The Evolving International Order

Below are the talking points for a presentation I made at a forum sponsored by the Finnish Institute of International Affairs in Helsinki in March 2010:

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Let me begin by reminding you of five major international trends, most of which will be familiar to you, and then address the question of their impact on the international order.

1. In some ways, the most basic trend is globalization: the greater flows of goods, services, ideas, capital, people, viruses, and information over distance and across borders. Thomas Friedman has described globalization as a fact, not a choice, but actually it is some of both. The technologies that make the flows faster, lager, and cheaper are facts. But the decisions to deploy them, and to allow the flows to occur, represent choices. Societies that isolate themselves from those flows fall behind economically; that is a fact. But a small number of governments have still made the choice to remain isolated, despite the opportunity costs, and a much larger number try, at least at the margin, to regulate, restrict, or shape the flows.

2. The second major trend is the rapid growth of some of the large economies that have chosen globalization, especially those that were previously relatively disconnected from the global economy. I do not see this trend as the “rise of the East” or the “rise of the rest,” as Kishore Mahbubani and Fareed Zakaria have portrayed it. Rather I see it as the rise of parts of the East and some of the rest – first the Asian tigers, then the BRICs, and now the “Next-11.” This trend is, however, shifting the relative balance of power, not only with regard to traditional bilateral and multilateral state-to-state relationships, but in the institutional sphere as well. Institutions in which the rising powers are represented (like the G-20) are supplanting those in which they are not (like the G-8). Other key institutions, like the World Bank and the UN Security Council, are facing growing pressures to become more representative of the new balance.

3. Globalization is leading to the rise of new kinds of actors, as well as to a larger roster of powerful nation states. These transnational actors are qualitatively different than traditional state actors. They include multinational corporations, international NGOs, terrorist groups, criminal organizations, and virtual networks of those who share views of important issues. The emergence of these non-state actors is a challenge, not only because the rogues among them can now cause so much damage and are so difficult to regulate or suppress, but also because our international system is not yet structured to give non-state actors a voice, since the principal members of the system (and the institutions that comprise it) are states and their governments.

4. Fourth, globalization is producing new issues, most of which can be seen as the need to regulate the flows that globalization has generated: facilitating the positive and restricting the negative. The positive aspect of globalization is that the increased flows of goods, services, and people provides the contemporary world with greater access – to talent, goods and services, financial capital, natural resources, and markets – than ever before. This means more choice, more opportunity, lower cost, and greater benefits. But the negative aspect of globalization is that it gives rise to various kinds of insecurity, many of which can be seen as parts of what some Scandinavian analysts have termed “societal security.”

5. The negative aspects of globalization, in turn, are producing the fifth trend: a backlash against globalization. In some cases, this is simply a desire to restrict or regulate negative flows to reduce the perceive risks to societal security. Trade and investment protectionism is the most obvious example of this. But in other cases, the backlash reflects a deeper concern that national or local identities are under threat. This produces a more angry opposition, not only to the negative aspects of globalization, but also to the leaders and governments that have allowed globalization to occur. As opposed to the milder forms of protectionism, this angry and more fundamental opposition to globalization is less compromisable and more likely to lead to violent protest and internal conflict.

Now, what kind of international order are these five trends producing?

First, any talk of unipolarity has virtually ended. (In my judgment, there never was a unipolar world, even in the immediate aftermath of the end of the Cold War, but there certainly was talk of it. Now, even the talk is fading away.) The United States remains the most powerful single country in the international system, but the rise of other powers, and America’s own weaknesses, mean that it cannot be dominant. Equally important, unipolarity is being replaced not by multipolarity, but by what I call “multimodality” – a system that is characterized by multiple centers in an interconnected network, where the main competition is not over the ability to compel through military force or economic sanction, but over the ability to attract through economic dynamism and cultural appeal.

Second, there is a growing demand for international cooperation to address the issues produced by globalization and economic growth. Some of that demand is being reflected in informal, ad hoc networks of collaboration, what some in the U.S. have called “coalitions of the willing.” It is also being embodied in the growth of formal international institutions, some of which have a relatively long history (the UN, the WTO, the World Bank), and others of which are new (the EU, APEC, the Shanghai Cooperation Organization). But virtually all of these institutions remain relatively weak and ineffective. Some operate on the basis of consensus – and therefore require a level of common interest and common approach that does not exist. Others embody norms that are not universally accepted. And virtually all have weak powers of enforcement, in an international system that remains largely anarchic.

Out of frustration with the shortcomings of international institutions, great powers practice what Richard Haass called “multilateralism a la carte”: they decide both whether to act multilaterally, and which organizations they will utilize when they do. This tendency toward what some call “forum shopping” simply compounds the problem of weak institutions.

In short, the trends I have identified are producing a somewhat less anarchic world, but one which is not yet well governed. At most, the international order can be described as a confederal one, in which institutions are weak, non-representative, and insufficiently legitimate. This gap between the need for effective international governance and weak international institutions constitutes lone of the major challenges in the early 21st century.

The G-2 Chimera: Fusion or Illusion?

This blog represents a revised version of remarks presentation originally prepared for presentation for “G2 at GW”: The Second Conference on China’s Economic Development and U.S.-China Economic Relations, sponsored by the Institute on International Economic Policy, Elliott School of International Affairs, The George Washington University, November 20, 2009.

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The title and subtitle of this talk, “The G-2 Chimera: Fusion or Illusion?,” may require some explanation. The title refers to two concepts – G-2 and “Chimerica” – that embody, in different ways, the proposition that the bilateral relationship between the United States is uniquely important – that, as Hillary Clinton wrote during the 2008 presidential election campaign, it is “the most important bilateral relationship in the world in this century.”[1]

The concept “G-2” is associated most prominently with C. Fred Bergsten, the direct of the Peterson Institute of International Economics.[2] This concept focuses on the roles of China and the United States in the broader international trade and financial system, and their unique ability to set the agenda and possibly forge agreements on a wide range of international issues. China and the U.S. form a G-2, according to Bergsten, because they are the world’s two largest economies, and because they represent the interests of the developing and developed worlds respectively.

The term “chimera,” in turn, is a reference to the etymology of the concept of “Chimerica,” which in turn is most closely associated with the Harvard historian Niall Ferguson and, more recently, with author Zachary Karabell.[3] This second concept focuses less on the two countries’ role in the world than on their high degree of mutual integration, despite their differences in structure and values, such that one country’s economic circumstances strongly influence the other’s. The term is a clever pun, since the original word, “chimera,” refers to the mythological creature that is composed of parts from genetically different animals: originally the head of a goat, the body of a lioness, and the tail of a snake. And of course Ferguson’s revision, “Chimerica,” modifies that word to refer to China (“Chi”) and America (“merica”).

The subtitle of my talk, “Fusion or Illusion,” then asks whether the basic proposition common to both concepts – that the U.S.-China relationship is a uniquely important and a uniquely promising pairing -- is likely to be valid. After all, in modern genetics, the term “chimera” refers to a true hybrid – a real animal that comprises genetically distinct cells. But in common English usage, “chimera” retains its original meaning as a work of fiction, a creature of the imagination, rather than something real.

