Thursday, October 29, 2009

The U.S. and China: Still a "Fragile Relationship"?

The following is the text of a lecture I gave to the East Asia Center at the University of Virginia in September, reexamining the question of whether the relationship between China and the United States can best be described as "fragile."

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In 1992, I published a history of US-China relations since the Nixon visit of 1972. The book was fundamentally shaped by the Tiananmen Crisis of 1989 – whose 20th anniversary we will mark a few weeks from today. US-China relations had been significantly undermined by that tragic event – public opinion toward China had turned markedly negative, the U.S. had sharply reduced its level of official contact with China, had ended arms sales and most economic aid, and was debating the revocation of China’s most favored nation status. At the same time, China’s future course was by no means certain. Would the Tiananmen Crisis produce further economic and political reform? Or would it, as I thought at the time, let to a mixture of repression, retrogression, and political decay?

To underscore the uncertainties surrounding both the U.S.-China relationship and China itself, I therefore entitled my book A Fragile Relationship. I did not mean to imply, as some critics have suggested both then and subsequently, that the U.S. should treat China with kid gloves. I simply meant that the relationship was highly unstable, and that there was a non-trivial possibility that it would rupture.

In the seventeen years since the book was published, two things have happened that have led me to reconsider the concept of a “fragile relationship.” First, I’ve been asked on many occasions, both in the U.S. and in China, whether I still believe the relationship to be fragile. For a while, I replied that while it was not so fragile, it remained highly turbulent, as it was through the 1990s. But I did not have the occasion to think systematically about how the relationship had evolved.

The second development was the opportunity to work for almost two years in the area of political risk assessment, which I did after my term as dean of the Elliott School ended in 2005. At Eurasia Group, I learned that the concept of instability is one of the core concepts in the analysis of political risk. I also learned much more about how political forecasters assess instability. And, of course, I realized that my own reference to the “fragility” of the U.S.-China relationship was simply another way of saying that it was unstable.

So today, let me give you my assessment of the degree to which our relationship with China remains unstable. My bottom line is that the relationship is far less fragile than it was in the 1990s, and far less turbulent than it was around the turn of the century. However, it remains highly complex, with areas of both vulnerability and resilience. It would take a large trigger event to produce a crisis, but such a trigger is not inconceivable. Even more worrying, a series of lesser shocks could still weaken the relationship so that it could become less stable over time. And while the crisis management mechanisms – what might be called the “shock-absorbing mechanisms” – are far better now than they were when I wrote my book, they have some shortcomings that provide less than complete confidence about our ability to manage serious problems in the relationship.

Analytical framework

How can we assess the stability or instability of an international relationship? And how does the relationship between the U.S. and China today compare with that in the early 1990s? I will consider four dimensions that I regard as particularly important in determining the levels of vulnerability and resilience in the U.S.-China relationship:

  • The extent to which the two countries are economically interdependent, and the ways in which they evaluate the impact of that interdependence on their economies.
  • The degree to which the two countries regard their other interests as common, competing, or overlapping, and particularly the degree to which any of their vital interests diverge.
  • On this basis, whether the two countries see their overall relationship in positive terms – or, to put it slightly differently – whether the two sides have a common, positive conceptual framework for the relationship.
  • And finally, what I call the Jeff Legro question, after my colleague here at Virginia: Even if each country defines its relationship with the other in essentially positive terms, does that policy enjoy a solid domestic political base or, conversely, are there alternative, less accommodative policies that might challenge it if circumstances change?[1]

These four dimensions determine whether the U.S.-China relationship is still fragile or has become more stable. But there are still two more parts of the analysis. We need to consider whether the two countries have developed structural mechanisms that can anticipate or manage problems in their relationship. And finally, we need to identify the trigger events that might produce either a serious crisis – or a more gradual deterioration – of the U.S.-China relationship.

