Running in Place?

Jul 7, 2023

There can be no mistaking the recent flurry of diplomatic activity on the US-China front. US Secretary of State Antony Blinken’s June visit to Beijing has quickly been followed a similar mission of Treasury Secretary Janet Yellen. And press reports indicate that John Kerry, special White House envoy on climate change, is about to join the parade.

On one level, all this is certainly good news after nearly a year of acrimonious deterioration in the US-China relationship. Beginning with former House Speaker Nancy Pelosi’s visit to Taiwan last August and exacerbated by the great balloon fiasco five months ago, in February, the United States and China have entered the worst phase of conflict escalation since the beginning of the modern relationship in the early 1970s. This, of course, followed five increasingly rough years—the trade war, a tech war, and now the early stages of a new cold war. Recent military tensions in the Taiwan Strait (naval) and South China Sea (air) underscore the very real risks of accidental conflict that I just wrote a book about. Something had to be done to arrest this potentially destructive dynamic.

In a three-hour meeting in Bali last November, Presidents Biden and Xi agreed on the broad parameters of what to do—namely, to put on a floor on this worrisome deterioration. The recent diplomatic flurry can be thought of in that light—restarting a dialogue with the sole intent of limiting any further damage. That took a while, but diplomatic reengagement is now under way.

But then what? The image of a floor speaks to the minimum that both leaders expect from each other as responsible stewards of a fragile world. Yet with the impacts of additional tough actions likely to come in the next few weeks and months—namely, further tech sanctions, widely telegraphed restrictions on outbound US foreign direct investment into China, and Chinese tit-for-tat actions on selected rare earth exports—there is no guarantee that the newly established floor will be strong enough to withstand additional blows.

Without reinforcement, this floor could turn out to be surprisingly shaky. At work in both the United States and China is an important shift in the priorities of relationship management: The long standing emphasis on economics and trade has now been supplanted by concerns over defense and security. That was the unmistakable conclusion of US National Security Advisor Jake Sullivan’s September 2022 speech as well the message from XI Jinping at the 20th Party Congress a month later.

Unlike economics and trade, where relationship conflicts are evaluated through the lens of hard (often backward-looking) data, security concerns are judged less by verifiable data and more on the basis of presumptive perceptions of adversarial behavior. China’s dual use of advance technologies—especially the blurred distinction between commercial and military purposes—is a case in point. The US presumes that China will weaponize artificial intelligence in the same manner that it presumes Huawei poses a “backdoor threat” to 5G infrastructure or that TikTok will use proprietary data gathered from young US users for nefarious purposes. China operates under the same paranoid mindset, presuming that trade and technology sanctions are all aimed at “all-around containment, encirclement, and suppression,” to paraphrase Xi Jinping’s words at this year’s 20th Party Congress. For both nations, the security focus is more about the zero-sum tradeoffs of real or perceived military threats than the positive-sum calculus of cross-border trade.

The diplomats are emphasizing the thaw after a big freeze. I remain very wary of concluding that the worst is over. For the time being, conflict escalation is on a tenuous hold, at best.  It remains to be seen if both security-focused superpowers are doing little more than running in place.

You can follow me on Twitter @SRoach_econ

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