Chinese President Xi Jinping told his American counterpart Donald Trump in April 2017 that “there are a thousand reasons to make the China-US relationship a success.”
He added, “We should make the ‘cooperation cake’ bigger, define a list of priority cooperation areas and strive to gather as many early harvests as possible. Our two countries should accelerate negotiations on the bilateral investment agreement, promote healthy development of two-way trade and investment and explore pragmatic cooperation in infrastructure construction, energy, and other fields.”
President Biden said on June 18 that he is planning to meet President Xi, although no date has been set. Biden added that he is “in the process of making up” his mind about rescinding the Trump Administration’s tariffs on Chinese exports to the United States.
Biden’s comments echo the positive tone in the American read-out summary of National Security Advisor Jake Sullivan’s June 13 meeting with Yang Jiechi in Luxembourg. The American readout cited “candid, substantive and productive discussion of a number of regional and global security issues, as well as key issues in US-China relations.”
It’s an opportune time for the two leaders to meet face-to-face, and to listen without preconceptions to each other’s concerns.
The Sino-American economic relationship has grown despite trade barriers and regulatory obstacles to technology exchanges. Chinese goods comprise such a large proportion of US consumption of manufactures that a tariff cut would have a noticeable impact on US inflation, a point underscored by Treasury Secretary Janet Yellen.
There is a lot that China could do to help, starting with fulfilling its 2020 commitment to increase imports from the United States. That’s in China’s best interest; it’s better off stockpiling American energy and feed grains than buying more US Treasury bills with the proceeds of its trade surplus.
But there is a wide field for potential cooperation that would benefit both countries and give the United States more room to back out of the stagflation trap in which it finds itself presently.
In April 2017, China’s exports to the United States ran at a seasonally adjusted annual rate of $430 billion. In April 2022, this rate had increased to $644 billion, an increase of 50%. US companies continue to increase investment in China. According to US data, American FDI in China rose 9.4% in 2021 versus 2020.
According to a survey of more than 300 American companies operating in China conducted by the American Chamber of Commerce in Shanghai from mid-June to mid-July 2021, 60 percent reported increased investment compared with 2020.
This intensification of Sino-American economic ties is driven by the decisions of millions of American consumers and thousands of American businesses in the marketplace. It points to a natural co-evolution of the American and Chinese economies that governments should foster rather than try to frustrate.
The US Ambassador to China, Nicholas Burns, stated on June 9 that US-China relations are at their “lowest moment” since 1972. Yet some prominent American voices are trying to steer America away from confrontation with China.
There is a growing recognition in the United States that strategic confrontation with China would lead to disaster. American hawks claim that China is poised to reunite Taiwan with the mainland by force and propose military measures to stop this alleged aggression. In response, the historian Niall Ferguson wrote in Bloomberg on June 5, “Dust Off That Dirty Word Détente and Engage With China.” Ferguson said:
It is far from clear, as retired Taiwanese Admiral Lee Hsi-Min has argued, that Taiwan would be capable of putting up as tenacious a fight as Ukraine has against Russia in the event of an invasion by the People’s Liberation Army. Moreover, in all recent Pentagon war games on Taiwan, the US team consistently loses to the Chinese team. To quote Graham Allison and Jonah Glick-Unterman, my colleagues at Harvard’s Belfer Center, “If in the near future there is a ‘limited war’ over Taiwan or along China’s periphery, the US would likely lose — or have to choose between losing and stepping up the escalation ladder to a wider war.”
And Professor Oriana Skylar Mastro wrote on May 27 in The New York Times: “Simply put, the United States is outgunned. At the very least, a confrontation with China would be an enormous drain on the US military without any assured outcome that America could repel all of China’s forces…. Chinese missiles could take out key American bases in Japan, and US aircraft carriers could face Chinese ‘carrier killer’ missiles.”
Henry Kissinger, the dean of American diplomats, told the World Economic Forum in May:
The US must realize that China’s strategic and technical competence has evolved. Diplomatic negotiations must be sensitive, informed and unilaterally strive for peace. Both sides have to come to the conviction that some easing of the political relationship is essential because they are in a position that has never existed before – plainly, that a conflict with modern technology, conducted in the absence of any preceding arms control negotiations, so they have no established criteria of limitations, will be a catastrophe for mankind. Whatever their differences are within the context of historical politics, the leaders have an obligation to prevent this and ensure, at a minimum, permanent consultations, serious consultations on the subject, legal gameplays on a permanent basis.