Stability: vulnerability vs. resilience


Although there was much talk of a mutually beneficial economic relationship as early as the mid 1980s, when China’s program of economic reform and opening was clearly underway, in fact the two countries did not begin to become highly interdependent until around fifteen years later. This interdependence was the product of three things:

  • The surge of incoming FDI that accompanied the gradual relaxation of restrictions on investment in the 1980s and especially the 1990s.
  • The growth in two-way trade, both as a result of that investment (Chinese exports to U.S.) and China’s accession to the WTO (U.S.; exports to China).
  • The accumulation of Chinese foreign exchange assets, much of which was invested in USD assets, and particularly in US treasuries and agency obligations.

A working definition of interdependence is that is a situation in which both sides would suffer significantly if their economic relationship was disrupted, or even if their domestic economies experienced a downturn. This is the reason why interdependence gives greater resilience to a bilateral relationship. And what signs do we see of an interdependent economic relationship

  • The idea that China could be decoupled from the fate of the American economy was proven incorrect by the GFC. When the U.S. economy suffers, the Chinese economy suffers – perhaps not to the same degree, and not across the board, but still significantly.
  • The idea that the trade imbalances between the U.S. and China created a one-sided American dependence on China’s willingness to finance our deficits has also been discredited by recent events. Instead, the two sides increasingly recognize that they are vulnerable to a form of mutually assured financial destruction, where a decline in the value of the US dollar or the value of USD assets, perhaps as a result of a Chinese decision to divest itself of those assets, would also inflict great costs on the Chinese financial system.

Although the Chinese and American economies have become increasingly interdependent over the last seventeen years, this has not necessarily produced an entirely stable situation, because so far we have ignored the question of relative gain. Each side may “win,” but one side may be gaining more than the other. And the irony is that each side in this interdependent relationship believes that the other side is winning more than it is.

How could this be? The U.S. is more focused on balance of trade: on the trade imbalance, which many Americans believe are destroying jobs and lowering wages, and is the result of various forms of unfair trade practices, including an undervalued Chinese currency. The Chinese are more focused on the structure of trade: on the fact that China adds relatively little value to the goods that it exports to the United States – mainly it provides some components and conducts final assembly – while foreign firms gain a larger share of revenue from the more lucrative parts of the supply chain, including profits from product design, branding, advertising, financing, and distribution.

Moreover, each side sees the other as resisting measures to address these problems. Although the Treasury Department has recently refused to cite China as a “currency manipulator” under existing legislation, some in Congress remain dissatisfied at the slow pace of revaluation, and are introducing legislation that will redefine the issue so as to make it easier for aggrieved American firms to seek countervailing duties or anti-dumping remedies against China. Chinese, in turn, believe that one way to capture more of the supply chain and to move up the value-added ladder is through Chinese investment abroad, including investing in, and even acquiring, sophisticated foreign firms – but that the U.S. (as well as other advanced economies) are blocking or restricting such efforts in the name of national security.


One of the biggest changes over the last seventeen years has been the growing ability of China and the U.S. to identify common interests and to manage their differences.

In the early 1990s, the relationship seemed to be devoid of common interests. The need for a strategic alignment against Moscow weakened with the more accommodative foreign policies of Mikhail Gorbachev, and then ended altogether with the Soviet collapse. The idea that China and the U.S. had naturally complementary economies – an idea promoted by Richard Nixon as the next basis for a positive relationship – ran afoul of the disputes over the growing imbalance of trade. And the belief that Beijing’s domestic reform program would soon produce a more democratic China was crushed along with the anti-government protests in Tiananmen Square.

It was painful to see the two sides groping to identify common interests in the early 1990s. I recall a speech by then Secretary of State Warren Christopher in which he tried to argue that the two countries had a common interest in avoiding a weak China, and in managing an emerging set of transnational issues. Neither I, nor the broader Washington audience that he was addressing, was convinced that these could possibly serve as a replacement for the powerful common interests of the 1970s and early 1980s.

But over the subsequent decade between then and now, the two countries seemed to be identifying a wider and more persuasive set of common interests. Over time, the list has included common concerns about the economic prosperity of Asia, capping the North Korean nuclear program, combating the threat of terrorism, addressing the possibility of global pandemics, and now dealing with the global financial crisis and the issue of climate change. Alone, none of these interests may have the weight of the common threat from the Soviet Union. But together, they do make a compelling argument for cooperation.

