This article is authored by Pravesh Kumar Gupta and Sweta Kumari, associate fellows, Vivekananda International Foundation.
The United States (US) and China are facing a conundrum where the ongoing rivalry pushes them to be confrontational with each other, whereas the complex and intertwined trade relations compel them to find ways to mend the ties. Recently, a bipartisan delegation from the US comprising Senate Majority Leader Chuck Schumer and five other senators visited China and met President Xi Jinping. This was one of the high-level visits from Washington DC, to Beijing in the past few months to manage the relationship and avoid any sort of conflict that could have dire consequences of global magnitude. A number of developments are also taking place within China, including the removal of senior officials, which suggests an internal change of policies. Along with the new developments, the existing trade war in the form of tariffs, bans, and inquiries; the Covid-19 pandemic; the Taiwan crisis; the Russia-Ukraine conflict; the fentanyl issue; and a myriad of other challenges have been devising the ties between the two competing global powers. Thus, the Sino-American relationship appears to be heading for an uncertain future through confrontation, countermeasures, compulsions, and conciliation.
US-China(Reuters)
China’s coercive actions across the Taiwan Straits have been proving a real test of not only the US’s commitment to aid the island nation but also to the overall peace and stability in the region. Speaker Nancy Pelosi’s visit to Taipei in August 2022 triggered a series of events leading to the sharp deterioration of the ties. Since then, defence communication has either been cancelled or suspended by China. In the advent of the Russia-Ukraine conflict, the US has imposed sanctions on some Chinese officials, including the former defence minister Li Shangfu. The failure of direct communication and provocative statements by the leaders of the two countries have contributed to an escalation of misunderstandings and the potential for certain behaviours to escalate into a direct confrontation. Beijing has exhibited a reluctance to engage in negotiations and declined the initiative for a sideline meeting between its Li Shangfu and US defence secretary Lloyd Austin during the Shangri La Dialogue in May-June 2023. With Li’s removal, there could be an opportunity for the US and China to reinitiate high-level military communications.
The trade deficit between the US and China, unfair practices such as manipulation by the Chinese government, and predatory IPR norms have been some of the grievances of the US policymakers. The tariffs imposed by the Trump administration in 2018 marked the official beginning of the economic rivalry, and the other side responded with similar measures. However, the pandemic-induced economic slowdown highlighted overdependence on China and vulnerabilities in the supply chains. The Biden administration not only followed in the footsteps of its predecessor but even intensified the retributions.
This has resulted in sanctions, investigations, bans, and other punitive measures. Targeting China, the US government has passed legislation and executive orders such as the CHIPS Act, bans on US investment in high technology in countries of concern, and restrictions on imports from Xinjiang due to forced labour. The US House of Representatives Select Committee on the Chinese Communist Party questioned Blackrock and MSCI regarding their investments in China. The United States is now emphasising national security as one of its primary concerns in trade with China. The US has also been successful in officially bringing up the potential threat from China on multilateral platforms, such as the Hiroshima G7 summit and the Vilinius North Atlantic Treaty Organization (NATO) summit.
China, on the other hand, has imposed tariffs on agricultural imports from the US. It has set inquiries on US companies such as Micron. The denial of access to markets has impacted the competitiveness of foreign firms in China. The passage of new legislation by the Chinese government, such as the anti-espionage law and the Foreign Relations Law, has restricted the activities of many American companies. China, which has large deposits of elements such as gallium and germanium, is imposing restrictions on its exports. On the global stage, China has been engaging with Russia, Iran, and other West Asian countries. China has stepped in to fill the void left by the sanctions imposed on Russia following the conflict in Ukraine, and the two have managed to trade in Yuan. The deepening of Russia-China ties concerns the allies and partners of the US in the Indo-Pacific region as well as Europe.
Despite all the turbulence, a number of compulsions have factored into the toning down of the narratives. First of all, the economic dependence between the two countries is so deep and interconnected that parting ways is not an immediate option. According to recent trade data, the US trade imbalance with China has increased by $29.4 billion to $382.9 billion in 2022. Exports surged by $2.4 billion to $153.8 billion, while imports soared by $31.8 billion to $536.8 billion. This might be because American consumers spend more money on imported Chinese items. While some of the growth in trade between the two nations is due to increased living costs, the data also shows how dependent the US and China remain on each other despite years of trade conflict.
Top American companies such as Apple and IBM have heavily invested in China, and diversification of manufacturing centres seems extremely difficult. Apart from that, the allies and partners of the United States are extremely worried about the way US-China relations are headed, given their economic dependence on China. They are extremely reluctant to be put in a situation where they have to choose between the two.
There are internal dynamics within China as well. There are signs that indicate that the Chinese economy is facing a structural slowdown. The property market is in crisis, the youth unemployment rate is on the rise, and lowering of the consumer price index indicates deflation. The United States remains the largest trading partner of China. Economic growth is one of the drivers of internal cohesiveness in China. A haphazard divorce from the American market would be consequential for the Chinese economy.
Given these compulsions, there seems to be a shift from staunchly confrontational to a slightly conciliatory approach within the Biden administration towards China. In the past few months, dignitaries from secretary of state Anthony Blinken to Henry Kissinger, high-level visits from Washington to Beijing to initiate dialogues to manage relations. Even though military exchanges remain at a standstill. US treasury secretary Janet Yellen visited China in July this year where she carried out lengthy discussions with a new set of senior economic policymakers. She chose softer words to describe America’s economic stance towards China, rejecting a phrase that had gained currency in Washington but had hurt Beijing. In her press conference, she told the Chinese side that Washington is looking forward to manageable economic competition between the two countries. She also emphasised the distinction between decoupling and diversifying essential supply chains and focused national security actions. On the investment front, investments made by Chinese and US corporations in the opposing parties have common interests that also require government attention for improved economic relations.
All these developments highlight an extremely complicated relationship between the US and China. The rhetoric and political narratives from both sides indicate a potential conflict, while the strategic compulsions force them to cooperate or find some means to co-exist. The opening statements of the official releases by the US and China after the Senate delegate prioritise cooperation over confrontation; however, the following content highlights the fault lines in the relationship with China being more assertive and US raising its list of complaints with the former. The conciliatory measures would depend on how the upcoming series of events plays out.
A few things to keep an eye out for are- What would the Chinese officials pitch in during their upcoming visit to Washington? Will Xi Jinping attend the APEC Economic Leaders’ Summit in San Francisco scheduled for November 14-15 this year? Will the defence talks be reinitiated? Although there is a bipartisan concern in the US regarding China, are we going to witness more hawkish or more conciliatory tendencies towards China? Moreover, national elections are scheduled in Taiwan and the US next year. It will be interesting to see how it will impact the US-China relationship. Also, it is going to be a global curiosity to see how ongoing geopolitical developments such as the Israel-Palestine issue throw challenges over US-China relations when the two largest powers seem to be supporting the opposite camps.
This article is authored by Pravesh Kumar Gupta and Sweta Kumari, associate fellows, Vivekananda International Foundation.
