Opinion: Plot Twists: Why US And China Are Trying To Fix Their Relationship

The idea of "decoupling" the US economy from China's has now been abandoned. The talk now is of "de-risking", which means reducing dependency in select critical areas.

May 10, 2024 - 09:30
Opinion: Plot Twists: Why US And China Are Trying To Fix Their Relationship
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The US has been engaging China at a high level in recent months to stabilise bilateral ties but seeks to set the terms for this. China has been playing hard to get and wants to create an impression that it is the US that is taking the initiatives to engage. It wants to preserve a psychological edge in this diplomatic engagement, consistent with its 'Middle Kingdom' complex.

US Secretary of State Antony Blinken's visit to China last month seems to align with the American belief that it still has a strong hand to play. China, however, believes that this is not the case and that the US is resorting to bluster to compensate for its own relative weakness.

A Break From Wolf-Warrior Diplomacy

China is aware that its economy is facing difficulties, that its access to global markets and resources is critical for its economic well-being, and that the US is trying to slow down its progress through denial of advanced technology and by pressuring the Europeans to do so too. A change of posture away from wolf-warrior diplomacy towards a more friendly demeanour is a tactical move by Xi Jinping. The fundamentals of China's internal and external policies remain unchanged.

China continues to threaten Taiwan with military manoeuvres. It is also not backing off from its violations of the sovereignty of the Philippines in the South China Sea despite the strengthening of its defence ties with the US. Its economic strategy is still centred around controlling select critical raw materials and technologies, which ensures that other countries remain dependent on it. China also uses its massive industrial capacity to overproduce products and then dump them in international markets to knock out competition.

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The US and Europe do not know how to control this manufacturing juggernaut. America cannot impose on China something akin to the Plaza Accord, which it had used with Japan in 1985. That's because unlike Japan, China does not depend on the US for its security. The World Trade Organization (WTO), too, cannot be used to control China. The absurdity is that China still identifies itself as a developing country in the trade body.

From 'Decoupling' To 'De-Risking'

The Covid-19 pandemic underlined the risks of over-dependence on China in some critical areas, leading to talk about decoupling from it and developing alternative, resilient and more trustworthy supply chains. On-shoring production, that is, reviving domestic manufacturing, especially in the case of the US, which lost a large part of its manufacturing base as companies shifted production facilities to lower-cost China, became a pressing post-pandemic strategy. In any case, Trump had already initiated this policy objective as part of the 'America First' and 'Make America Great Again' pitches. The US is now determined to develop its own semiconductor industry and green energy framework, for which it is giving incentives under the Chips Act and the Inflation Reduction Act.

The idea of "decoupling" the US economy from China's has now been abandoned. The talk now is of "de-risking", which means reducing dependency in select critical areas. The American corporate sector has large stakes in the Chinese market, with some entities facing the risk of collapse if they withdraw from it. There's a gap between the geopolitical and security concerns of the US government over China's emergence as a powerful rival and the trade and financial interests of US corporations in China.

US's Internal Dynamics

Though the US is developing an industrial policy, its system does not allow state control over market decisions of the private sector, more so because it has spent years propagating the market economy as a universal solution to economic growth, including through the World Bank and the International Monetary Fund (IMF). It appears that the experience of the bipartisan Congressional committees that are examining the China threat has been that the corporate representatives are not as sensitive to this threat as the security establishment is. This is indicated by the fawning remarks of the 30 top American CEOs after their meeting with Xi Jinping in late March this year, where they were soft-soaped by the Chinese president. 

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The Chinese see no difference in "decoupling" and "de-risking" as concepts because they see it as a US strategy to impede China's technological progress by seeking to deny it access to the most advanced Western technologies. While concerned about US restrictions and pressure on Europe to follow suit, the Chinese are also confident that their grip on solar panel and electrical vehicle technologies, for instance, compels the West to recognise and accommodate the reality. It appears that Chinese business companies are systematically penetrating the European market, regardless of the discourse of European leaders about unfair competition, state subsidies and lack of access to the Chinese market.

A Contradictory Policy

The US strategy towards China seems contradictory. China is seen as a pacing threat beyond the situation in the Western Pacific and its technological containment seems to be the preferred policy choice. And yet, there is a desire to have a constructive dialogue with it to establish a degree of stability in ties, some "guard rails" as the US says, with a particular focus on resuming dialogue at the military level.

How the US can square this circle, with a China that is growing more nationalistic and increasingly stronger militarily and has a technology base in some critical areas that is more advanced than that of the West, is not evident. Beijing is confident of its growing clout in international relations and is already exercising influence in areas where the US was hitherto the dominant force, including in the United Nations.

Blinken announced in advance that he would clamp down on China over some issues of US concern - namely, its support for Russia's war against Ukraine - and may even go to the extent of introducing sanctions in case Beijing was recalcitrant. Though China did not appear to be supplying Russia with lethal assistance, Blinken noted that it was providing machine tools, microelectronics and other dual-use items that made it the "top supplier" for Russia's defence industrial base. Russia, he believed, would struggle to sustain its assault on Ukraine without China's support.

Buying Time

The media was utilised too to send a tough message to China in advance, with the Wall Street Journal reporting that Blinken would tell Wang Yi that the US and its allies were becoming increasingly impatient with Beijing's refusal to stop providing Moscow with everything from chips to cruise missiles engines so as to help it build its industrial base, and that the US was considering sanctions on Chinese financial institutions and other entities.

It is in this rather unclear background that Blinken visited China late last month - "on invitation",  to distinguish it from other visits such as that by Treasury Secretary Yellen - and met his own counterpart as well as Xi Jinping. The visit did not achieve any breakthroughs. US-China relations are now in a holding pattern, with both buying time - the US to regain the strengths it has lost, and China to gain strengths to realise its aspirations.

(Kanwal Sibal was Foreign Secretary and Ambassador to Turkey, Egypt, France, and Russia, and Deputy Chief Of Mission in Washington.)

Disclaimer: These are the personal opinions of the author

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