1. Disorderly Conduct: How U.S.-China Competition Upended the International Economic Order & What the U.S. Can Do to Fix It
- Author:
- Emily Kilcrease and Adam Tong
- Publication Date:
- 06-2024
- Content Type:
- Special Report
- Institution:
- Center for a New American Security (CNAS)
- Abstract:
- To gauge the health of the U.S.-China economic relationship, one can turn to the words of Chinese Foreign Minister Wang Yi, who remarked in March 2024 that U.S. “tactics to suppress China . . . [were] reaching a bewildering level of unfathomable absurdity.”1 Rhetorical flourishes may be the one bright spot in the relationship. As tensions rise over economic restrictions and policies on both sides, economic relations have become a worrisome source of instability in the overall geopolitical relationship. The economic relationship has become increasingly dominated by security concerns, and integration is seen as not an opportunity but a risk to U.S. interests and values. The United States must develop a strong, pragmatic strategy for advancing its economic and security interests within the U.S.-China economic relationship, accounting for the fact that the security competition is now playing out across the economic landscape. To inform the development of an effective U.S. strategy for the economic relationship with China in the context of rising securitization, the United States must learn from its past attempts to advance its economic and security interests in the relationship. The first section of this report, “Where have we been?” examines past U.S. approaches, along with the challenges of pursuing similar policies in today’s geopolitical context. The second section, “Where are we going?” distills lessons from these past approaches and defines a new strategy for the United States, offering recommendations to implement it. Broadly speaking, prior U.S. strategies can be divided into two camps. First, the United States sought to bring the People’s Republic of China (PRC) into the rules-based order and incentivize it to be a responsible stakeholder.* When that failed, U.S. strategy pivoted to one of imposing costs on the PRC and taking actions to constrain behaviors that threatened U.S. economic security interests. Within those broad strategies, U.S. policymakers have pursued four main approaches, in differing combinations and intensity, all of which involve associated challenges. They are: Play by the rules: The intention of bringing the PRC into the rules-based international system was to create external pressure that would align PRC actions with U.S. economic and security interests. Key efforts under this approach included the U.S. support for the PRC’s accession to the World Trade Organization (WTO) and the later U.S. attempts to negotiate a bilateral investment treaty. Challenges for the approach include the fact that rules have a weak ability to constrain state behavior in a geopolitically contested environment where national security risks arise from economic integration. We need to talk: In light of increasing complexity in the bilateral relationship, U.S.-PRC dialogues were intended to identify and advance mutual interests while providing a regular forum to attempt to resolve disputes. This is seen in the Strategic Economic Dialogue (SED) in the Bush administration and the Strategic and Economic Dialogue (S&ED) in the Obama administration. In other contexts, such as ongoing talks under the Biden administration, dialogues have served primarily to communicate the rationale for U.S. policy actions in an attempt to put a floor under the bilateral relationship.2 Challenges to this approach include that commitments made in a dialogue process may not be enforceable, the meeting can become the deliverable, and the dialogue process cannot alter underlying geopolitical shifts. Defense is the best offense: Defensive approaches relied on domestic U.S. authorities to counter specific harms created by PRC practices and policies. The United States has a wide range of economic tools (e.g., tariffs and trade remedies) as well as national security–based tools (export controls and the Committee on Foreign Investment in the United States [CFIUS] process for conducting national security reviews of foreign investments), all of which have been used with greater frequency over the past decade. Challenges when using these tools include the disruptive and potentially escalatory nature of defensive approaches, and the lack of clear frameworks to assess the effectiveness of defensive policies. Additionally, relying on unilateral approaches can create friction within potential economic alliances. In the United States, defensive approaches have often suffered from a blending of economic, national security, and values concerns, eroding the legitimacy of the national security argument. Have more friends: These strategies centered on efforts to shape the PRC’s external environment through the negotiation of ambitious trade and investment agreements with major trading partners, with the goal of increasing economic integration with close partners, creating indirect pressure on the PRC to level up to higher standards, and developing common approaches to address concerns with nonmarket economies. Such an approach is challenging because traditional ways of shaping the external environment have not directly addressed securitization of the U.S.-China economic relationship. U.S. domestic political realities impose a considerable constraint on the use of trade policy as a strategic tool.
- Topic:
- Economics, Bilateral Relations, Trade, Strategic Competition, and International Order
- Political Geography:
- China, Asia, North America, and United States of America