Moreover, the two countries have found ways of managing some of the issues that created the greatest tensions in the past. On trade, the U.S. and China worked hard to reach an agreement by which China could join the WTO: the agreement involved commitments to significant liberalization, gave China permanent most-favored-nation status, and provided dispute resolution mechanisms through which remaining trade conflicts could be addressed. And while continuing to criticize China’s violations of human rights, the U.S. has essentially stopped threatening economic sanctions against China, and is now placing greater emphasis on assisting China in those areas where it is willing to undertake political reform.

Still, there are at least two areas in which China and the U.S. only have divergent interests, but diverge on issues that involve vital interests – or at least could have vital interests, depending on how the two countries define their interests:

The more specific one is Taiwan. Here, the basic dilemma remains: the U.S. retains a commitment to help Taiwan defend itself in the event of an unprovoked attack by the mainland, presumably one aimed at forcing Taiwan to unify with China. Happily, each side has recently redefined its interests in ways that minimize the degree of divergence. The U.S. has offered renewed assurances that we did not seek an independent Taiwan, and China redefined its red line extremely conservatively as a de jure declaration of independence through constitutional revision. But either side could change that definition. The U.S. might decide that it would not welcome the unification of Taiwan and China, even if it occurred peacefully and with the consent of the Taiwanese people, or even that the economic integration of Taiwan and China was developing to the point that it made us uncomfortable. Or China might once again define its interest not just as deterring independence, but as actively promoting unification, through various kinds of economic, political, and military pressure, and possibly through the imposition of a deadline. That would make the Taiwan issue much more difficult to manage than it is now.

The broader issue is the overall strategic relationship between China and the U.S. We can define it this way: does the U.S. welcome the rise of China, even to the point that it becomes the most powerful single nation in Asia? And does China accept a security role for the United States in Asia, especially with regard to the maintenance of the military bases and the forward deployments that make that role meaningful? So far, we have managed the potentially crucial differences on this subject. The U.S. says that it welcomes the emergence of a more prosperous, stable, and even influential China, as long as it acts as a “responsible stakeholder” in international affairs, meaning that it does not pose an essential challenge to the status quo. This is congruent with a more general definition of our national interest as opposing the emergence, in any region, of a dominant power unfriendly to the United States. But what if we redefined our interests more ambitiously, as preventing the dominance of Asia by any other power, friendly or not? Or, more ambitiously still, as trying to ensure that the U.S. remained the dominant power in the region? And what about China? So far, Beijing says that it welcomes the “constructive role” of the U.S. in maintaining Asian security. But what if China begins to argue that the American network of alliances and bases – which Beijing already describes as remnants of the Cold War – no longer play a “constructive role”? What if it actively tries to minimize the American role in the region, by attempting to push the U.S. out of the regional security balance and to exclude it from a pan-Asian, as opposed to trans-Pacific, economic architecture?

And even in the areas where China and the U.S. have identified common interests, they continue to pursue those interests in different ways. Let me suggest some of the major categories here, citing one example of each:

  • Where interests are overlapping, but not entirely convergent. The North Korean example, where both countries agree on the desirability of eliminating the North’s nuclear program, but where China is far more concerned than the U.S. about preventing the collapse of the North Korean regime.
  • Where the two countries have common interests, but disagree over the allocation of the costs of pursuing them. The best example here is climate change, where again the two countries increasingly agree on the severity of the problem, but differ over the allocation of responsibility -- both for the emergence of the problem and for finding solutions.
  • Where the two countries agree on a problem, but differ on the most effective strategy for addressing it. Both countries agree on the importance of Third World development, but have been promoting development strategies that differ over such key issues as the role of government in the economy, the priority to be assigned to democratization, and the conditionality to be placed on aid. Both countries may agree on the severity of humanitarian problems in failing states, but differ over the conditions under which the international community can engage in humanitarian intervention.

In many cases, in turn, these differences reflect not just differences with regard to interest, cost, and strategy, but differences over underlying norms and values about the organization of both domestic society and the international system.