In short, what do concepts like the “G-2”say about the relationship between China and the U.S.? Are we talking about two countries that constitute the most economic and political actors in the contemporary world? Or are we talking about what has become a single integrated economy, such that the health of one depends fundamentally on the health of the other? And does either of these premises suggest a genuine hybrid or fusion, created by some new form of international genetic engineering? Or is it, like the original chimera, an illusion, not based on any reality?


The G-2

The two largest economies

Fred Bergsten’s notion of the G-2 is a direct and obvious allusion to the earlier notions of a G-7 or G-8. It implies that because China and the U.S. are the two world’s largest economies, they have a unique ability and responsibility to manage the world economy and may form a more appropriate grouping for economic governance than the G-7 or G-8, or even the G-20. Although, as we will see, this is only one basis for Bergsten’s argument for viewing the two countries as a group of two, it is the version of the G-2 that is most common in policy circles today.

It’s certainly true that the U.S. and China are the world’s largest economies, at least on the basis of purchasing power parity (PPP). They are also the world’s two largest trading nations. This would seem to create a plausible reason to propose that Washington and Beijing exercise some kind of global economic leadership. The fact that, in the aftermath of the global financial crisis, the two countries have also formulated and implemented what appear to be the largest and most effective economic stimulus packages also underscores their relative importance.

However, although the two countries are the world’s two largest economies, their share of world GDP (again in PPP terms) is not as great as those rankings might suggest. According to the World Bank, total world GDP in 2008 was $69,697,642 million (or $69.7 trillion). Of this, the U.S. accounted for $14.2 trillion, while China accounted for about half as much, or $7.9 trillion. The next two countries, Japan at $4.4 trillion and India at $3.4 trillion, were together about the same size as China. And then came six other countries – Germany, Russia, the U.K., France, Brazil, and Italy, with economies ranging from $1.8 trillion to $2.9 trillion, that together were about the same size as the United States.

So it’s hard to assert that the U.S. and China dominate the world economy, even though together they produce almost one-third of global GDP. I find it more value to argue that the top ten countries dominate, responsible for 62% of GDP ($43.2 trillion of $69.7 trillion). And if one wanted to single out subgroups, it would make as much sense to see the U.S. as a G-1, or the U.S., China, India, and Japan as a G-4, as to see China and the U.S. as a G-2.

The fact that the U.S. and China do not dominate the world economy as thoroughly as talk of a G-2 implies helps explain the fundamental political reality that other large countries are reluctant to cede global economic leadership to the U.S. and China. If the G-8 has been expanded to the G-20, how can it now be shrunk back to become to the G-2? This is why, in one version of his argument, Bergsten has argued that the two countries “must…operat[e] as a de facto ‘G-2’ without ever announcing or even acknowledging its existence.”[4]

Nor does China appear eager to take on this role. Chinese analysts seem flattered that some in the U.S. would regard them as equal to America as a member of a G-2, giving it a status above all other nations, but they seem reluctant to take on the special responsibilities or encounter the likely resentments that accepting that role would entail. And when China becomes powerful enough to do so, would its leaders be willing to maintain a special relationship with the United States – especially one that many Chinese many believe is intended to limit their freedom of action? At the point at which it was reasonable for China to form a G-2 with the U.S., in other words, why would it agree to do so?


The established power and the rising power

A second version of the G-2, also contained in Bergsten’s original vision, stresses the differences in the values and ambitions and China and the U.S., rather than the similarities in their size. Bergsten noted that, as a “poor, significantly nonmarketized, and authoritarian” country, China seemed reluctant to “accept the systemic responsibilities that should ideally accompany superpower status.” Indeed, he went on, “Chinese recalcitrance seems to be increasing rather than decreasing over time.” The risk, again to quote Bergsten, was that China would propose “alternative structures for which China can be present at the creation” – structures in which China would presumably play a greater role, and that would be organized around quite different values than those associated with the United States. Bergsten in particular mentioned low-quality free trade agreements and non-conditional foreign aid packages, but the problem could well apply to other institutions and issues as well.[5]

Part of the purpose of Bergsten’s concept of the G-2 was, therefore, to encourage China to accept existing international norms and institutions, rather than to challenge them or replace them, by offering China a unique partnership with the United States. Where the Bush Administration, through then Deputy Secretary of State Robert Zoellick, had offered China the position of “responsible stakeholder” in the an international order led by the United States, Bergsten was offering China something more – something that he described as a “true leadership position” in that order. More specifically, Bergsten argued that the existing bilateral Strategic Economic Dialogue (which has now evolved into the Strategic and Economic Dialogue) could serve as the mechanism through which that shared leadership could be exercised. Thus, in Bergsten’s vision, the G-2 was only in part a recognition of an existing reality: the size and dynamism of the Chinese economy. Equally, if not more, important, its purpose was to create a new reality: a China that would cooperate with the United States by offering it shared leadership.


The largest developed and developing countries

Also embedded in Bergsten’s concept of the G-2 was still another, slightly different idea. The U.S. and China could appropriately share global leadership as a G-2 not only because they are the world’s two largest economies but also, and perhaps even more importantly, because they are the world’s largest developed and developing countries respectively. If China and the U.S. could reach a consensus on key global issues, that consensus would therefore be able to attract – some would even say compel -- support from others. So far, the issues in question have been primarily trade and climate change, but in the future could also include investment, energy security, development assistance, and possibly others as well. So, for example, if the U.S. and China could reach a consensus on climate change, they would immediately set the agenda for the Copenhagen Conference and for subsequent meetings on the agenda.

This version of the G-2, like the others, is rooted in an important reality. It’s true that China and the U.S. are both successful globalizers, and that this gives them more common perspectives than the U.S. would have with more autarkic or protectionist economies (or, for that matter, than it would have had with China itself before the early 1990s). But they still remain at very different levels of development – and of course they have different political and economic systems, which in turn are rooted in different values. That gives them different perspectives on many, if not all, of the global issues listed above.

On climate change, for example, each holds that the other – and the larger group of countries it presumably represents – bears the greater responsibility for the problem. Chinese say that the U.S. has the greater responsibility, because it has historically introduced more greenhouse gases into the atmosphere. Americans say that China has the greater responsibility, because it is now emitting more greenhouse gases into the earth’s atmosphere, and will emit even more in the future. The outcome of the December 2009 Copenhagen conference on climate change shows how difficult it can be for China and the United States to reach a constructive agreement on the issue, despite the confident predictions by some observers that the issue would be the basis for a natural partnership between the two countries. Instead, they could only agree on a document that required no binding goals from developing countries, set no specific emissions targets for the developed world, and contained no reference to negotiating a more binding treaty in the future. And even this minimal achievement involved negotiations between the U.S. and China that were described as highly acrimonious.

