Daniel H. Rosen, who is an American business executive, academic and author and an expert on the Chinese economy as well as being a partner at Rhodium Group, LLC, a New York-based advisory group and who is also a Visiting Fellow at the Peterson Institute for International Economics and an adjunct professor at Columbia University, has written a thoughtful article on the Rhodium Group‘s website headlined “A Post-Engagement US-China Relationship?“
Mr Rosen says that “Engagement, embracing China’s WTO accession and optimism were absolutely the right US strategy for the post 1978 China that risked everything to shift away from Communism; but unless Beijing demonstrates recommitment to that course now Washington and others will go a different way.” He does not think that President Donald Trump is all bluster; he notes that the “shift toward bellicose working assumptions was jarring to those who viewed the Administration’s aim as a better deal, not a strategic overhaul. In the first weeks of 2018 many are still catching up to the reality of shifting deep forces in US-China economic relations. Many in China think this is a rough patch and will blow over. It won’t.“
“The shift now taking place,” he explains, “reflects a fundamental sea change in perceptions of US interests. From Nixon in China until 1989 America’s interest was alignment to contain the Soviet Union. After 1989, with the Soviet bloc disintegrating, that logic was antiquated. It was made obsolete by the attraction of market capitalism as an economic system. By 1992 China was pursuing economic policies convergent with our market ideas, and curtailing the ham-fisted hand of the state in its economy. The US post-Soviet era replacement strategy for China became engagement to lock-in China’s evolution toward norms we recognized as our own. President Clinton’s dictum was that the United States was on the right side of history, and we would remain there … [and] … This was not deluded. China was converging, to an extraordinary degree, and intended to continue. The withdrawal of the state from the economy, the rise of private business, the expansion of market pricing and resource allocation, the opening to foreign businesses: all of these indicators and more were real. Given such epic changes – taking place by China’s choice, not under pressure from the US – what strategy other than engagement, including WTO inclusion, could possibly have made sense? Those disillusioned with engagement today forget, or more likely didn’t know, how successful it was in the decade after 1992, as the world asked what would replace a four decade old Soviet containment strategy.“
“The problem,” as Mr Rosen sees it, “arrived,” he says “in the 2000s, though it is hard to say exactly when. President George W. Bush, like President Clinton, endorsed engagement and believed it was facilitating convergence in transition economies including China. From his 2002 National Security Strategy (page 26):
We are attentive to the possible renewal of old patterns of great power competition. Several potential great powers are now in the midst of internal transition—most importantly Russia, India, and China. In all three cases, recent developments have encouraged our hope that a truly global consensus about basic principles is slowly taking shape.
“Thus,” he goes on to say “were our eyes open to great power rivalry, while our minds were open to evidence of the power of our ideas. There were indeed transitions taking place, and our basic principles were part of the conversation in China. Unfortunately, after the attack of 9-11 US policy modeled a different set of principles. We felt compelled to act unilaterally to overthrow regimes perceived to be hostile, through overt military intervention and encouragement of local uprisings in Europe, Asia and the Middle East. We bent international norms on matters such as treatment of combatants. Just as critically, the notion that US economic strength was invincible came crashing down with the Global Financial Crisis of 2007-09. By the end of the decade the attraction of the US model based on principles and on economic results was diminished. This undermined China’s liberals and empowered those who counseled a chauvinistic course. The conversation had changed, partly due to China’s rising confidence and partly due to America’s missteps, and the seeds of doubt about China’s convergence with US-led norms were sown.“
I am in general agreement with his analysis of the history from 1972 (Nixon in China) and i find his tie into US policies post 9?11 to be illuminating and worth further consideration … China’s rise has been materially aided by America’s missteps.