In addition to identifying the specific interests that promote cooperation or conflict into a relationship, countries may also seek to identify an overarching framework that describes the relationship, and that thereby provides greater coherence to its various elements. (The Chinese are particularly interested in this kind of exercise.)

As noted above, the overarching framework in the 1970s was a tacit alliance against Soviet hegemonism. In the 1980s, it was cooperation in China’s reform and opening. And, as already indicated, both frameworks collapsed in 1989, with the fall of the Berlin Wall and the suppression of the Tiananmen protests.

Just as the two sides had difficulty in defining common interests, so too did they have difficulty in defining a new framework for their relationship. At about the same time that I published A Fragile Relationship, I also published a short article in the Brookings Review, entitled “Neither Friend or Foe: A China Policy for the 1990s.” All I was trying to do was to suggest that if the U.S. and China found it hard to be friends after the Tiananmen Crisis, at least they could avoid becoming enemies. What was so fascinating about the article was how much traction it got in China: Chinese were typically looking for a new framework for the relationship, and they seemed to agree that, at this point, this definition was the best they could hope for.

But by the late 1990s, the two sides began to do better. The U.S. began to speak first of a policy of comprehensive engagement with China to address the complex set of issues on the agenda. Then it put forward the idea of integrating China into regional and global institutions as a way of managing those issues. Most recently, in 2005, it has further declared its desire to see China become a more “responsible stakeholder” in those institutions.

For its part, China tried to forge what it called “strategic partnerships” with other countries, including the United States. This implied that the relationship should focus on what Beijing regards as fundamental long-term issues (that’s the “strategic” element), and should be based on the principle that common interests are more important than differences in interests or values (that’s the “partnership”). In 1997-98, when this concept was presented to the Clinton Administration, it was reluctant to accept that the U.S. and China had already formed such a strategic partnership, but did agree to state that it was its goal to “build toward” such a relationship for the 21st century.

Although the two sides developed and put forward policy frameworks that cast their relationship in relatively positive terms, these frameworks were not entirely identical, and each contained elements that the other side finds questionable.

Although the George W. Bush Administration stopped calling China a “strategic competitor” shortly after taking office in January 2001, it never agreed label Beijing as a “strategic partner,” even a prospective one. Nor has the Obama Administration. To the best of my knowledge, the U.S. has never explained why it finds the Chinese formulation unacceptable, but my hunch is that it implies a more one-sidedly cooperative relationship than the U.S. believes exists, and perhaps therefore suggests constraints on the American ability to criticize China for policies of which it disapproves.

Conversely, the Chinese still chafe somewhat at the American concept of China becoming “integrated into the international community” as a “responsible stakeholder,” since this suggests that China should accept the norms and structures of an international community that it did not help form, and that the U.S. should retain the ability to judge the degree to which Beijing is acting “responsibly.”

In the Obama Administration, the differences have narrowed further. Each government now describes the relationship in the same terms, as “positive, comprehensive, and cooperative relationship for the 21st century,” downplaying the terms (“strategic partnership” and “responsible stakeholder”) that had proven problematic for the other side,

Still, each side’s policy framework contains elements that acknowledge the remaining uncertainties in the relationship. The U.S. talks of hedging against the risks that might be produced by a rising China; China says that this reflects an unwarranted degree of mistrust about its longer-term intentions. China says that alliances are “relics of the Cold War”; the U.S. fears that this reflects an attempt to undermine the American security posture in the Western Pacific.

And underlying all this are large normative differences between the two countries’ overall foreign policies. In many ways, China remains what might be called a “modern” power normatively, committed to Westphalian norms of national sovereignty, the juridical equality of states, and non-intervention in the internal affairs of other countries. The U.S. in contrast, is what might by comparison by called a “post-modern” nation, asserting norms that limit sovereignty, distinguish between “responsible” and “irresponsible” actors, and assert the right to engage in humanitarian intervention in the case of severe threats to human security. So while the words are now the same, the “background music” for each country’s foreign policy remains quite different.