Or take the global flow of foreign investment. As I understand it, the negotiations between Washington and Beijing over a bilateral investment treaty addressed the issue from two very different angles. The U.S. wanted to reduce the limits on foreign access to direct and indirect investment opportunities in China. The Chinese wanted to gain equal access as any other foreign investment to investment opportunities in the U.S., even in deals that involve advanced technology and critical infrastructure. In effect, Beijing has argued that if British Petroleum was eligible to buy Union Oil (UNOCAL), then the Chinese National Overseas Oil company (CNOOC) should have been eligible to do so as well. The U.S. has countered that, if CNOOC were eligible to buy UNOCAL, then UNOCAL should have been eligible to buy CNOOC. As in trade, China has demanded most-favored-nation status, whereas the U.S. has been more interested in acquiring greater access to the Chinese market.

Moreover, even if the two sides were able to agree on these difficult issues, they might not find so easy to bring other developed and developing countries along with them. This could happen if consensus reached by China and the U.S lagged behind what other developed countries desired. (For example, the U.S. and China could conceivably agree on a “deal” on climate change that required few commitments from either country, disappointing the Europeans and the Japanese – basically the outcome that was achieved at Copenhagen.) Or it could occur if the consensus reached by Washington and Beijing went beyond what other developing countries would accept. (For example, China might now be willing to accept market-opening measures that other large economies, such as India, would find objectionable.)


The P-2

Finally, there is a fourth version of the G-2 argument that is not directly relevant to a discussion of U.S.-China economic relations, but that still warrants at least passing mention. I call it, not the G-2, but the P-2, proposition: that China and the U.S. are the world’s most important military and geopolitical powers. In other words, just as the G-8 should really be seen as a G-2, so should the UN Security Council’s P-5 really be regarded as a P-2, since the U.S. and China are so much more important than the other three permanent members of the body. And just as some argue that, as the world’s largest developed and developing countries, if China and the U.S. can reach a consensus on global issues, they can set the agenda for the rest of the world, so too do others argue that, if China and the U.S. can work together as a concert of powers, they can assure stability in the Asia-Pacific region and can virtually impose solutions on major sub-regional issues both inside the region (e.g., North Korea) and elsewhere (e.g., Iran)

Again, the idea of a P-2 is rooted in an important reality. Increasingly, China and the U.S. share common interest in geopolitical stability, counter-terrorism, and non-proliferation. And together, they have levels of comprehensive national power that can encourage – if not compel – solutions to key global and regional problems.

However, it is equally true that the two countries also different interests when it comes to specific issues. For example, their common interest in the denuclearization of North Korea and Iran counterbalanced somewhat offset by China’s interests in the stability and survival of the North Korean regime, and access to Iranian energy supplies – neither of which is an interest shared by the United States. In addition, the two countries have quite different preferences as to international strategy. Washington is far more willing to envision the use of economic and military sanctions than is China, and far more willing to engage in humanitarian intervention that is unwelcome to the government of the country in question. As I have argued elsewhere, this reflects China’s preference for a set of international norms that reflect the Westphalian values of equality, national sovereignty, and territorial integrity, whereas the U.S. prefers a post-modern international system that can impinge on the sovereignty and territorial integrity of states that violate post-modern norms of non-proliferation and human rights.

These differences are significant in themselves, in that they limit the ability of the U.S. and China to agree, as a P-2, on how to handle major political and security issues. Equally important, they exacerbate the mistrust that already characterizes the relationship between a rising power and an established power that have a recent history of conflict and competition and that have very different political systems.

And, of course, the other members of the existing P-5 do not want their positions diluted by the creation, however informal, of a P-2. And other major rising powers – including Brazil, Germany, India, and Japan, want the UN Security Council to include them. Each of them also has significant resources – military, economic, diplomatic – to bring to the work of global leadership, with some potentially playing critically important roles on particular international issues.

Moreover, there are other stakeholders who would resent and even fear a Sino-American strategic condominium. This would include many of America’s Asian allies, who are important partners in the U.S. hedging strategy against China that, in turn, stems from the mistrust I have just mentioned. Most of them take what I call the “Goldilocks” approach to U.S.-China relations: they want the relationship to be not too hot, not too cold, but “just right.”

So just as the G-7 is more likely to be replaced by a G-20 than by a G-2, so is the P-5 more likely to evolve into a P-9 than to devolve into a P-2.


Chimerica

As noted above, the concept of Chimerica, associated with Niall Ferguson, is slightly different than Fred Bergsten’s concept of the G-2. The G-2 singles out China and the U.S. because of their potential role in the international community. Chimerica singles them out because of their high degree of economic interdependence. In fact, the title of a recent book by Zachary Karabell, Superfusion, pushes the concept even further, saying that the level of interdependence is so great that the two countries have been “fused” into “one economy.” However, despite this underlying similarity, Karabell and Ferguson interpret the high degree of interdependence between China and the U.S. in two quite different ways, highly positive and highly negative, respectively.


Healthy hybrid or dangerous monster?

Zachary Karabell takes an optimistic view of the growing integration between China and the U.S. The “fusion” of the Chinese and American economies creates, in his view, considerable commercial benefits for both Americans and Chinese: greater availability of consumer and capital goods, and greater opportunities for investment. Moreover, because the U.S.-China economic relationship also benefits the rest of the world as well, since American imports from China also involve the export, to China, of components and raw materials from many other countries. That explains the second half of the subtitle of Karabell’s book, which posits that “the world’s prosperity” depends on the fusion of the Chinese and American economies.

In addition, according to Karabell, the economic integration of China and the U.S. produces greater requirements for economic cooperation and thus introduces greater stability into a previously volatile U.S-China relationship. The two countries’ commercial and financial economic interdependence has created a kind of “mutually assured destruction” reminiscent of the Cold War, except the mutual destruction would be economic, rather than nuclear, and the interdependence generates positive cooperation to enhance mutual gain, rather than merely negative cooperation to prevent nuclear war.

Karabell’s positive view of the economic and political implications of Chimerica leads him to argue the economic relationship between the two countries should be deepened and institutionalized. In a recent essay, for example, Karabell has proposed that the U.S. and China form a “joint central bank” to “determine interest rates and currency pegs,” and that the U.S. stop reviewing proposed Chinese investments in the U.S. for their security implications.[6]

In contrast, Niall Ferguson focuses on the unhealthy aspects of the relationship. His argument is not just that the two economies are interdependent, but that their interdependent relationship is imbalanced. The U.S. has been running a continuous trade deficit with China since the mid 1980s, while China has been accumulating excessive levels of U.S. dollar reserves. This imbalanced, “symbiotic” relationship, as Ferguson calls it, reflects the deeper problem that China has a far higher national savings rate than the U.S. These imbalances were an ultimate cause of the current global financial crisis.[7] And unless they are reduced, there will be a continuing risk to the stability of the international financial order. A continuing American trade deficit will imperil the value of the U.S. dollar, threaten higher interest rates, and thus jeopardize the sustainability of American economic growth. Conversely, a continuing Chinese surplus will create the a risk of asset bubbles and inflation at home and abroad, due to the huge amount of liquidity generated by the buildup of China’s dollar-denominated reserves. The U.S. and China need to cooperate in managing their interdependent economies, but the reason to do so is not just to generate mutual gain, but to prevent mutual loss. Indeed, the ultimate objective, according Ferguson and his colleague Moritz Schularick, should be to either kill this “economic monster” or else allow it to die the “peaceful death it deserves.”[8]


But does Chimerica really exist, or can it be created?