A direct confrontation should be avoided, and Taiwan cannot be the core of the negotiations between China and the United States. For the core of the negotiations, it is important that the United States and China discuss principles that affect the adversarial relationship, and that permit at least some scope for cooperative efforts. The Taiwan issue will not disappear, but as the direct subject of confrontation and adversarial conduct it is bound to lead to a situation that may mutate into the military field, which is against the world interest and against the long-term interest of China and the United States.
At the same time, prominent members of the Biden Administration, including Treasury Secretary Janet Yellen, have recognized that the tariffs imposed on imports from China in August 2019 are a significant contributor to the highest US inflation in forty years.
President Biden continues to emphasize his close relationship with President Xi Jinping. On April 24, he said: “I’ve had long discussions and over many, many hours – I mean, literally, over – I think it’s now up to 70-some hours with Xi Jinping. We traveled 17,000 miles.”
Biden was for many years chairman of the Senate Foreign Relations Committee and had an extensive foreign policy role as vice-president. His understanding of China is sophisticated. In the cited April 24 remarks, he emphasized that he told President Xi that his object was not to hurt China but to strengthen the West.
This is a moment in which constructive initiatives and positive, win-win proposals can help steer US-China relations away from confrontation and toward a reduction in tensions.
Urgent issues that offer win-win solutions include the following.
- Carbon neutrality. China plans the world’s most ambitious program. A December 2021 study released by the Green Finance Committee of the China Society for Finance and Banking projects that China will invest the equivalent of US$74.2 trillion (487 trillion yuan) in carbon neutrality financing over the next 30 years, representing five times its 2020 national output. China is developing some of the key technologies in this field, including the artificial intelligence internet of things (AIoT), which promises major reductions in emissions through advanced controls and monitoring down to the level of individual vehicles. China is also a world leader in the use of hydrogen fuel for long-distance transport, in “smart cities” employing AI to optimize transport efficiency and in EV battery technology. Chinese firms have also developed AI-enhanced solar panels that achieve higher efficiencies than conventional solar panels. R&D exchanges and combined investment in these technologies will benefit both countries.
- Medical technology. China has the most advanced database in the world for medical research, including digitized medical histories and sequenced DNA. The United States is the world leader in many facets of medical research, notably including COVID mRNA vaccines. Both China and the United States have aging populations that will consume more health services during the next fifty years. Exchanges of medical technology and data will be of enormous value to both. The United States and China should reach an agreement on expedited exchange of technology with full protection of intellectual property for both parties.
- Semiconductor development. China has invested substantial resources in innovative approaches to chip design, new materials for semiconductors, chipsets for servers and smartphones and other building blocks of the artificial intelligence economy. The United States and China both suffer from the effects of technology restrictions that seek to limit the development of China’s semiconductor industry. The present configuration of the global semiconductor industry has failed to serve the requirements of its customers, who are suffering from a chronic shortage of semiconductors. The United States, moreover, has fallen behind in chip fabrication and is increasingly dependent on imports from South Korea and Taiwan. The United States and China should inaugurate joint R&D programs to develop new semiconductor designs and materials and collaborate on supply chain improvements that will increase quality and eliminate shortages.
- Trade. China is behind schedule in meeting the terms of the December 2019 trade deal with the United States. China proposed to buy at least $227.9 billion of US exports in 2020 and $274.5 billion in 2021, for a two-year total of $502.4 billion. In fact, China bought only $286.6 billion of US products during this two-year period. China should accelerate its purchases of US products, and if necessary, stockpile soybeans and other American agricultural products to close the gap.
- Infrastructure. China has some of the world’s most sophisticated technology for infrastructure building, including railroad construction and tunneling. China should offer long-term loans to American municipalities at concessionary rates to finance the construction of urgently-needed infrastructure with Chinese capital goods and rolling stock.
- Finance. China should work with American regulators to meet their requirements for financial reporting among Chinese companies listed in the United States. Rigorous financial reporting requirements will benefit the Chinese economy by raising investor confidence in the quality of data provided by listed companies. Further, with an aging society, China needs a large, liquid and functional securities market. Opening China’s financial markets to fully-owned subsidiaries of American financial institutions is a good first step. Both the US and China benefit from two-way investment flows. The US has a large current account deficit to finance, and needs to encourage continued Asian investment in US securities markets. That would be hard to do if US regulators exclude Chinese companies from US securities markets.