Accusations of technology and intellectual property theft, cyber attacks and unfair trade practices all add up to an excuse for decoupling the two economies and engaging in a new Cold War. The trade war is the opening salvo in what looks to be zero-sum strategic competition across all dimensions of the US–China relationship instead of mixed interest engagement. US allies and partners are none too subtly being called on to pick sides.
China is the world’s largest trading nation and it is deeply integrated into the global economy. The Chinese economy is the largest contributor to global growth each year, accounting for a third of additional global output in recent times. Every country has the right to economic self-harm by decoupling from the Chinese economy, just as Britain is choosing a path of economic self-sabotage through Brexit, whatever shape it takes.
Some may think that the economic cost of decoupling from the Chinese economy is worth the price to reduce exposure to the security risks that its Communist Party government and one-party state present. Those same people see economic interdependence with China as an all-or-nothing risk.
But economic interdependence with China is not the same as economic dependence on China. Interdependence helps manage and reduce security risks by keeping China locked in to multilateral frameworks and disciplines.
As Shiro Armstrong and Peter Drysdale explain in this week’s feature essay, ‘economic policy and engagement reinforce and habituate a rules-based international order and, significantly, … create a bigger, broader plurality of interests in countries that reduces the costs of national security’.
The best protection against policy shifts in Beijing is not to reduce exposure but to lock in more interests and rules around the development of the relationship with China through the WTO and other global institutions. China signed up to the WTO rules and has had a better track record than the United States or the European Union of following the rules and accepting rulings against it. That the current rules do not cover all of commerce in the 21st century is not a case for tearing them down but a case for countries working with China to expand and to improve the rules.
In the battle between entrenching markets and a plurality of control in China, other countries can only have influence through economic engagement that locks in more businesses, people’s livelihoods and dependence on international exchange through markets and rules. China has benefited from globalisation only because China embraced it and changed along the way. Commitments that brought it wealth and power involved accepting internal and external constraints on policymakers in China. Retreat from those commitments will weaken China economically and threaten political stability.
The priority for the global community is to reform and expand the rules of the multilateral system. President Trump’s approach is to hold the global economic order hostage to ‘America First’. The risk is a breakdown of critical multilateral institutions.
Reforming the WTO and expanding its rules will take time but signaling a clear direction and a way forward is the best way out of the US-China trade war and the US threat to tear down the global economic system. That reform is much more likely to succeed if China is part of the process, instead of the target.
Armstrong and Drysdale explain that for some, the way to navigate a world in which the United States and China are ‘descending into destructive rivalry while still themselves being deeply economically integrated’ is to ‘reframe foreign policy in security terms’. That ‘geoeconomic’ view of the world ‘insists that the same logic that underlies military conflict also applies to international commerce’. It’s a strategy that fails to comprehend the economic costs of security policy, or decoupling from the Chinese economy and leads to zero-sum or negative-sum outcomes.
‘Without understanding the economic implications of international economic policies, alongside their political and security implications’, Armstrong and Drysdale warn, ‘the ill-considered use of economic policy for geopolitical objectives will produce misguided policies that damage both economic and national security’.
The choice between economic security and national security is a false choice. East Asia has shown how to deploy policy strategies that further economic integration for economic and political security.
In East Asia economic aspiration has long dominated, and still dominates, the politics. Countries in Northeast Asia and Southeast Asia have used economic instruments in the form of deepening economic interdependence to help manage political relations. Increasing the positive-sum economic interactions between countries helps to manage the broader relationships, including the zero-sum security aspects.
Political cooperation has followed economic cooperation among countries that have unresolved history, territorial disputes, strategic competition and rivalry. Look no further than the China-Japan relationship. It’s the same for South Korea stuck between both China and Japan, and many Southeast Asian relationships. The economic instruments that these countries deploy go well beyond free trade agreements and international treaties. They institutionalise cooperation in regional forums.
The economic relationships in East Asia have given countries broader policy options and arrangements that help to manage relationships, including political and security relations. The trade and investment ties constrain the worst instincts of political leaders and create a plurality of interests between countries.
China’s neighbours in East Asia do not engage China’s Belt and Road Initiative solely as an economic opportunity or as a security threat. They share deep interdependence with the Chinese economy at the same time as they want to avoid living in a region dominated by China. The choices that East Asia is making put economic engagement first. That helps lock more Chinese interests into markets and reinforces and habituates a rules-based international order.
It is confidence in that global rules-based order that has allowed countries in Asia to prosper and engage with other countries on equal terms. The WTO will cease to provide that confidence unless it changes with the needs of the times. Absent a clear direction for reform and change the United States will have an excuse to tear it down. That will unravel economic and political relationships across the world.
We take this opportunity to thank all our readers for your support in 2018 and to wish you all a happy holiday season. These are uncertain times and in 2019 we will continue with our mission to bring evidence-based and accessible analysis that helps think through the tough challenges that new year will undoubtedly bring.
The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.