But to what extent does the chimera-like relationship between China and the U.S. actually exist? Of course the two countries are interdependent, but perhaps not to the degree that much popular discussion seems to assume. Once again, a focus on rankings and an examination of shares produces two quite different analyses.

Rankings of the two countries’ mutual importance to each other do suggest that China and the U.S. have become highly interdependent. In 2008, the U.S. was China’s number one trade partner, while China was America’s number two trading partner. As with the concept of the G-2, ranking, or relative size, has helped produce the concept of Chimerica. At the same time, the degree of interdependence is further deepened by the nature of trade – by the fact that it is generated by highly sophisticated transnational production and consumption networks centered in the two countries – and by the associated capital flows that both generate the trade (in the form of direct investment) and are produced by the trade (in the form of China’s increased holdings of U.S. dollar denominated assets).

But each country’s share in the other’s global trade patterns is less than the rankings might suggest. As noted, last year China was America’s number two trade partner, but it accounted for only 12% of America’s global trade. Last year the U.S. was China’s number one trade partner, but the U.S. accounted for 13% of China’s global trade. The numbers are obviously much higher for certain sectors and for certain regions of both countries, but these national statistics would surprise many of those who believed that the two economies are joined at the hip.

The same is true of China’s holdings of U.S. Treasurys. To hear many commentators tell it, when Barack Obama visited China, he was visiting America’s banker. In fact, as of the end of August, China held less than a quarter of American sovereign debt held by foreigners: $797 billion of $3,449. (And, of course, around half of U.S. sovereign debt is held by American investors, making them, not China or Japan, the U.S. government’s most important lender.) Indeed, Obama actually visited two of America’s bankers on his visit to Asia, since Japan holds another $731 billion in U.S. Treasurys, or 22% of the total. From a financial perspective, perhaps what we are witnessing is not “Chimerica” but “Chijapica” – a tripartite image that might be more faithful to the original vision of a chimera as part lion, part goat, and part snake.

And to what degree does the interdependence of the Chinese and American economies produce pressures for even greater fusion? Interdependence has almost certainly stabilized the overall bilateral relationship to a significant degree, for all the reasons mentioned above. But it also has long generated complaints from each side that the other is benefitting more – in other words, a disagreement about how to assess the relative gains to the economic relationship. And it is also producing a debate over responsibility that parallels the debate over climate change: the two sides agree that there is a dangerous problem that needs to be addressed, but differ over who is responsible and what should be done.

Karabell laments that this resistance to the further integration of the two economies is irrational. But rational or not, the opposition limits the possibility that U.S.-China economic relationship will achieve a high degree of “fusion.” The term might be appropriate if they two countries had formed an economic union, which is the highest institutional form of economic integration, or even a common market, which is one step less. But they do not even have a free trade agreement and, given the difference in economic structure and level of development, it is difficult to imagine that they will be taking this first step any time soon. Even Ferguson’s recent proposal that the U.S. promise a continued commitment to free trade in exchange for Chinese promise to revalue the renminbi will be difficult to implement.


Conclusion

My task was to give a charge to this conference by introducing the concept of the G-2. I’ve done so by setting out my understanding not only of the concept that China and the U.S. play uniquely important roles in the international political and economic systems, but also of the closely related, yet not identical, idea that they form a highly integrated economy known as “Chimerica.” I’ve noted that each of these two concepts, in turn, has spawned several variants. I’ve identified four versions of the G-2, and two versions of “Chimerica.” The G-2 idea is based variously on the notions that China and the U.S. are the world’s two largest economies, that they have different views of the international economic order, that they can represent the developing and developed worlds respectively, and that they are also uniquely key to the management of global and regional political and security matters. The concept of Chimerica means that the Chinese and American economies have become highly interdependent, but one version sees this as a positive development that should be deepened and institutionalized, while another version sees it as troubling phenomenon that should be significantly redefined as soon as possible.

But how accurate are these various descriptions of the U.S.-China relationship? My own view is that these two sets of idea carry important insights, but like so many concepts that capture the public imagination, they are subject to quite different definitions, oversimplify a complex reality, and imply controversial policy implications that are an uncertain guide to action.

My conclusion is that the depth of economic integration beyond mere trade and investment flows (the basic phenomenon behind the concept of Chimerica) is likely to be limited. To the extent that the economic integration of the two countries has occurred, I find Ferguson’s concern about the unhealthy nature of the two countries’ financial interdependence to be more persuasive than Karabell’s more benign portrait.

I have also concluded that the degree to which U.S. and China occupy singularly important places in the global political economy (and thus constituting a G-2) is likely to be limited. True, there will be some issues (such as climate change) where China and the U.S. will together form the biggest part of the problem, and others (such as the North Korean nuclear program) where they might together provide the most important elements of a solution. But even here, China and the U.S. will not monopolize either the problem or the solution. Other actors, both other large developed economies and other major emerging markets, will be critically important as well: Japan and South Korea on the North Korean issue; India, Brazil, the EU, and Japan on climate change. This will be equally, if not even more true, for other major regional and global issues. And, as we have seen on issues ranging from climate change to the Iranian nuclear program, the degree of policy cooperation that they will be able to achieve may not be as great as the proponents of the G-2 would hope.

And from a strategic perspective, concepts that single out one country – China – to occupy a uniquely important place in U.S. foreign policy is not necessarily wise. Indeed, the concepts of a G-2 and a Chimerica represent the most recent example of our historic obsession with China, whether as partner or rival, sometimes to the neglect of other important international actors and problems. By contrasting the G-2 with the G-20 and the P-5, and by pointing to the role of Japan and other major actors (including American domestic investors) as buyers of U.S. Treasurys, I’ve tried to suggest that concepts that continue to that limit our focus to China may blind us to the challenges and opportunities that lie beyond Beijing.

For all these reasons, then, my conclusion is that the U.S.-China relationship forms a very incomplete hybrid -- the U.S.-China chimera may therefore be more illusion than fusion.

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[1] Hillary Clinton, “Security and Opportunity for the Twenty-first Century,” Foreign Affairs, 86:6 (November-December 2007), pp. 2-18. This presumably replaced America’s relationships with Britain, the Soviet Union, and Japan, which at various points were described as the most important bilateral relationships in the world in the last century. To paraphrase Tom Wolfe’s brilliant line about trendy New York restaurants in Bonfire of the Vanities (“this week’s restaurant of the decade”), the U.S.-China relationship has become this decade’s relationship of the century.

[2] On the G-2, see C. Fred Bergsten, “A Partnership of Equals: How Washington Should Respond to China’s Economic Challenge,” Foreign Affairs, 87:4 (July-August 2008), pp. 57-69; and Bergsten, Pacific Asia and the Asia Pacific: Choices for APEC,” Policy Brief PB09-16 (Washington, DC: Peterson Institute for International Economics, July 2009).

