The China-US trade war can generally be approached from two levels: one is the level of economy and trade. The more important background, however, is the strategic level. Trump has put forward two goals – doing away with trade deficits and eliminating non-reciprocity. These are too difficult for China. The causes of the two problems are too complicated to be resolved easily. Non-reciprocity in particular is much more complex than deficits, which involves not only complicated bilateral economic ties, but also Chinese domestic factors such as systems, markets and the government itself, which the Chinese call structural problems. These structural problems can't be resolved overnight — nor is it possible to dismantle the structure, or it will simply collapse. So things have to be done step by step.
What about the strategic level? After the economic and trade issue became prominent, a larger problem has emerged, i.e. the external effects of China's rise, not only in such aspects as the economy and trade but also in science and technology — political and military effects on the multilateral international stage, as well as peripheral geopolitics, constitute challenges against US leadership in these areas. This is a significant ongoing change the China-US relationship is experiencing. The relationship is witnessing a brand-new pattern.
The post-WWII international order has been dominated by the US. Therefore, the post-war international order was American by design, under which several major powers composed a cooperative team, which has been the essence of the present international political regime. Of course, thanks to the US-Soviet confrontation, the post-war design finally resulted in the two camps of the Cold War. The Soviet Union disintegrated after decades of standoff. So beginning from the early 1990s, the US once again become a peerless center of global power. Such is the world order.
Looking back on the China-US relationship, from Beijing's complete membership in the socialist camp in the 1950s to its new relations with the US since the early 1970s, US dominance in the global order has never changed. Despite the ups and downs in the past decades, China-US relations have basically been moving forward. To borrow Henry Kissinger's words, the basic principle of US China policy, which Americans call “engagement,” has not changed. This has been the macro-level pattern of the China-US relationship over the past 40 years.
China-US economic ties have been described as the “ballast” of the overall relationship. Both parties have been satisfied with their complementary ties, while the US made huge profits and China profited from them. Now the countries' comparative strengths have changed with China's rise. In 2018, China and the US became the only two countries whose GDP have surpassed 10 trillion US dollars. Put together, their economies accounted for nearly 40 percent of global GDP last year.
Thanks to such changes in the global power structure, Americans no longer dominate in every situation. Two wars have significantly weakened it, then came the financial crisis and economic recession, which further eroded US power. Meanwhile, having maintained double-digit growth for more than a decade, comparative strengths have changed correspondingly since China entered the WTO. Though there still is a sizable gap between the two countries' strengths, with China's tremendous comprehensive national strength, China is standing tall along with the US in absolute terms. This is a tremendous structural change in terms of strength and power.
American opinions on the matter kept changing over the past years, which finally led to the consensus several years ago that China has risen, and its goal has changed, and it is now aspiring to become the world's No.1 power. Although China insist this is not its intention or goal, so long as the other party thinks that way, it will inevitably respond accordingly.
The pattern of China-US relations has turned from “cooperation as the mainstream” into “competition as the mainstream.” This strategic competition will ripple into all aspects of bilateral ties. Meanwhile, there is another aspect to China-US relations: we still have social, people-to-people, scientific and technological, and non-governmental exchanges, and we need to cooperate across many areas on the basis of common interests. Such relations are interwoven — on one hand the competition for dominance has become prominent, while on the other hand, there is a strong impetus for both parties to cooperate and maintain a productive relationship. This is why we say that Sino-US ties are complicated, because the lines are usually blurred. With the competitive aspect becoming dominant, it has exerted fundamental impacts on various policies.
The current change in China-US relations is different from past shifts because the US now takes China as its main competitor, challenger, and even a “revisionist state.” It is assuming China wants to change the current US-led, Western-centric international order.
The biggest uncertainty now is how far will the relationship slide? Will it get worse? We don't know. If it does get worse, how much so? Will the two sides fight? People call this dilemma “Thucydides' trap.” This is where the relationship now stands, facing great uncertainty.
Nonetheless, I believe there are two certainties we can depend upon. One is that the pattern of China-US relations has changed significantly, though we are not sure what the pattern will ultimately look like. Authorities in both countries believe it is still not the time for a fight, as the two sides still share many common interests. Trump said he is not afraid of a trade war because the US economy, stock market, and foreign exchanges market all show great momentum, and unemployment is at historical low — thus he will impose further tariffs if China doesn't compromise. In private, however, Trump said he is willing to talk — even if China suffers more, a trade war serves neither side. China stated it accepts no threat, but is willing to talk. The second certainty then is that both sides are willing to talk.
This is because, in case of an all-out trade war, the US may lose far more than it can get. Though conditions look fine on its end now, as trade war unfolds, the entire US economy will suffer dearly after months or years. After all, billions of dollars' worth of goods will be involved. Many economists believe that from the perspective of the economic cycle, the US economy has been at a high point for long enough, and will soon go downward. The risk of recession is real.
China-US relations are sliding right now, and short-term prospect looks dim. How long will this short term be? Perhaps three or five years — maybe longer. Yet in the long term, China and the US will have to get along, because the relationship is too big to fail. Both countries, the region, and the global economy, as well as the overall international order, need them to get along. In addition, there are strong forces in both countries that favor their peaceful coexistence, although voices for “China-US friendship” and “China-US cooperation” have more or less been subdued lately.
At the end of the day, the two parties will sit down and negotiate, and work out a new equilibrium where they can coexist. Such a new equilibrium will surely be different from the previous one. It will be a new pattern of international relations, where the US will remain one of the most important forces, only that it will no longer be the dominating sole superpower. Americans will have to accept the change. Of course China also needs a new concept: it must face the international order centered around the US that has been shaped after WWII. This is an objective fact, and ignoring it, or aspiring to change it in the short term, will very likely end up reinforcing this world order. Decision-makers in both countries should make informed judgments and policies, and formulate a transition acceptable to both parties, which I call “rebuilding the equilibrium.”
