Should Indians care about America’s strategic choices with China? You bet, especially since so many perceived a tilt unfavourable to India during US President Obama’s first two years in office.
What a difference two years makes. The US and China are deeply interdependent, with trade in goods reaching a whopping $366 billion in 2009. Yet, a growing number of stakeholders on both sides find that reality deeply disquieting.
Structural changes are afoot that are sure to make the next several years more difficult. Even when the two sides share interests, divergent threat assessments and countervailing interests too often obstruct efforts to fashion complementary policies.
It is instructive, in that light, to take a hard look at President Hu Jintao’s just-concluded visit to Washington. The visit cleared the air in some areas while yielding symbolic initiatives in others. Hu received 21 cannon shots on the White House south lawn. And his visit yielded $45 billion in new commercial deals — a striking contrast, perhaps, with the important (but rather less hefty) $10 billion touted during Obama’s November visit to India.
Yet the central challenges in US-China relations are increasingly structural. For one, many, both in and out of China’s government, want to test what Beijing’s growing weight might yield. They are confident of China’s growing strength and relish the opportunity to, at minimum, make Washington work harder for China’s support of ostensibly shared objectives. Some wish to see whether and how Washington will accommodate a wider array of Chinese interests.
For their part, many in Washington have been chastened by China’s choices of the past year. Beijing has proved less accommodating than many in the Obama administration had hoped of US preferences on issues from climate, to the pace of renminbi appreciation, to coordinated action in response to North Korean provocations. There were successes — for example, mutual support for Iran-related sanctions in the United Nations Security Council. But China’s deliberate, self-interested approach did not mesh in many areas with American exhortations and expectations.
Most important, supportive domestic constituencies, who have provided ballast to US-China relations in tough times, continue to fracture. In China, for example, the central bank has, in various ways, made the case for currency appreciation. But export lobbies continue to resist, arguing that companies will go under and China will suffer massive job losses. This more pluralistic political dynamics is playing out on the US side too: a once-solid business lobby has become more conflicted.
Few, if any, US firms are pulling out of China. But a 2010 survey from the American Chamber of Commerce in China put the percentage of US companies that feel unwelcome in the Chinese market at 38 per cent, up 15 points from 23 per cent just two years earlier in 2008. This sentiment extends beyond technology companies, like Google, into the manufacturing sector. Companies complain about a host of issues, from intellectual property theft to non-tariff barriers to various aspects of China’s regulatory regime.
Are such challenges manageable? Probably. The US and China share an array of interests, certainly in broad strokes. Who in China would not wish to support and sustain global growth? Who in China “wants” a nuclear North Korea? Or who in China truly thinks there is “benefit” from instability in Central Asia and Afghanistan?
The problem is twofold: First, Beijing rarely shares American threat assessments. Chinese leaders are more relaxed than are Americans about the scope and nature of global threats. Second, even when threat assessments converge, countervailing interests obstruct cooperation. China may well seek a non-nuclear North Korea. But its emphasis on stability above all other objectives puts it at odds with Washington about how to prioritise this goal relative to others.
Meanwhile, China and the US have become centerpieces in debates on each side that transcend bilateral relations per se. Ultimately, these will play out in domestic politics.
In the US, such debates include the future of American manufacturing, competitiveness and innovation; the future of US primacy in Asia; and what kind of global arrangements best serve US interests.
In China, they include the pace and scope of economic rebalancing; whether (and when) to knuckle under to international pressure on currency and industrial policies; and how to bolster Chinese military projection.
These structural changes comprised the backdrop to Hu’s recent visit. Just take Chinese industrial policy. Tensions in this area strike at the core of each country’s economic competitiveness. Indeed, China’s ability to compete with US firms has improved faster in some areas than many had anticipated.
From high-speed rail to nuclear power plants, China’s capacity to digest foreign technology, re-engineer it to Chinese specifications, and then produce (but as a lower-cost competitor) have unnerved a host of foreign companies, that now question the wisdom of transferring technology to China. The underlying fear is that if China can quickly produce substitutable (but cheaper) products, then foreign firms will be marginalised.
But Hu’s trip, in some sense, showcased just how difficult it will be to coordinate US actions and responses. Boeing scored the sale of 200 new airplanes, valued at $19 billion. Meanwhile, General Electric is supplying the avionics for the C919, China’s indigenous competitor to the Boeing 737.
The bottom line? Notwithstanding interdependence, the next several years are sure to be more fraught.
The author is head, Asia practice group, at Eurasia Group, and is also adjunct senior fellow for Asia at the Council on Foreign Relations, Washington, DC