[3] On Chimerica,” see Niall Ferguson and Moritz Schularick, “’Chimerica’ and the Global Asset Market Boom,” International Finance, 10:3 (2007), pp. 215-39; Ferguson and Schularick, “The Great Wallop,” New York Times, November 16, 2009; Zachary Karabell, Superfusion: How China and America Became One Economy and Why the World’s Prosperity Depends On It (New York: Simon and Schuster, 2009); and Karabell, “On China Trip, Lose the Old Baggage,” Washington Post, November 8, 2009.

[4] Bergsten, “Pacific Asia and the Asia Pacific,” p. 3.

[5] Bergsten, “A Partnership of Equals.”

[6] Karabell, “For China Trip, Lose the Old Baggage”

[7] Ferguson and Schularick, “’Chimerica’ and the Global Asset Market Boom.”

[8] Ferguson and Schularick, “The Great Wallop.”

Are Americans Ready for the Rise of China?

The rise of China is not entirely assured – the country has many internal contradictions that could pose significant problems – but I think the most likely scenario is that the growth of China will continue for the foreseeable future, that the balance of power between China and the U.S. will shift in China’s direction, and that China will adopt a more assertive foreign policy. Are Americans ready for this development? The short answer, I’m afraid, is no.

First of all, a strong China is a phenomenon with which Americans have no historical experience. From the founding of the U.S. up until quite recently, China has been experiencing a long period of national weakness (indeed, from the Chinese perspective, 150 years of “national humiliation,” followed by thirty years of highly uneven performance under Mao Zedong). Although Americans feared the spread of Chinese-supported revolutionary movements in the Third World Maoist ideology in the 1960s and early 1970s, this aspect of Chinese foreign policy reflected China’s weakness, not its strength. The customary American predisposition is that the U.S. should help a poor China develop, preferably following an American model. That teacher-student orientation no longer fits a rapidly changing reality of a China that is becoming wealthier, stronger, and increasingly self-confident. For the U.S., the new reality is completely unprecedented.

Not only is China rising, but it is the first potential rival of the United States that is accumulating all dimensions of national power. With its ideological appeal waning and with its planned economy inefficient, the Soviet Union had become, by the 1960s, primarily a military power, resting on a weak economic base. Japan had an attractive popular and traditional culture, but it placed severe restrictions on the development of its military capabilities so that, when it rose to global status in the 1980s, it did so almost exclusively as an economic power. China, in contrast, is poised soon to become the world’s largest economic power (terms of aggregate GDP measured in purchasing power parity terms), is developing more extensive force projection capabilities, and is trying to enhance its soft power. That too is unprecedented in the American experience as a superpower.

At the same time that China is rising, the U.S. appears to be stumbling. American soft power has been undermined by its domestic and foreign policy problems, its economic power has been hampered by the global financial crisis and by its high levels of indebtedness, and its military power is strained by the simultaneous wars in Iraq and Afghanistan. Although there is still a large power gap between the U.S. and China, that gap is narrowing, at least on the economic and military dimensions. Moreover, unlike China, which remains almost exclusively an Asian power, the U.S. must project its power resources on a global stage. That makes it more difficult for the U.S. to continue to be the dominant, or at least preeminent, power in Asia. This suggests the limited utility of our tendency to see the future course of China as the key variable that will shape the evolution of U.S.-China relations as the future course of China. To me, ensuring a vibrant Asia and a strong America that remains actively engaged with Asia is equally important.

There is still a tendency in some quarters to dismiss the risks posed by a rising China. As James Mann pointed out several years ago in his provocative book, The China Fantasy, many observers assign what he and I both regard as excessively high probabilities to two “soothing scenarios” about the future of China: one that China will soon become democratic, the other that China will experience some kind of internal crisis. Of course, one could argue that neither of these two scenarios is all that “soothing”: a democratic China could, at least in its early decades, be characterized by a high level of popular nationalism, and a decaying China could present its neighbors (and indeed the rest of the world) with a variety of transnational security problems. But the more important problem with these two scenarios is that their probabilities, in my judgment, are not that high.

Nor is the probability of a third “soothing scenario,” more recent in vintage: that even if it does not experience democratization, China will be compelled by its own national interests to form a highly cooperative partnership with the United States to address common bilateral, regional, and global issues. It is perfectly appropriate for the two sides to say that they want to create such a relationship, and on that basis to try to promote their collaboration. And certainly the two countries will find areas in which they will be able to cooperate effectively. It is naïve, however, to assume that the U.S.-China relationship will ever involve by unalloyed cooperation on all major issues. Rather, the China-U.S. relationship will be characterized by a complex blend of cooperation and competition. China will be competing with the United States as it tries to develop its comprehensive national power. And even as Beijing shares common interests with Washington on a number of important international issues, it will often differ over how to allocate the costs and benefits of cooperation, or how to define the best strategies for advancing those common goals.

This runs up against another problem in our approach to China: Americans have a tendency to view other major powers in black-or-white terms – as either allies or adversaries. That is especially true of China, with whom we have historically had a “love-hate” relationship that oscillates from one extreme to another. Just as we have little experience in dealing with a strong China, nor do we have much experience in dealing with a China that simultaneously both a partner and a competitor. Seeing China as a potential enemy runs the risk of being a self-fulfilling hypothesis. But, at the same time, seeing China as a uniquely important partner in dealing with common problems runs the risk of excessive naiveté.

The good news is that our mainstream China policy combines, in proper balance, the desire to build a more cooperative relationship with China and the foresight to hedge against less desirable outcomes. Any departure from that mainstream – be it the Bush Administration’s early declaration that it regarded China simply as our “strategic competitor” or the Obama Administration’s overly enthusiastic description of the U.S.-China relationship as “the most important bilateral relationship in the world in this century”—is likely to be criticized, no longer to be replaced with the opposite orientation, but rather to be adjusted so that the U.S. returns to its mainstream policy

But the bad news is that we will have to develop a more objective and more pragmatic understanding of China, and above all to build a stronger material and ideational base for dealing with China, for that balanced policy to be implemented effectively.

Why Hasn't China Democratized?

This essay is based on a talk given at the World Affairs Council of Northern California on October 5, 2009.

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With the twentieth anniversary of the Tiananmen Crisis of 1989 now well behind us, it’s time to reflect on its implications. In the immediate aftermath of that crisis, more than two decades ago now, a significant number of observers confidentially predicted that the Chinese Communist leadership would not survive for long, and that China was on the verge of some kind of democratic revolution. Those predictions have gone unfulfilled. And the obvious and important question is: why not?

The answer to that question lies in the fact that none of the drivers that might have promoted democratic change has been powerful enough to have that effect. Indeed, some of them have not even pointed in that direction. Four of these drivers deserve particular attention:

1. The domestic strategy of the CCP. Given the severity of the Tiananmen Crisis, it was possible to think that the leadership of the Chinese Communist Party might embark on some type of democratic reform, so as to make their political system more resilient. To be sure, there were a few indications of such a development: the endorsement of eventual democratization by some national leaders and intellectuals, continued experiments with elections above the village level, and some talk of greater democratization within the Chinese Communist Party itself. Analogies with Taiwan (competitive grass-roots elections gradually moving up to higher levels of the political system and becoming more pluralistic) and with Japan (factionalism within the ruling party as a limited form of political pluralism) suggested that such developments would be very much in keeping with the modern East Asian experience with gradual, even limited, democratization.