Policy challengers

Another factor that contributes to the stability of the relationship is that the development of these frameworks has reflected a growing consensus in each country about policy toward the other.

In the U.S., the Tiananmen Crisis had produced a very intense debate over policy toward China, reflected in the prominence of the issue in the 1992 presidential election campaign between George H.W. Bush and Bill Clinton, and in the debates between the White House and Congress over China policy under both administrations. Even in the 2000 campaign, George W. Bush declared that he regarded China as a strategic competitor of the U.S., rather than even a prospective strategic partner.

Today, in contrast, the policies of engagement and integration appears to be have gained a stronger basis of political support in the U.S., especially since the Bush Administration slightly hardened that policy by asking China to become a more responsible stakeholder in the international system and by stating that the U.S. would continue to hedge against the possibility that China might not do so. A strong majority of the public appears to support this revised mainstream policy, as reflected in the fact that China policy was a not really an issue in the 2008 presidential election – a minor issue in the primaries, and no issue in the general election itself.

In China, the American response to the Tiananmen Crisis also produced considerable debate. Initially, the dominant Chinese reaction seemed to be that the U.S. was intent on destabilizing China – was posing a near-existential threat to the survival of the Communist regime – but that the end of the Cold War would produce a more multipolar world that would give China greater room to resist American pressure.

Gradually, however, Chinese analysts concluded that the U.S. intentions were not so malign, that Beijing could successfully prevent the U.S. from forging a united front against China on the human rights issue, but that few other countries would join China in an effort to challenge American dominance in the post-Cold War world. Moreover, that consensus also incorporated the idea that China needed a stable, and hopefully cooperative, relationship with the U.S., so that it could continue to concentrate its energies on the economic development that Chinese leaders regarded as key to bolstering political stability and to enhancing China’s role in the world.

Although there does seem to be a broad base of support in each country for a cooperative relationship with the other, there are also areas of potential dissent that are worrying.

First, neither society has a particularly positive view of the other. True, few Americans hold strongly negative views of China, and American assessments of China have improved considerably since 1989, but less than half (now 41%) take a favorable view of China, and the trend toward more positive images seems to have peaked, at least temporarily, in the middle of this decade. The plurality of Americans – 44% -- believes that the rise of Chinese influence is “mainly negative.”

Similarly, Chinese are also evenly divided in their overall assessments of the United States. And they hold a negative view of America’s role in the world – in one recent BBC poll, 58% of Chinese believe that role to be “mainly negative,” although admittedly not as negative as that of some other countries, including some of America’s allies. Perhaps we have stopped idealizing or demonizing the other, but the result is still a set of mixed perceptions that continue to have significant negative elements.

Second, public opinion holds a more cautious view of the relationship than official rhetoric would suggest. A Pew poll from 2008 revealed that only 13% of Chinese regarded the U.S. as “more of a partner,” whereas 34% saw it as “more of an enemy.” American views of the U.S.-China relationship are somewhat more positive: 23% in a recent Harris poll see China as an “unfriendly enemy,” whereas 30% see it as friendly or even a “close ally,” and 40% see it as neither friend nor foe. Far more see each other as competitors, at least in an economic sense, than as collaborators.

Third, and potentially most important, non-trivial minorities in each country favor a tougher policy toward the other. In china, the recent publication of the controversial book China is Unhappy is but the latest in a series of books, beginning with the equally notorious China Can Say No, that call for greater resistance to American demands on China. In the U.S., about a third of the public believe that the U.S. should try to “limit the growth of China’s power,” rather than to “undertake friendly cooperation and engagement.”

Thus, the stage is set, at least conceivably, for a switch, either sudden or gradual, toward a policy framework whose content is much less cooperative and far more competitive, or even confrontational.

Relationship management: mitigation vs. exacerbation

One of the most worrying consequences of the Tiananmen Crisis was the American decision to suspend all official contact above the level of assistant secretary – with the noteworthy exceptions of the Scowcroft-Eagleburger missions to China that, because they seemed to violate the policy against high level conduct, and because one of them was therefore conducted in secret – became highly controversial in the U.S. In fact, the suspension of high-level contact was one reason I regarded the U.S.-China relationship in the early 1990s as being so fragile.

