China Is Hostage to a Rules-Based Multilateral System

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https://carnegieendowment.org-Yukon Huang

Huang is a senior fellow in the Carnegie Asia Program, where his research focuses on China’s economy and its regional and global impact.

Source: Getty

Summary:  It is no secret that Beijing and Washington have become increasingly embittered. Here is how China became a victim of its own economic success—and why it is in the United States’ best interests to mend the relationship.

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The broad campaign attacking China during a U.S. presidential contest, launched by the administration of President Donald Trump, has traction because of widespread popular support in the United States for disengaging with China. This has fostered a competition between Trump and Democratic nominee Joe Biden about who would be tougher in dealing with Beijing.

Disengagement, however, is not a realistic option—the costs are simply too great for both sides. But the path to better outcomes is exceptionally narrow, as the required compromises go against the instincts of both countries’ current leaders. The United States would have to concede that China’s rise necessitates a fundamental reset in great power relations, and China would need to moderate its behavior and ambitions.

From the U.S. side, any such reset will likely have to await the outcome of the elections, given the Trump administration’s reported intention “to leave a lasting legacy of ruptured ties between the two powers,” as the New York Times summarizes. Meanwhile, a change in Beijing’s trajectory would require Chinese President Xi Jinping to rethink whether he has overreached in his vision for China. If there is a basis for forging a more constructive relationship, it will likely come from China’s dependency on a rules-based multilateral system to become a more prosperous and innovative great power. By recognizing China’s needs, the United States can forge a new strategy of engagement that would benefit both nations.

How the U.S.-China Relationship Soured

The rapidly deteriorating relations between the two nations may have less to do with historical differences in political systems and ideology than with the similarities in their leaders’ aspirations. Both came to power with strong populist agendas symbolized by Trump’s “America First” and Xi’s “Chinese Dream.” Trump’s political base lies in a largely rural, white working class who feels economically neglected and views globalization as synonymous with sending jobs abroad. Xi’s supporters are restless workers and stalwart party cadres who welcome the opportunity to reclaim China’s status as a great power. The interaction of these two objectives is a recipe for conflict, not engagement.

Trump’s actions have undermined the principles of an international system based on strategic alliances and cooperative behaviors. His assumption that geopolitics is a zero-sum game has moved U.S. policy toward China beyond containment to aggressive competition and decoupling.

Beijing continues to argue that it is merely reacting to the provocations of others—be it potentially destabilizing protests in Hong Kong or U.S. restrictions on Chinese companies like Huawei. Regardless, China’s recent foreign policy initiatives and “wolf warrior” diplomacy—as China’s newly aggressive style of international engagement has been dubbed—have played into the hands of U.S. hardliners.

A Transitioning Superpower Where the Economy Is Paramount

Current tensions with the West are a byproduct of China’s transformation from an isolated, poverty-stricken nation to an assertive global economic power seeking to shed the last vestiges of a century of foreign humiliation. The U.S. security establishment sees China’s rise as a threat to a liberal international order that the West has nurtured since the end of World War II. But unlike Russia, whose vast resource-based wealth gives it the financial independence to behave noncooperatively with the other major powers, Xi’s ambitions for China depend on having strong commercial ties with the global community.

China’s accession to the World Trade Organization (WTO) in 2001 paved the way for its integration into the international financial system. Today, the Trump administration’s tactic is to undermine the WTO in order to diminish China’s global influence and undercut multilateralism. In reality, the problem with the WTO lies more in its governance structure and inadequate enforcement powers than in any bias toward China. Contrary to the White House’s accusations, China did not formally take advantage of the differential treatment provisions provided to developing members when it joined. In fact, it is the only country that joined with more onerous conditions than normal, having so-called WTO-plus bilateral obligations in its final accession package.

The United States assumed that enhanced trade relations would bring China’s economic system closer to Western norms. China’s economy is now largely market driven. Nearly all prices and interest rates are set by market forces, and its exchange rate is no longer undervalued. According to the World Bank, the private sector accounts for the bulk of economic activity in China—state-owned enterprises accounted for only 4.5 percent of total employment and 27.5 percent of GDP in 2017. China is a latecomer in protecting intellectual property, but it has made significant progress in strengthening its arbitration courts and honoring global standards. As the world’s largest exporter and the second-largest recipient of foreign investment behind the United States, China is fully integrated into the global market economy.