Despite these hopeful signs, however, the Chinese Communist Party has not chosen democratization as its strategy for increasing the stability of the political system. Direct elections remain confined to the lowest levels, with nominations usually controlled by the Party. The scope and freedom of action of non-governmental organizations remain limited. Any factionalism within the Party is carefully hidden. The press is under tight restrictions, as is the internet and the blogosphere.

Instead of movement toward pluralism, let alone democracy, the Party has placed its emphasis on constructing more consultative forms of authoritarianism (thus continuing the approach that first became apparent just before the Tiananmen Crisis in the late 1980s) and on creating a more professional, responsive, and proficient bureaucracy. Party leaders seem concerned that greater pluralism will be too risky, not only to their grip on power, but also to the continuation of domestic and foreign policies that they regard as essential but that many parts of the public find unpopular. Thus they continue to base the legitimacy of the Party and the Chinese political system more broadly on performance, not on democratic procedures.

2. The middle class. One of the most powerful drivers promoting democracy was said to be the rise of China’s urban middle class, the result now of three decades of rapid economic development. Based on the example of Western Europe in the early modern era, the assumption was that this new middle class would demand a greater voice in Chinese politics, and that this would be an irresistible force promoting at least limited democratic reforms.

But this forecast was based not only on a misreading of the situation in China, but also on an inaccurate generalization of the experience in Western Europe. The experience of Western Europe actually suggests simply that a rising middle class will want its interests respected and protected. If the state is not willing to do so voluntarily, then the middle class will see some combination of liberalization and pluralism – in other words, some degree of democratization – as the only way to acquire that voice. But if the state attends to the interests of the middle class, as well as to those of the aristocracy and the highest economic elites, then the middle class may not feel the need for democratization.

And, in fact, most of the interests of China’s middle class – rapid economic growth, expanding economic opportunity, and greater protection of most property rights (other than land and intellectual property) -- have been respected by the economic policies of the Chinese Communist Party. Intellectuals, potentially the most dangerous part of the middle class, have been rewarded with higher salaries and somewhat greater freedom of academic expression. Moreover, the middle class has also been given some degree of political voice, both through the consultative mechanisms mentioned above, and also by its representatives into the Party through the “three represents” recruitment policy associated with former president Jiang Zemin. This combination of economic benefit and political cooptation has kept middle class opposition to the Communist Party to a minimum.

Moreover, many members of the middle class seem to share the Party’s concern about the possible dangers of democratization. In an increasingly unequal society, the middle class is alarmed by the possibility of that giving more democratic voice to the lower classes would lead to demands for more redistributive and populist policies. A frequent mantra from China’s middle classes is that the low levels of education of the poor, especially in the rural areas, would make democracy unfeasible and undesirable for China. In previous centuries, it was possible to start democratization with mechanisms that limited the enfranchisement of the lower classes first through various property restrictions on the right to vote, then through poll taxes, and in some places through the creation of special classes of seats (an appointed or indirectly elected upper house or functional constituencies, as in Hong Kong). Those restrictions are far less feasible in today’s world, where it is probably easier to resist any form of democratization than to limit the beneficiaries of the process to privileged urban classes.

3. Popular pressure. In terms of numbers, the greatest threat to the Chinese communist Party would be pressures for democratization from China’s working classes, in both urban and rural areas. This is also a potential driver for democratization, given the widespread grievances over a large number of issues, ranging from environmental problems to corruption to disputes over state appropriation of property.

There has indeed been a significant increase in local protests over the last decade, but they have remained localized and they have generally focused on a redress of grievance rather than on democratic reforms. Moreover, the Party has developed a successful strategy for coping with the protests: address the problem, deal leniently with most of the participants in the protests, but crack down on the leaders. Above all, the Party has tried to portray the problems as specific local issues that do not reflect any broader structural issues.

What is most discouraging to the proponents of democratization in China is that the Party has not been significantly challenged even when issues have arisen that have not been purely local. These have included, most notably, the collapse of elementary schools during the recent Sichuan earthquake, which was regional in scope, and the melamine and other product safety scandals, which were national in scope. These problems could not easily be blamed on individual local officials, as is the case with most other local issues in China. Even so, they did not lead to protests on a scale that the authorities found difficult to deal with. Nor did the major national anniversaries of 2009 (the ninetieth anniversary of the May Fourth movement, the sixtieth anniversary of the founding of the People’s Republic, or even the twentieth anniversary of the Tiananmen Crisis) serve as the occasion for any widespread protest.

The biggest exception to these generalizations has been the riots and protests in minority areas, especially Tibet and Xinjiang. These have been large in scale and violent in conduct. Even so, the authorities have had little difficulty in suppressing them. And, perhaps most important, they have not triggered sympathetic protests among Han Chinese. On the contrary, the Tibetan and Uighur protests have been largely condemned by the bulk of the Chinese population.

4. “Democratic contagion.” A final driver would be the positive examples of democratic transition in other countries of relevance to China. One reason for optimism about the prospects for democratization in China in the years immediately after the Tiananmen Crisis of 1989 were the transitions to democracy in other state socialist societies, most notably the European states in 1989 and then many constituents of the former Soviet Union (especially Russia itself) in 1991. This occurred at about the same time that other countries in Asia were also experiencing democratic reforms, including the Philippines (the fall of Marcos in 1986), Taiwan (the first direct presidential elections in 1986), and South Korea (first direct presidential elections the following year).

However, within a few years, the democratic tide outside China began to crest and then recede. The disintegration of the Soviet Union, and Russia’s subsequent loss of status as a global power, could be persuasively portrayed in China as a negative side-effect of democratization. The polarized political scene on Taiwan in the 1990s, the difficulties experienced by the United States in promoting democracy in Iraq and Afghanistan in the early 2000s, and the seeming difficulty of some Western democracies in dealing with the financial crisis of 2008-09, could also be successfully used by Chinese leaders to discredit democratic institutions, especially when created in developing countries and in times of economic difficulty.

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This analysis suggests that the absence of democratization in China, rather than posing a mystery that is difficult to explain, is actually over-determined. None of the drivers that might have led to democratic reforms appears to have been particularly powerful.

This all might change, of course, if any of the drivers is activated, singly or in combination: if the international environment appears to make democratization inevitable, if issues arise that mobilize popular protest on a scale that cannot be kept localized, if the middle class becomes dissatisfied with the performance of the Chinese government and the Chinese Communist Party, or if the Party itself decides that its prospects are better if it begins, rather than postpones, democratic reforms. None of these conditions appears likely at the moment, but each of them needs to be carefully monitored for the prospect of change.

Public Policy in a Globalized World

One of the most exciting parts of my new job at the Batten School is to learn about the public policy issues facing the United States. In my inaugural lecture as dean, I spoke about one particularly important aspect of the American public policy agenda: the fact that public policy is being made in an increasingly globalized world, in ways that affect both the substance of policy and the process by which it is formulated.

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One of the most exciting challenges in building a new school of public policy at the University of Virginia is to design a curriculum that is suitable to the dramatic changes that are occurring in the twenty-first century. A school of public policy freshly designed today will look quite different, I think, from a school of public policy that was organized forty years ago, let alone eighty years ago.