“Regardless,” he says “of which [of several competing theories about China’s rise] “is right (and I am squarely in the camp that believes China’s reform efforts over the years were deeply earnest, having known many of the reformers well), one thing is not debatable: previously China did not claim to have a sustainable alternative economic model, but now it does. The key distinction drawn is that the western model is just market oriented, while the Chinese model uses markets to allocate some resources but the state, represented by the Communist Party, to run the economy. The notion that this is a long-standing truth westerners willfully choose to look past is incorrect. In fact it is not even clear how China’s collection of characteristics amounts to a model. Since the 1990s China’s leaders have actively pruned back the role of the Party and the state in the economy … [but] … US engagement strategy was contingent on this expectation. By rewriting history to suggest that China has not been working toward a more market-oriented and less Party-directed economic system future, the premise under US strategy is disrupted. US strategy was engagement; now that changes … [and] … This shift in label was made public, and official, with the release of the new NSS in mid-December. China is now described, alongside Russia, as a “strategic competitor”. The change is not standalone. It will be echoed in forthcoming National Defense Strategy (NDS) and National Military Strategy (NMS) documents.“
I commented on the new US National Security Strategy about a month ago. I worried that “Earlier generations of Jacksonians were aggressive, militaristic, and definitely put America First, but they did not see the rest of the world as being uniformly hostile. The Trump (or Trump supporters’) version of Jacksonian populism does … and it does so, in my opinion, with hints of darker themes, too.” Mr Rosen is saying that President Trump has “elevated” China to the same level of strategic threat to America’s vital interests as Russia occupies ~ and see the comments I made yesterday about that. That, I believe, is a strategic error. As I said a month ago, China is “trying to upset the global status quo … [because they, like America and Russia] … think that the global status quo favours America.” I think that makes China serious, strategic “competitor” but not an enemy. The global sttaus quo, like the climate, is always changing and even in the most stable period ~ Pax Romana (from, roughly 27BCE to 180CE), Pax Brittanica (from, equally roughly 1795 to 1905) and Pax Americana (from 1950 to 2001) ~ the status quo was being continuously bent and stretched and twisted to accommodate the ever shifting strategic situation.
Mr Rosen says that “While the competitive aspect of the US-China relationship has been creeping up for years, what really created foreboding at the end of 2017 was the connection of economic affairs to the China national security equation in the NSS. The Strategy suggests that hundreds of billions of dollars of commercial technology are nefariously conveyed to China every year, taking advantage of the permissive US attitude in the economic relationship. The strategy pledges to end this, and this line is already evident in policy: trade actions against imports, action to make investment screening stricter, and disengagement from government to government dialogues are happening, now. President Trump will tie these threads together (and likely add to them) in his State of the Union address January 30 … [and, therefore] … to sum up what has changed:
- China: No longer maintains ambiguity about the nature of the Chinese system and whether it will converge with OECD norms: it emphasizes the differentness and says it won’t.
- The US: Now defines China as a strategic competitor, not a transitional nation converging with our norms, and sees economic dynamics as core to this competition: engagement is now a verb– sometimes the right action – not a noun describing policy.“
- Daniel Rosen concludes, and I agree, that “This shift in US-China relations is a serious concern. In a relationship predicated not on the expectation of convergence but of rivalry and competition, opportunities for cooperation will be missed. In security, we must work together on North Korea. On the global environment, we must work together on water and air pollution alleviation, let alone climate change. In politics, many other nations loath the notion of a protracted US-China competition over political models. And in economics, there are trillion-dollar opportunities at risk, cumulated over the coming decade, if the deals discussed by President Trump in Beijing (which are just a fraction of global potential) turn out to be forfeit.“
President Trump has, I think, just shot America in its own foot.
But what about Canada?
Canada needs to, also, see China as a global competitor, but for Canada that does not mean enemy. China is, primarily, a competitor (for Canada) in the marketplace of ideas ~ in the soft power domain. China wants and really needs access to our natural resources and to our knowledge base in the service sector, especially in financial service like insurance where we are a world leader. We, unlike America, are not a significant competitor with China in the manufacturing sector so we are a better trading “fit” than is America. But China is not a free and fair trader in the sense of, say, Australia, Britain or even Chile. We need to have a battery of laws, as China does, that allows us to punish Chinese firms operating in Canada when (not if) China resorts to using its domestic laws to tilt the trade field to its advantage.
Given the current strategic environment, Canada, like all the other second and third tier powers, must accommodate itself to the rise of China and the (only temporary, one hopes) withdrawal of America from a global leadership role. That means seeking free(er) but only fair trading relations with China, which is hell bent on becoming the world’s largest economy.
It is unfortunate that America is shooting itself in the foot … Canada need not follow suit.