An unsettling consensus is fast forming in the strategic community: the United States and China are headed toward a long-term geopolitical conflict. Whatever you wish to call it – a new cold war or strategic competition – the sad truth is that the era of constructive engagement between the world's two great powers is now over.
With the benefit of hindsight, it is not too difficult to understand why. For one thing, there's the rapid increase of Chinese power. As late as 2000, China's GDP, measured in U.S. dollars, was only about 13% of the U.S.' GDP. But by 2017, China's GDP had reached 63% that of the U.S. China's nearly fivefold gain in relative economic power vis-à-vis the U.S. in the last 17 years, as historical experience would tell us, has disrupted the global balance of power and triggered a strategic response from the U.S.
Additionally, several key underlying assumptions underpinning the engagement policy have not panned out. Economic development in China has not resulted in political liberalization. The clash of China's state capitalist economic system and the West's market-based economic system has become unmanageable as well, since China has acquired enormous financial resources and used them to subsidize state-owned enterprises and underwrite a concerted effort to challenge the West's technological supremacy (as represented by Made in China 2025).
This narrative has widespread appeal across party lines in the U.S. and has played a critical role in persuading American policy-makers to shift their China policy from engagement to confrontation. Since a new hardline approach to China enjoys near-unanimous support among America's security establishment and business community, it is reasonable to assume that the tone of America's China policy has already been set and is unlikely to change for years to come.
However, a more nuanced analysis of recent developments shows that the unfolding U.S.-China geopolitical conflict is still at an early stage. Even though the members of the strategic community in each country think that the two countries are on a collision course, fortunately the U.S. and China have so far avoided a disastrous clash that would have all but doomed their long-term relationship. Moreover, while American political leaders all agree that a hardline strategy will better serve American interests, they have yet to formulate specific policies to execute this strategy or set an end goal. Even more importantly, there are also differences even among those advocating confrontation with China. Some believe that confrontational tactics will achieve the results the engagement policy has failed to deliver. To this group, Chinese concessions may change their calculus. Of course, there are others who see China as an implacable foe that must thus be vanquished. To this group, concessions probably have no effect.
To avoid a calamitous cold war that could ensnare China in a middle-income trap, divide Asia into two opposing camps, and even trigger a direct military conflict between the U.S. and China, Beijing needs to have a two-pronged approach.
First, Chinese leaders must do everything possible to de-escalate the current tensions with the U.S. The top agenda item is ending the trade war with substantial concessions. The G-20 summit in Buenos Aires (November 30-December 1) will provide probably the last opportunity to address America's legitimate concerns about Chinese trade practices. It is thus imperative that Beijing put its best offer on the table to test the good faith of the Trump administration. This offer must be substantive, broad-ranging, and credible. Even though it will unavoidably require greater concessions than China has been willing to make so far, an early end to the trade war has enormous long-term benefits for China on multiple fronts.
Strategically, it will pause the downward spiral in U.S.-China relations. Crucially, substantive and quickly-implemented concessions will likely win back America's business community, which has been alienated by Chinese commercial practices in recent years in spite of their historical support for the engagement policy. Economically, pro-market concessions will spur another round of economic reform that will significantly reduce the role of the state-owned enterprises in the Chinese economy while allowing market forces to allocate resources more efficiently – precisely the goal of reform announced by the third plenum of the Chinese Communist Party's 18th Central Committee in November 2013. To be sure, reform will entail short-term pain, such as the restructuring of state-owned enterprises and loss of jobs in these firms. But the Chinese economy as a whole will be more productive and sustainable.
The second prong of this strategy is to proactively avoid military conflict, particularly in two flashpoints – the South China Sea and the Taiwan Strait.
In retrospect, the building and militarization of artificial islands in the South China Sea resulted in a fundamental reassessment of the engagement policy in Washington. Today, the South China Sea remains one of the few areas where an accidental military clash or even a deliberate naval fight could occur between the U.S. and China. The most recent near-collision between a Chinese warship and a U.S. destroyer off one of the artificial islands is just one example. To prevent similar incidents, Chinese leaders must issue strict and unambiguous orders to military units in the region so that they will not aggressively challenge American vessels and planes conducting operations allowed under international law. Furthermore, Beijing should also suspend the militarization of these islands to fulfill the pledge made by President Xi Jinping to President Obama several years ago.
In the case of Taiwan, China will need to resist the urge to use coercive means in response to American efforts to support Taiwan. In recent months Beijing may have felt justifiably upset by Washington's largely symbolic gestures of support for Taiwan (such as the passage of the Taiwan Travel Act and senior administration officials' criticisms of Central American countries that had switched diplomatic recognition from Taiwan to China). While diplomatic protest may be necessary, any use of military threats or coercion against Taiwan would be ill-advised and may potentially result in a direct military confrontation with the U.S. A repeat of the 1996 Taiwan Strait missile crisis could spiral out of control.
If this two-pronged strategy is adopted, it is likely that the U.S. and China can impose and maintain reasonable restraints on how they compete for influence and strategic advantages. The two countries may never return to constructive engagement, but they can probably avoid a destructive cold war.