One of the most important of these contextual changes – although not, as we will see, the only one – is globalization. Both the practice and the teaching of public policy must take into increasing account the fact that public policy is being formulated in a globalized world.

I want to address this topic under three headings:

1. What do we mean by globalization, and why is the process of globalization occurring?
2. How is globalization affecting the public policy agenda in countries like the United States?
3. Equally important, how is globalization affecting the process by which public policy is made?
   

Globalization: what and why?

By globalization I mean the increasing level of interaction across national borders. This involves not just the flow of goods – the increasing volume of trade with which we are so familiar – but also the increasing flow of capital, people, technology, ideas, and viruses – both biological and electronic.

As my reference to viruses suggests, these flows can be either negative or positive in their impacts. Trade can involve trade of consumer goods and advanced technology, or trade in illicit drugs or the precursors for weapons of mass destruction. The flow of capital can finance productive investment, or create unhealthy asset bubbles. People crossing national borders can include tourists, businesspeople, and migrant workers; but also criminals, terrorists, or illegal immigrants. Ideas that cross borders can spark further innovation, or be regarded as alien and subversive. And alongside computer viruses and biological viruses can flow polluted water, smog, and greenhouse gases.

Why is this increased interaction occurring? Thomas Friedman has famously argued that globalization is a “fact, not a choice.” In reality, it is a bit of both.

The basic fact is that there have been several revolutions in technology that are facilitating globalization, by increasing the speed and reducing the cost of international transactions.

Many of the revolutions in speed actually occurred sometime ago. We do not communicate that much faster today than we did in the age of the telegraph and the telephone. E-mails and text messages travel at the same speed as telegrams and telephone calls – they are virtually instantaneous, although e-mails, text messages, and now phone calls no longer need the intermediacy of an operator to send them or place them. Similarly, we do not travel by sea that much faster than in the steamships of 100 years ago, or by road that much faster than the cars of 50 years ago. (In fact, because of congestion, road travel may be slower in some places.) Nor are simple calculations of today’s computers that much quicker than those of the first electronic calculators.

But other recent technological revolutions have involved speed – especially when we add to our assessment the volume of transactions that can occur at a given speed. Not only are jet aircraft faster than propeller planes, but the most modern generation of passenger jets can fly longer ranges without refueling and can carry far more people. Even more impressive is the volume of transactions that computers can handle, such that the centralized institutional computer center – exemplified by the annex next to Garrett Hall here on Grounds – is largely obsolete, replaced by much smaller although equally powerful desktops.

Perhaps most important, the cost of these transactions has collapsed. What was once prohibitively expensive (an international telegram or a transoceanic phone call) is now virtually cost-free – at least in terms of its marginal cost (an international e-mail or a phone call through Skype). And what was already affordable is now vastly more capable (today’s notebook computer compared with a laptop even ten years ago). According to data that I once learned from Joseph Nye, if the cost of automobiles had fallen at the same rate as the cost of computers, the most recent model of the Fiat convertible that I bought as a graduate student in the early 1970s would cost only $5 today.

Friedman is correct when he says that these technological facts are a major driver facilitating globalization, because they make the international transactions so much faster and cheaper. But that is not to say that globalization has not also involved choices. The present era of globalization is the result of societal decisions to reduce the barriers that once restricted the flows of goods, capital, people and ideas. China’s decision to move from autarky under Mao Zedong to integration with the global economy under Deng Xiaoping and his successors is perhaps the most dramatic example. The creation of economic unions (like the EU) and free trade agreements (like NAFTA) are somewhat less dramatic but equally important examples of choices to reduce the barriers to international economic, commercial, and societal interaction.

But just as some societies have chosen to eliminate barriers, others have chosen to retain them, all or in part. North Korea remains highly autarkic. India retains high barriers to incoming investment. Countries like India, although gradually liberalizing, remain highly protective. Even China, despite its overall embrace of globalization, retains various restrictions on imports, incoming foreign direct investment, and internet communication.

Nor are the decisions to liberalize necessarily permanent. Even in normal times, some aspects of globalization – the lower barriers to trade, investment, and migration – are highly controversial and contested, as the major demonstrations against the WTO and the G-8 in major cities have demonstrated. In the current global financial crisis we have seen an upsurge of trade and investment protectionism, as well as calls for tougher restrictions on illegal immigrants. And were there a major terrorist attack that targeted international aircraft, or that utilized international shipping to carry WMD, we would see – at least temporarily – the imposition of quite draconian restrictions.

Given these revolutions in both technological facts and policy choices, it is perfectly appropriate to ask whether the present levels of globalization are unprecedented. To some extent, the answer is “no,” in that societies have been interacting with one another, people have been on the move, and diseases have been migrating from one society to another throughout human history. Arguably, in fact, this is the third great wave of globalization that has risen over the last four centuries, during the era of the modern nation-state. Other waves of increased intersocietal interaction occurred far before that.

But other aspects of globalization are arguably unprecedented. With lower costs and greater volumes, the nature of interaction changes. Today we see not just interaction but interdependence where, for many economies, transborder interactions constitute a more and more important part of the national economy. We see not just trade between societies but transnational production processes, where capital, technology, and components flow across borders, as well as the final goods themselves. Similarly, in the cultural sphere, we see not simply the exchange between different artistic, philosophical, and religious schools - -as we have for centuries – but the emergence of transnational cultural communities, in which the national origin of artists and philosophers becomes far less relevant than their membership in the same cultural community. Increasingly, in fact, the country in which a particular product or service or cultural artifact originated is difficult to determine.

Moreover, it is correct to say that the choice to liberalize or restrict is far more bounded now than it was in previous decades. Some flows – particularly of airborne and waterborne pollutants – do not respect boundaries at all. And other flows – terrorists, viruses, and tainted products – are difficult to restrict. There is an increasingly obvious opportunity cost to countries that fail to open up or those that choose to tighten up. And once the process begins, there are vested interests in societies that want to keep borders open, just as there are those who want to tighten border controls.

Still, although the extent of globalization is unprecedented, and although the possibility of significant and lasting retrogression is low, the process of globalization is by no means complete. Just as it was premature to declare the “end of history” – the elimination of all alternatives to liberal democracy hypothesis was premature -- so may it be misleading to posit the “end of geography,” as those analysts who see the irreversibility and universality of globalization often imply. Not only have some countries chosen to opt out of globalization, or else to severely restrict the process, but more importantly some parts of some societies remain insulated from the rest of the international world economy, often by the lack of infrastructure to connect them to the globalized world, or else by the fact that the cost of connection is more than they can afford.

How does globalization affect public policy?

