or by 25 percent since Trump took office in 2017.<a href="about:blank" rel="noopener noreferrer" target="_blank">[2]</a>&nbsp;This confirms that focusing on bilateral trade deficits is not meaningful.The second driver of the trade war was the lingering concern of the U.S. business community with China’s state support for industrial production, particularly the wide range of subsidies that the Chinese government provides to protect the insufficient state-owned enterprises (SOEs) producing import-competing goods and its practice of forced technology transfer.&nbsp;It is true that subsidy policies are pervasive in China, but adequate evidence has shown that a large proportion of China’s industrial policies has actually reduced China’s welfare,<a href="about:blank" rel="noopener noreferrer" target="_blank">[3]</a> despite its successful nurturing Chinese manufacturing export enterprises and cutting-edge technology forms.&nbsp;Recent research has also inferred that positive spill-over effects of technology from inward foreign direct investment (FDI) on Chinese domestic firms are unlikely to emerge.<a href="about:blank" rel="noopener noreferrer" target="_blank">[4]</a>&nbsp;Concerns of the U.S. corporate sector over the unfair Chinese industrial policies, whether legitimate or bogus claims, underlie the swelling alarm with China’s model of market authoritarianism.&nbsp;The boosting role of the Chinese state gives Chinese SOEs a degree of monopoly power in dealing with foreign companies seeking access to its domestic market.&nbsp;Such concerns of the U.S. business community have developed into a majority collation on the trade relations with China, by the time of Trump’s victory in the 2016 president election.&nbsp;Various domestic constituencies that were chagrined by Chinese trading practices, including high-tech firms, organized labor unions, and the Office of the United States Trade Representative (USTR), have all sought to strike back at the roots of Chinese economic expansion.&nbsp;The warning bell set off by the new collation have rendered those American geo-strategists advocating continued economic engagement with China vulnerable to the accusation of their security-first colleagues in the policy community that the U.S. had erred in backing China’s integration into the global economy.<a href="about:blank" rel="noopener noreferrer" target="_blank">[5]</a>&nbsp;In this sense, the trade war is a manifestation of a policy decision to confront China’s development strategy that the majority coalition on the trade relations with China argues is too costly for Washington to continue accommodate.&nbsp;The consensus of the new majority coalition thus disrupted the illusionary reciprocity between the two economies that sustained Washington’s engagement with Beijing.&nbsp;Viewed in this vein, China is not only the primary source of the U.S. trade deficit, but also its primary strategic competitor.&nbsp;The trade war is in fact a culmination of evidence making the case that China is moving opposite to the direction to political and economic liberation that the U.S. wanted to see through its engagement.&nbsp;While previous U.S. administrations patiently put resources in engagement, hoping China would pursue a more favorable trajectory, the Trump administration, supported by the majority coalition, started to realize that countering China’s approach to global economy that had detrimentally affected American power and interest ought to be the higher and immediately priority of U.S. foreign policy.This policy recalibration has been passed onto the Biden administration.&nbsp;Undoubtedly, the first half of Biden’s presidency has demonstrated considerable continuity with the hardline approach of the former administration, although the current administration’s competitive tactics can be somewhat different and perhaps more effective.&nbsp;As the threat of China is one of the most convenient resources to further Biden’s domestic agenda, it is more than likely that the USTR will keep Trump’s tariffs unchanged as Washington’s bargaining chips during another 301 investigation, forcing China to change its industrial policies and subsidies.&nbsp;Otherwise, at the end of the investigation, new tariffs could replace Trump’s tariffs.&nbsp;Although lifting the tariffs on Chinese products can help alleviate U.S. inflation, doing so before the 2024 election would give the Republicans an issue to attack the Democrats.&nbsp;In light of the remarkable bipartisanship on the Chinese issue, the majority coalition on the U.S.-China economic relationship will not unravel in the foreseeable future.&nbsp;The widespread distrust of China is also born out in a variety of public opinion polls indicating Americans’ views of China at an all-time low.&nbsp;Considering the "two-level game" of foreign economic policymaking, Biden is in a quandary.&nbsp;Even if he wants to repair U.S.-China economic relations, his hands are significantly tied by domestic audience.The dynamics of political economy of U.S.-China relations at the interstate and domestic levels are intertwined in a way that security issues have collided with economic issues, thereby making the economic and security agendas increasingly overlap.