Yet this success has come with strings attached. The combination of China’s dependency on the multilateral system for its economic success and Western criticism of its policies has become a major headache for China’s leadership. The legitimacy of the Chinese Communist Party comes from delivering sustained economic prosperity, so Beijing is sensitive to Western concerns about its trade and investment practices.

A New Approach to Engaging With China

Simplistically, one could characterize the Trump-led Republican Party’s China strategy as “chaotic decoupling,” whereas the Democrats favor “containment with hedging.” Although Democrats are critical of Trump’s go-it-alone approach and argue in favor of building global alliances, skeptics could reasonably question why this would be any more effective than past efforts to tame China’s behavior.

Arguably, a major opportunity to do so predated the Trump administration. In 2013, when the newly inaugurated Xi met then U.S. president Barack Obama for the first time, Xi put forward the concept of a “new type of great power relations,” reflecting China’s desire for more influence in foreign affairs commensurate with its economic rise. But the Obama administration never accepted this premise.

In retrospect, Xi’s warning then seems prophetic now—that “if China and the United States cannot find a way to establish such a ‘new type’ of relationship, the result could be disaster,” as the New York Times reported. Should Democratic nominee Joe Biden become president, he would be wise not merely to revive traditional alliances or the Obama administration’s Asia pivot, which was viewed by Beijing as an strategy to contain China. Instead, he should move to defining the acceptable dimensions of a new relationship. In response, Beijing should rein in its more aggressive foreign policy tendencies, particularly in the South China Sea and in its Belt and Road Initiative.

In a better world, China would come closer to becoming what former deputy secretary of state Robert Zoellick called a “responsible global stakeholder.” Until recently, this less threatening vision of China was seemingly consistent with China’s own long-standing position in managing foreign relations.

Ironically, one could argue that Trump’s combative policies were predicted by Deng Xiaoping in a 1974 address at the United Nations: “If one day China should . . . turn into a superpower, . . . play the tyrant in the world, and everywhere subject others to her bullying, aggression and exploitation, the people of the world should . . . expose it, oppose it and work together with the Chinese people to overthrow it.” These days, one can only speculate about the depth of popular support in China to fashion a lower profile abroad. But for Xi to reverse course is problematic, because unlike the collective leadership model of his predecessors, he is so personally identified with China’s successes and failures.

Three Steps to Fix the Broken Relationship

The challenge for whoever wins the U.S. presidential election begins with altering attitudes about great power rivalries. This would require bold steps to moderate tensions. Many differences cannot be readily resolved, but there are some stroke-of-the-pen actions that can change the atmosphere of engagement.

A three-pronged approach might begin with a joint U.S.-China statement endorsing a coordinated effort to combat the pandemic and strengthen the World Health Organization. To counter the global recession, this would be followed by suspending all trade war–related tariffs and moving toward a multilateral approach to addressing trade and investment reforms. This would entail restructuring the WTO and reviving the original Trans-Pacific Partnership (TPP). It was a mistake for the United States to withdraw from the TPP, but the oft-made argument that if the West does not set the rules of the game, China will, is not helpful. The world is far better off having China involved and bound by the rules than operate as a rogue outsider. Thus, the desired alternative would have both the United States and China join the TPP.

Lowering tensions in the South China Sea would be the third prong. Here China needs to signal that it is more interested in being viewed as a peaceful neighbor than aggressively pursuing its territorial claims. The most tangible action would be its support for the proposed Code of Conduct with ASEAN. Having ratified the UN Convention on the Law of the Sea, China cannot justify its claims over maritime resources based on historic rights given the 2016 tribunal’s ruling in favor of the Philippines, and also claim to be in favor of a rules-based multilateral system. Lastly, those wedded to democratic ideals can only hope, as a matter of faith and logic, that a globally connected and more affluent China will eventually inch down a path of political liberalization and social reforms, albeit in its own unique way.

 

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