It took a crisis – the missile tests in the Taiwan Strait in 1995-96 – to persuade the two sides to resume high-level dialogue. For a time, the U.S. and China returned to the familiar pattern of “trip-driven diplomacy,” with summit meetings in each country intended to address all the key issues in an increasingly burdened agenda.

Today, in contrast, we have evolved what I regard as a more feasible and sustainable pattern. The pattern still features occasional top-level visits in both directions, but with fewer expectations about their results. Equally important are more frequent, and briefer, meetings on the sidelines of major multilateral conferences (particularly the UN, APEC, and the G-8 or G-20) to engage in consultations without pressure to achieve results – and even more frequent telephone conversations to deal with the most urgent questions.

Also useful has been the inauguration of cabinet and sub-cabinet level discussions of key issues: the Senior Dialogue on political issues dating from 2005, the somewhat better known Strategic Economic Dialogue that began in 2006, and now the combined Strategic and Economic Dialogue that will commence later this year. The main feature of these dialogues is that they provide opportunities for direct communication among a number of functional agencies in both countries responsible for the issues in question – opportunities that may enhance coordination within each country as much as facilitating cooperation between the countries.\

But although there are now robust mechanisms for consultation between civilian officials between the two countries, the same cannot be said for the military sector. True, a hot line has been established, but its effectiveness in the event of crisis remains untested. Even more important, military-to-military dialogue has not yet produced grater transparency about Chinese military capabilities or intentions – and that dialogue remains highly vulnerable to suspension if Beijing is displeased about some aspect of American security policy relevant to China. It does not bode well that a mechanism intended to prevent or manage crises would be suspended at the first sign of a problem in the relationship.


Overall, I believe that the relationship is sufficiently stable that it would take a very powerful shock to be fundamentally disruptive. Three such shocks are conceivable: a military crisis in the Taiwan Strait, a collapse of North Korea in a way that invited external intervention, or a major incident of instability and repression in China comparable to the Tiananmen Crisis of 1989. All of these potential trigger events are what we in the risk assessment business call “long-tails”: high impact, low probability, but not inconceivable.

Over the longer term, however, perhaps the greater danger would be trends that produced greater instability in the relationship. These might include:

  • Inability to reach agreement on issues of high salience to one side or to both.
    New issues on which China and the U.S. come to differ, perhaps because of differences in underlying norms and values.
  • The evolution of the economic relationship in which the relative gains from of interdependence become more controversial in either or both countries.
  • A more assertive and ambitious definition of China’s interests, as its stake in the world economy increases and as its power grows, accompanied by an unwillingness by the U.S. to accommodate such increasing demands. (Already, Beijing seems to be chafing under the terms of tacit bargains – on issues such as the treatment of the Dalai Lama and the legitimacy of American naval patrols inside its exclusive economic zone.)

Developments such as these could produce greater skepticism in each country about the possibility of a cooperative relationship.

Conversely, however, there is also the possibility that the relationship could become even more resilient than it is now:

  • The gradual identification of more common interests and values, and more agreement on effective measures to advance those interests.
  • An ability to find ways of giving China a greater role in the existing international system, with a concomitant willingness by Beijing to take on greater regional and global responsibilities
  • Deeper economic interdependence, with greater acknowledgment of the benefits to each side
  • Greater transparency regarding military strategy and deployments.

These developments could produce greater mutual trust and greater confidence in each country about the prospects for cooperation.


In short, China and the U.S. today enjoy a relationship that is less volatile, less turbulent, and more resilient relationship. It is no longer a fragile relationship. But it is still a complex one, for the two countries have different interests and different values, and are undergoing a significant shift in their relative power. The chances for continuity – as a complex, comprehensive, but ultimately stable relationship -- are high. But there is still the “long-tail risk” of sudden deterioration of the relationship, and a higher chance yet of a more gradual devolution into a more competitive one.

[1] Jeff W. Legro, Rethinking the World: Great Power Strategies and International Order.

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