The process of globalization, produced by these facts and choices, affects public policy in several ways:

First, more and more public policy issues in the U.S. have become transnational in nature, blurring previous distinctions between domestic policy and foreign policy. Although these issues have a direct impact on U.S. society, their origins lie at least in part outside America’s borders. Let me cite a few examples:

• The availability of high quality, inexpensive imported goods has created a challenge --sometimes an insurmountable challenge – to American manufacturing. Although unemployment and job insecurity have many sources, one is clearly the rise of foreign firms that can compete more effectively for American markets now that the barriers to trade have been reduced. This pattern is complicated by the fact that many of these foreign factories are subsidiaries or branches of American firms, such that they have access to American technology, management, designs, brands, and marketing channels –as well as to the American market. Macroeconomic policy in globalized societies is now inherently transnational.
• The character of American financial markets is strongly influenced by the availability of capital from abroad. Foreign investors influence the prices of American real estate, the value of American equities, and American interest rates. The recent financial crisis was the result, in large part, of the availability of large volumes of liquidity from abroad. Here, too, financial policy must take international developments into full account.
• Immigration to the United States – both legal and illegal – is shaped by the political stability and economic vitality of the societies from which the migrants come. Although opportunities in the American economy produce an important “pull” for foreign immigrants, unsettled circumstances in their home countries still constitutes an important “push.”
• National security in the U.S. was once seen almost entirely as the deterrence of, or defense against, attacks by foreign armies, air forces, or missiles against America and its allies. Now, homeland security represents the defense of the U.S. and its interests against attacks that could well occur on American soil, but are often launched or coordinated from abroad by international terrorist organizations.
• Increasingly, threats to public health are posed by diseases that come to the U.S. from abroad, whether acute diseases like SARS, avian flu, swine flu, or (potentially) the Ebola virus, or chronic diseases like HIV-AIDS.
• The concern with energy security represents the acknowledgement that the price and availability of energy in the U.S. – especially oil – is increasingly affected by the decisions of foreign governments or the ability to foreign terrorist groups to disrupt the flow of crude oil by pipeline or tanker.

Most generally, we can say that globalization, because it still involves choice, is itself a transnational policy issue. Although Friedman is probably correct in saying that, in its most fundamental sense, globalization has become a fact for the United States and most other economies, the details of that choice are changeable and thus remain matters of debate. Trade policy, energy policy, investment policy, immigration policy, and energy policy are controversial in the U.S. precisely because globalization itself is controversial: the benefits are uneven, and there are costs in terms of the limitations on sovereignty and the correct sense of vulnerability to external forces beyond our control.

Second, in a globalized world, Americans are becoming increasingly concerned about the ability of their economy to remain competitive – in other words, to sustain the kind of economic activity that can provide higher standards of living for American workers and their families. The need to maintain and increase American competitiveness raises yet another set of policy concerns:

• The effectiveness of the American educational system to produce skilled workers who can command high wages because they provide high-value-added goods and services
• Whether the U.S. healthcare system can maintain public health at reasonable cost to employers and workers
• The adequacy of American infrastructure – both traditional physical infrastructure such as roads, railroads, airports, and seaports, but also newer forms of infrastructure such as telephonic and high-speed data networks.
• Whether American tax policy – and don’t forget this involves state as well as federal taxes -- places an excessive burden on the American economy relative to societies with lower individual and corporate tax rates
• Whether American policy in such areas as intellectual property protection and funding for research and development adequately encourages scientific and technological innovation.
  

Finally, globalization is producing what some analysts have described as the “rise of the rest” – in other words the emergence of a dynamic set of emerging market economies, including most notably the BRICS (Brazil, Russia, India, China, and South Africa). Along with the industrial and post-industrial economies that emerged earlier in Europe and East Asia, these economic and political success stories make it less likely that the United States has a monopoly on “best practice” in economic and social policy. Increasingly, the U.S. will not only be sharing its positive experiences with others, but will be studying the experiences of others in an attempt to provide better solutions to its domestic social and economic problems.

How does globalization affect the U.S. policy making process?

Globalization also affects the policy making process in the U.S. in several ways.

First, transnational problems require transnational solutions. America cannot solve problems of macroeconomic management, malfunctioning capital markets, energy security, climate change, terrorism, and communicable disease by itself. The solutions involve not simply cooperation with other governments, but the creation of international regimes and organizations that can coordinate the efforts of many governments. The need to cooperate with other countries, and the development of international regimes, will limit American autonomy and will require restrictions on American sovereignty. For the United States, no less than for other countries, these restrictions will often be controversial and occasionally be painful.

Second, globalization will encourage foreign entities – foreign governments, MNCs, and NGOs – to try to penetrate the American political process to articulate their interests. The same technologies that facilitate globalization – particularly inexpensive transportation and communication, and information – will make it easier and less expensive for them to do so. Unofficial actors will have ready access to information once available only to the most advanced governments, and will have the resources to press their demands forcefully and articulately. Not only will the American political agenda be increasingly made up of transnational issues, but the American political process will increasingly feature transnational actors articulating transnational interests.

And third, the ways in which transnational issues impinge on the American agenda, foreign interests penetrate the American political system, and Americans increasingly worry about their ability to compete effectively abroad, will challenge America’s sense of identity. Significant numbers of Americans may lose the sense of confidence and optimism about the future that has previously characterized our country’s political culture.

The changing nature of politics – from interest-based to identity-based – may have several consequences. Those whose sense of identity is threatened may search for those responsible, demonizing their opponents both at home and abroad. They may seek simpler, more ideologically based solutions to their declining economic fortunes and self-esteem. And they may even begin to challenge the empirical bases of the policies that threaten their interests and identity. These are the consequences of what David Apter, in his Politics of Modernization, described as the shift from “instrumental” politics to “consummatory” politics. I would posit that some of these trends are already evident in American politics today.


Conclusion

In short, globalization is having significant effects on both the content of public policy issues in the U.S. and on the process by which public policy is made. Of course, globalization is not the only mega-trend that is having such an impact, and we therefore should not exaggerate its importance. Other key trends include:

• Demographic trends, particularly the changing age and ethnic composition of the population, as well as the different attitude and values across generations, pose both challenges and opportunities for health policy, labor policy, migration policy, social security, and many other issues.
• Climate change will require changes in the composition of our energy mix, the development of new technologies that can provide cleaner energy and greater energy efficiency. It will also most likely lead to change in policies on housing, transportation, and other sectors of the economy that consume large amounts of energy. It will also, as we have already seen, require complex international negotiations to assign the responsibility and allocate the cost of reducing carbon emissions, and then equally complex domestic negotiations on how to implement the commitments to reduce those emissions.
• Information and communications technology is already transforming the policymaking process, perhaps most importantly by reducing the role of political middlemen, and thus reducing our ability to aggregate political interests.
• Other new technologies, particularly biotechnology and nanotechnology, will produce great opportunities for health, agriculture, and other areas of public policy, while also posing significant questions about the ethical choices that these technologies will pose and the social and environmental risks that they may engender.
• The “rise of the rest” is already producing major changes in the international balance of power – traditionally a major cause of instability in international politics.

Some of these trends – particularly the emergence of new information and communication technologies – constitute some of the “facts” that, as Thomas Friedman has argued, make globalization possible, if not necessary inevitable. But they also act on their own, forming additional independent variables that, along with globalization, are affecting the content of public policy and the contours of the public policy process in today’s world. These, too, will be issues with which the Batten School will be deeply concerned.

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

Interdependence

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.


Interests

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.


Framework

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.

Triggers

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.

Summary

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.