&nbsp;As economic agenda has assumed a security competition dimension, more and more American analysts and government officials are fond of looking at the security threats emanating from U.S.-China trade relations, which explains why the economic tensions between the two powers have gone beyond trade frictions and encompassed an escalating tech war.&nbsp;In the context of U.S.-China rivalry, Beijing’s state-directed economic approach is construed as an economic statecraft wielded by the authoritarian state to attain a dominant position in advanced technologies, which threatens to upend America’s dominant position in a status hierarchy that has characterized by the bilateral relationship for four decades.&nbsp;In the "whole of society" evaluation of China to assess China’s multidimensional challenges of U.S. economic and security interests,<a href="about:blank" rel="noopener noreferrer" target="_blank">[6]</a>&nbsp;the unique and unprecedented challenges of a state-dominated behemoth to America’s security interests and the U.S.-led liberal international order provide the most important fodder for the construction of a significant "other" in the security calculation of the U.S. foreign policy establishment.&nbsp;Beining’s open defiance in the high-tech field has thus been elevated to the existential threat to American national security that merit urgent and exceptional measures.&nbsp;It is in this context that Washington has launched a concerted effort, including reshoring the global supply chains, the institutionalization of the export control and the rigid screening of outbound FDI on national security grounds, to stifle China’s drive for a leading position in the newest technologies.&nbsp;Such securitization has been unfolded in a two-way manner, giving rise to the situation of bifurcation where both sides have forced third-party states to lock into their own technological systems and prevent their rival from doing so.&nbsp;Amid such strategic hyper-competition, the stakes of the U.S.-China economic tensions are simply too high to end the trade war in a prompt manner.In the milieu where mutual mistrust and suspicion prevail, the insecurity at the lay of the two distinctive political economic identities are compensated by the radicalization of self-other dichotomy and the re-securitization of disputed issues, which has unleashed emerging concerns of physical insecurity in non-economic issue areas.&nbsp;One of the most noticeable developments in this regard is the growing ties between the U.S. and Taiwan.&nbsp;In response to Beijing’s hardline approach to Taiwan, the overall U.S. diplomatic and strategic cooperation with Taiwan has reached the point that the relationship began to resemble the bilateral defense alliance that Jimmy Carter’s administration had terminated when U.S. switched formal diplomatic ties to the People’s Republic China, which has triggered Beijing’s kneejerk reactions and compounded the conflict resolution of ongoing economic tensions.&nbsp;As such, if the securitization process is simply reversed without deconstructing the antithetical identities that are continuously reproduced in the current stalemate, the mediation of trade negotiations, which centers around a litany of issues whose security states have been propelled to the degree of existential threat, offer no way out of the conundrum of security-identity linkage operating in a bilateral relationship under extreme duress.&nbsp;Successful conflict resolution requires both parties to maintain their identity securities and reconfigure their identities vis-à-vis one another in a way that sustain their constitutive differences while removing the mutual perception of physical threat from in the self-other interaction. <a href="about:blank" rel="noopener noreferrer" target="_blank">[1]</a> Yukon Huang, "Can the U.S.-China Trade War Be Resolved?," The Diplomat 2019, July 30.<a href="about:blank" rel="noopener noreferrer" target="_blank">[2]</a> Robert Delaney, "Us Trade Deficit with China Has Dropped since Donald Trump Lancuhed Trade War," South China Morning Post 2021, Feburary 6.<a href="about:blank" rel="noopener noreferrer" target="_blank">[3]</a> See, e.g., Yuyan Tan, Yiping Huang, and Wing Thye Woo, "Zombie Firms and the Crowding-out of Private Investment in China," Asian Economic Papers 15, no. 3 (2016).<a href="about:blank" rel="noopener noreferrer" target="_blank">[4]</a> Among others, see Yi Lu, Zhigang Tao, and Lianming Zhu, "Identifying Fdi Spillovers," Journal of International Economics 107 (2017). Qing Liu, Larry D. Qiu, and Chaoqun Zhan, "Foreign Direct Investment and Export Quality: Evidence from China," in Working Paper (The University of Hong Kong2018).<a href="about:blank" rel="noopener noreferrer" target="_blank">[5]</a> Deborah L. Swenson and Wing Thye Woo, "The Politics and Economics of the U.S.-China Trade War," Asian Economic Papers 18, no. 3 (2019).<a href="about:blank" rel="noopener noreferrer" target="_blank">[6]</a> Bruce Jones, "The Era of U.S.-China Cooperation Is Drawing to a Close-What Comes Next?," (The Brookings Institution, 2019, January 7).

What Are the Challenges to Conflict Resolution in the U.S.-China Rivalry?