The following article, The United States & China: Twenty-First Century Rivals Or Friends?, was published in the January 2014 edition of Corporate LiveWire Expert Guide International Trade 2014:
The Obama Administration has referred to Sino-American relations as the most important bilateral international relationship of the twenty-first century. Obama’s “pivot” to Asia, however, has created a central question: Is the pivot intended to cultivate and enhance relations between China and the United States, or does the United States seek to surround and contain expanding Chinese political, economic, and military power?
As economic leaders, the United States and China should welcome competition. Ever more prosperous trade partners translate into mutual prosperity. But, when the goal of economic competition is superiority in national security, competition can turn into an unproductive rivalry. If the Obama pivot and Chinese reforms were to encourage cooperation and healthy competition, the global and Asian regional futures would be bright. But if China were not to welcome the American competition and were the United States seeking hegemony, the pivot could become threatening, to China and to others in the region.
The politics of international trade between China and the United States, and in the Asian region, must be understood in the larger context of international relations and security. We want to touch on four issues, all centered on trade, that may suggest something about the future.
Bilateralism & Green Technologies
China and the United States are the world’s leading energy consumers and the world’s leading producers of carbon gases. Both governments recognise climate change and have pledged to reduce reliance on hydrocarbons and to cooperate in the development of green technologies and alternative energy resources. Yet, China is exploiting common needs to flood world markets with green equipment, and the United States, through its trade remedies laws, is closing its market to Chinese solar and wind power products. Both countries have complained about each other at the WTO. There is no discernible cooperation.
When the European Union reached a settlement with China over solar cells, the Washington Post suggested that the United States should do the same. Solar cells reduce the carbon footprint and installation and maintenance create many more jobs than manufacture. The Europeans reasoned that, if China wanted to flood the international market with solar cells, it would be good for consumers and for arresting climate change. More solar cells would also create more jobs.
Unfortunately, U.S. trade law has no public interest clause and consequently no means to replicate the European settlement. U.S. law enables a small industry to undo a large one because any industry can block imports. And China retaliated, blocking American polysilicon used to manufacture solar cells in China.
The solar cell problem is repeating in wind towers, where U.S. manufacturers are blocking imports of Chinese wind towers needed for the development of wind power in coastal regions by the U.S. manufacturers of wind turbines. The turbines are far more valuable and sophisticated than the steel towers. The smaller and less valuable industry is able to exploit the trade law to the detriment of foreign suppliers, consumers, other domestic industries, and global climate. The trade law thus defeats Chinese-American cooperation.
The Trans-Pacific Partnership
The United States is committed to the Trans-Pacific Partnership, which was designed originally to exclude China. China, however, is a far more important trading partner with the United States than the countries that started the TPP negotiations in response to growing Chinese regional power. Moreover, even were the TPP negotiations to conclude successfully, the United States Congress is unlikely to ratify it.
TPP failure would erode U.S. credibility in the Pacific while still undermining Sino-U.S. relations. There is an alternative. China, Japan, and South Korea are negotiating a trilateral free trade agreement that could help calm security and other disputes among the three leading economic powers in Asia. The United States needs to lower expectations about TPP, and encourage the trilateral deal that would reassure China of the U.S. commitment to its well-being and improve relations throughout the region.
Trade & Non-Market Economies
The Special Safeguard (Section 421 of the U.S. trade law) against China expired in December 2013. Treatment of China as a non-market economy must conclude, according to China’s WTO Accession Protocol, in December 2016. However, China’s economy is still dominated by state-owned enterprises, 12 years past WTO accession, and organs of the central government continue to direct much of the economy. Moreover, Chinese exports dominate trade remedy proceedings everywhere.
The Special Safeguard against Chinese goods was used successfully only once in twelve years (over automobile tires). When the use of NME methodologies expires, enforcement of fair trade with China will be more difficult. China already has challenged in the WTO the U.S. application of countervailing duties because the U.S. is treating China, for its own convenience, as both a market and non-market economy.
Isolating or containing China will not solve the distortions of a state-run economy. As with Permanent Normal Trade Relations and then WTO accession, the United States must embrace China within the standards and norms of multilateral trade.
Military & Security Issues
There has been continuous hostility in the United States Congress toward China, mostly over trade. Complaints center on alleged off-shoring of jobs (but there are no accompanying statistics) and currency valuations (because the Chinese Yuan is linked to the dollar). Yet, the U.S.-China Business Council estimates that exports to China in 2012 created more than a half-million U.S. jobs, with around 122,000 added since 2008. Chinese currency appreciated around 24 percent. The U.S. dollar was linked to other currencies and did not float until August 1971.
Americans have been seeing China as a global security and potential military challenge. The United States has appeared to side with Japan in the dispute over islets in the East and South China Seas. References to growing Chinese military power are frequent, and the United States has singled out China for continued export restrictions on items being moved off the U.S. Munitions List. The Chinese have complained, loud and long, about these restrictions (but without specifying what they may want and cannot buy). Now China is being singled out by name for exclusion from the most significant reform of U.S. export controls in decades, making it more difficult for Chinese to see themselves in a friendly relationship with the United States.
There is only one military superpower in the world today. American military expenditure exceeds the expenditures of all other countries in the world combined and is more than four times the Chinese defense budget. The United States can encourage a rivalry – reminding everyone of its alliance with Japan in response to growing Chinese military power, restricting trade with China as with no other non-embargoed country, encouraging trade formations that exclude China. Or, the United States can intensify its dialogue with China. It can encourage an even-handed settlement of regional disputes and the creation of inclusive regional institutions. It can cooperate genuinely in reducing hydrocarbons and controlling climate change.
China can adopt a more accommodating posture, accelerating the reform of its economy away from state-owned enterprises, floating its currency, relaxing its military posturing. China and the United States both know that trade and security are related. Rather than use one to lever the other, they should be enhanced for both countries together.