The United States for years relied on economic interdependence with China as a stabilizing force in relations with Beijing, with business between the two nations forming what former treasury secretary Hank Paulson used to call the “ballast” in U.S.-China affairs.
But as President Trump escalates his trade dispute with Chinese President Xi Jinping, there is a realization that those days are gone. The result is a reduced incentive for stability and restraint in Washington when it comes to China, raising the possibility that tensions could extend beyond the trade sphere and impact other areas of contention, including Taiwan or the South China Sea.
“The way a lot of people have been talking about this is that you have lost, or you’re losing, the ballast,” said Zack Cooper, a research fellow at the American Enterprise Institute and a former official in the George W. Bush administration. “The challenge now is that there is not much of a constituency that wants to protect the relationship amidst trade tensions, security concerns and human rights concerns.”
The U.S. military is expressing growing alarm about China’s defense buildup. Human rights advocates are crying foul over China’s use of surveillance technology and internal reeducation camps for Muslims. And some American business executives, who once prized China and advocated for a more conciliatory stance toward Beijing, say they feel stung by what they see as unfair practices, ranging from intellectual-property theft to rules that require partnerships with local Chinese entities.
Underpinning the growing strain is a sense among many Americans, harnessed by Trump during the 2016 presidential election, that China is not playing fair, and the time has come for Washington to shift the balance. While Trump has focused on trade, raising the stakes in recent days by applying 25 percent tariffs to billions of dollars in Chinese goods, his administration’s tougher line has extended to national security, too. The Pentagon’s defense strategy calls for “great power competition” that aims to prevent China from achieving any substantive military advantage.
On Wednesday, the Trump administration added the Chinese telecom equipment maker Huawei to the U.S. Commerce Department’s “entity list,” making it difficult for the Chinese firm to do business with any American company. The Commerce Department said Huawei “is engaged in activities that are contrary to U.S. national security or foreign policy interest.” The dispute over Huawei demonstrated the confluence of Washington’s economic and national security concerns.
“Putting these in two completely separate boxes — and saying we have to maintain close economic ties even as we compete in the national security realm — I don’t think that’s possible anymore,” said Bonnie S. Glaser, senior adviser for Asia at the Center for Strategic and International Studies. “I don’t think that we have the strong support from the business community that used to exist for this relationship. To me, the playing field has changed so fundamentally.”
Still, the United States and China have developed a complex and robust economic relationship that dates to the normalization of diplomatic ties four decades ago. Today, the United States imports more than half a trillion dollars in Chinese goods per year, underscoring the extent to which both nations have hitched their economic futures to each other and melded their supply chains in the decades since the diplomatic breakthrough of 1979.
That reality raises a broader question about the Trump administration’s approach to the world’s second-biggest economy: How can the United States execute full-fledged “great power competition” with China, the likes of which Washington has not seen since the Cold War, when the nations remain so economically intertwined?
The conundrum highlights one of the key differences between the Cold War and the burgeoning competition between the United States and China. The United States and the Soviet Union had few economic and trade links in the decades after World War II. The U.S. policy of containment, as the late diplomat George F. Kennan put it, ultimately sought to cause the “breakup or the gradual mellowing of Soviet power.” Any such containment policy with China would carry great economic risks for the United States.
“While I understand the appeal of thrusting China into a role of Soviet Union 2.0, thrusting or forcing China into that role would lead us toward a very misguided goal of containment,” said Ali Wyne, a policy analyst at Rand Corp. “China is far more powerful economically than the Soviet Union ever was.”
The Trump administration has sent mixed messages about what it is seeking to achieve long term with its trade and national security policies on China. Some officials, including Trump at times, suggest economic ties with China will continue apace and possibly even deepen, so long as Beijing agrees to new, fairer rules. Others emphasize American resolve to restrain China’s unfair expansionism and end the economic linkages that have been fueling its rise.
“For some sides of the administration, the purpose of the tariffs was to build leverage so as to pressure China to open its markets to American businesses, thereby deepening the U.S.-China relationship,” said Ely Ratner, director of studies at the Center for a New American Security, who was previously an adviser to former vice president Joe Biden. “Others see economic interdependence as a huge vulnerability and a problem that needs to be solved. Is the goal a more reciprocal economic relationship or is it one that’s less interdependent?”
Ratner said he didn’t expect the worsening trade relations necessarily to result in more Chinese aggression in Taiwan or the South China Sea. He said the question is more on the U.S. side — whether the failure to reach a trade deal will prompt the Trump administration to unleash harsher measures against China that until now it has been holding back in the interest of striking a deal. He said those measures could extend to the national security space — for instance, with more a more muscular U.S. military presence in the South China Sea.
Paulson, the former Goldman Sachs executive and treasury secretary under George W. Bush, is no longer describing business as the “ballast” in U.S.-China relations. These days, he is warning of an “economic iron curtain” that could descend between the United States and China, noting the risks that entails for the American economy. One reason, he said in a speech in February, is that “national security concerns are now bleeding into virtually every aspect of our economic relationship.”
“The problem with applying a blunt hammer is that it can end up breaking everything,” Paulson said. “If you aim to hurt others but end up hurting yourself, you cannot always recover for a second chance.”