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2016 September
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Examining Sino-American Relations: Coexistence of Cooperation and Competition

As the US presidential election approaches, the relationship between China and the US is expected to enter a new stage. This article looks at how the two great powers seek political and economic cooperation to facilitate mutual benefits within their complicated and intertwined relationship in the future.

 

Zheng Yongnian: Checks and Balances to Exist in Future China-US Cooperation

Zheng Yongnian, Director of East Asian Institute, National University of Singapore

The US presidential election is around the corner. How would the US formulate its Asian policy in the future? Generally speaking, the post-Obama administration will be faced with three possible options: two involve aggressive adjustment; one involves gradual adjustments. The first aggressive adjustment option is to implement isolationism, while the second is to escalate the country’s relationship with China into an open conflict or a heated war.

 

Isolation or open conflict unlikely to take place

While isolationism is a diplomatic tradition of the US, the country has become where it is today after being deeply involved in international affairs since the two world wars. More importantly, as the US has been reaping enormous interests by being deeply involved with the world, it cannot only look at the price and costs for being in that state. Even if isolationism grows stronger, it takes time for the policy to generate significant influence. As a result, isolationism is only capable to restrain the country’s interference on international affairs to a very mild degree.

 

The second aggressive option, i.e. to engage in open conflict or even a hot war with China, is not plausible either. Nuclear weapon states, at most, could only be antagonistic by mutual intimidation. Furthermore, the top agenda in China’s diplomacy is to avoid war with the US, and the two countries have much room for cooperation. A “proxy war” triggered by a third country is also unlikely.

 

Extending Obama’s strategy of “returning to Asia”

In other words, these two aggressive options are unlikely to take place. The third one, i.e. gradual adjustment, is more pragmatic. The gradual adjustment option is to make adjustments to the existing Asian policy.

 

Much has been done in the region after the Obama administration proposed the “return to Asia” strategy. Objectively speaking, the US president is less restrained by the Congress on his diplomatic policy when compared with domestic affairs. In other words, this is an area where the president can make a difference. Similar to his predecessors, Obama wishes to preserve for himself more legacy and influence in the diplomatic domain.

 

Checks and balances exist in cooperation with China

Delving into the details of the speech made by US Secretary of Defense Ashton Carter at the Shangri-La Dialogue in Singapore in June, it is not difficult to see the blueprint of the Asian policy of the US.

 

Firstly, the US is putting forward the establishment of a “principled security network” in the Asia-Pacific region. Under this structure, the US welcomes a peaceful, steady and prosperous rising of China, which will fulfill responsible functions within the “principled security network”. At the same time, the joining of China would further strengthen the security network.

 

Secondly, the US wishes to expand and develop its military agreement with China. This is not only intended as a risk control, but also to strengthen pragmatic cooperation. The US and Chinese forces could respond to challenges such as terrorism and piracy in the Asia-Pacific region and globally through bilateral channels or the “principled regional security network”. The US wishes to seek ways to jointly resolve with China global issues faced by both countries.

 

Thirdly, the US will maintain and expand its military presence in Asia-Pacific. In the next few decades, the US will continue to be the biggest military force of the world and a major protector in regional security. It is currently enhancing security cooperation with many Asian countries.

Fourthly, the South China Sea arbitration case should be regarded as an opportunity for China and other countries in the region to attempt to reconstruct their diplomatic relationships towards a rules-based future, as well as to reduce the tension in the region, instead of the contrary.

 

The US continues to establish strong alliance and strengthen its position

Specifically, what could the US do to actualize its envisaged system of “collective security in Asia”? Certain significant information was revealed in Carter’s speech.

 

Firstly, existing bilateral alliances will be fortified. Currently, some of the major bilateral alliances of the US are those with Japan, South Korea, the Philippines, and Australia, etc. Moreover, the US and some countries in the region have formed “pre-alliances”.

 

Secondly, the US is striving to develop new alliances, in particular with India and Vietnam. The Indian Premier has recently visited the US, which is very much taking care of India in the scopes of nuclear energy and nuclear weapons. It is doing the same to Vietnam; the US has given up weapon bans on Vietnam, hoping to develop a strategic relationship with Vietnam in all-directions.

 

Thirdly, some bilateral alliances are transforming into trilateral ones. The most obvious is the US-Japan-Korea alliance. Leveraging on the recurring and worsening crises in the Korean Peninsula, the US is speeding up the pace to integrate the connection of the three countries. They have been conducting joint missile defense drills that are apparently targeting North Korea, but in fact directed against China.

 

Fourthly, the US is encouraging its allies to develop multilateral security relationships and military alliances. To a certain extent, this move meets the wishes of some countries, which are looking at dominating the region.

 

Fifthly, the US could be putting lots of efforts to “steal” connections from China. Of the ASEAN countries, Laos and Cambodia are closer to China, and both are being closely watched by the US.

 

Everything mentioned above are done to create a highly pressured international environment for China. The prime objective of the US is to pull China into its pre-set security network, so that it could counterbalance China and maintain its hegemony.

 

Some of the abovementioned Asian policies of the US have been implemented, while other are being considered. Although there will be fine tuning, the main direction will not deviate much.

 

Right decisions by the two countries favorable for ASEAN’s development

What kind of impact would the basket of Asian policies of the US cause on ASEAN? The ASEAN is now faced with lots of unprecedented challenges. If they are not properly addressed, ASEAN could be confronted with the risk of separation. The US believes that if the current situation continues, China will eventually dominate the affairs of South China Sea and ASEAN – something that the US does not want to see because this could put its interests in the region at risk. At the same time, ASEAN does not want to see China taking up the leading position.

 

Overall speaking, China is still much motivated to promote its relationship with ASEAN. It does not want to connect the South China Sea issue with the general relationship between China and ASEAN. To separate these two matters is not groundless for China, because, after all, the South China Sea matter is about the relationship between China and a few claimant countries.

 

Provided that there is some trust between the power nations of China and the US, it is unlikely for something devastating to happen even if some ASEAN countries misjudge the situation. Yet, when there is no trust between the two countries (i.e. how it is today), conflicts will easily arise if some ASEAN countries misjudge the situation.

 

This would require a correct judgement on the region by China and the US. As far as China is concerned, it has to realize that ASEAN as a whole is difficult to be pulled in by the US to jointly counterbalance China. Within ASEAN, some countries (Indonesia in particular) have their own ambitions. As for the US it has to understand that China does not have its “Monroe Plan” to drive the US out of the region. China only demands the US to play a constructive role instead of a destructive one. China could not be dominating ASEAN, nor is it ambitious to do so.

 

 

Chi Lo: Changes in the US presidential situation will not affect Chinese-American trade relations

 

Chi Lo, Senior Economist for Greater China of BNP Paribas Investment Partners Asia Limited

The US presidential election is going to take place in November. The market is generally concerned about the impact of the election towards the China-US relationship. Although Obama has always emphasized cooperation in his China policy, the US has been enforcing stronger trade laws recently and some worry that bilateral trade barriers will become ever-stronger. Both Hillary Clinton of the Democratic Party and Donald Trump of the Republican Party have complained about China’s trade policy, making the market anxious about a regression in the business and trade relationship between the two states.

 

Adherence to market-orientation in the US

According to Lo, although the two candidates complained about China’s foreign trade strategy, this is just rhetoric before the election. As soon as they are elected, the statements they make will become different.

 

Lo explained that the US has been upholding an open and free attitude towards global trade over the past few decades; it is doing the same to China. “Even though China and the US have some disagreements, for example, the low exchange rate of RMB as claimed, cheap export goods and snatching of local production opportunities from the US, etc, they are only rhetoric. The American trade policy, after all, is market-oriented, which is a sensible one.”

 

Lo pointed out that while it is true that Chinese products have been consistently cheaper than American ones, and that it is fair to comment that some Americans are losing their jobs because of this, there will still be other manufacturing countries – such as India, Vietnam, Bangladesh, etc – to compete with the US even if there is no external competition from China.

 

Wages in China have been rising in recent years. Lo said that the situation has begun to change. Certain manufacturing industries have returned to the States, which illustrates that everything is the result of a market-oriented economy. “The US has always been a believer of free trade. Even if there is a change in the Washington leadership, the new president still needs to act according to actual circumstances.” Lo quoted Albright, the first female US Secretary of State, as an example. She had always been hawkish in her China trade policy. Yet, as soon as she took office as the Secretary of State, her attitude changed, because she advocates free trade.

 

Disputes on intellectual property come into view

Lo believes that disputes on intellectual property will be a hot topic between China and the US in the future. He candidly commented that the Chinese attitude towards intellectual property has always been denounced by Western countries. Both sides must negotiate many times to achieve consensus. “The development status of China is still to become as advanced as Europe, the US and Japan. Its protection of intellectual property is rather laid back. The US must understand this. On the other hand, China must also be clear about how much it could afford to pay on protecting intellectual property because these measures would, unavoidably, affect the interests of certain commercial sectors.”

 

The market is getting used to the new normal of RMB

Regarding trade disputes between China and the US, the topic of RMB exchange rate cannot be left out of discussion. According to Lo, the International Monetary Fund has commented that the exchange rate of RMB has risen to a reasonable level. The issue seems to be more political than economical. “RMB has been on the rise since the mid-1990s. Economic theories would conclude that the export of China would be affected as a result. Yet, in reality, last year’s export was still trending up.” Looking at the phenomenon, Lo reckons that factors such as productivity, the global demand and the purchasing power of Europe and America all come into play.

 

Lo also pointed out that the exchange rate of RMB is having a growing influence on the overall external balance of China. As the Chinese monetary policy normalizes, the government would incorporate the factor of the RMB exchange rate when it formulates monetary policies. In addition, as bilateral activities of RMB have begun, investors no longer enjoy guaranteed profit with no loss when they invest on RMB. The impact of the exchange rate, naturally, is becoming stronger by the day. Lo said, “For any mature economy, the exchange rate of currencies is always considered in monetary policies. China did not follow this way of working in the past, but things have changed over the past two years. One could say this is the new normal.”

 

“The slight fluctuation in the exchange rate of RMB in the first half of the year shook the world. Why did that happen? Because the international market was yet to be accustomed to the new normal of RMB.” Lo explained that as RMB opens up and is allowed to float more freely, the international market needs some time to digest. “If you look at what is happening now, RMB exchange rate has dropped in the past month, but the global market was not shocked because of this. It is because the market is beginning to get used to the new normal of China.”

 

Chinese-American trade relation will not turn back

Lo noted five years ago that certain trade policies in the US, such as tariffs, were moving towards protectionism, which is indeed a worrying situation. He described that protectionism has been regarded as the backward drive of globalization.

 

However, will the Chinese-American trade relationship regress because of this backward drive of globalization? Lo is certain that it will not. “As I just mentioned, even though the free trade of the US is taking its step back, it is still very free. Picturing this situation to the extreme, say, China is exporting zero item to the US - the Chinese economy will not fall apart because of this. I am very confident about this because China has long past its days to rely on the external market to promote its economic growth. The Chinese economy has been driven by domestic demand since 2009. At present, what the Chinese government has to consider is how to transition from an investment-driven era to one that is propelled by consumption and services.”