The Pandemic Depression
The Global Economy Will Never Be the Same
The United States has always had an outsize sense of its ability to determine China’s course. Again and again, its ambitions have come up short. After World War II, George Marshall, the U.S. special envoy to China, hoped to broker a peace between the Nationalists and Communists in the Chinese Civil War. During the Korean War, the Truman administration thought it could dissuade Mao Zedong’s troops from crossing the Yalu River. The Johnson administration believed Beijing would ultimately circumscribe its involvement in Vietnam. In each instance, Chinese realities upset American expectations.
With U.S. President Richard Nixon’s opening to China, Washington made its biggest and most optimistic bet yet. Both Nixon and Henry Kissinger, his national security adviser, assumed that rapprochement would drive a wedge between Beijing and Moscow and, in time, alter China’s conception of its own interests as it drew closer to the United States. In the fall of 1967, Nixon wrote in this magazine, “The world cannot be safe until China changes. Thus our aim, to the extent that we can influence events, should be to induce change.” Ever since, the assumption that deepening commercial, diplomatic, and cultural ties would transform China’s internal development and external behavior has been a bedrock of U.S. strategy. Even those in U.S. policy circles who were skeptical of China’s intentions still shared the underlying belief that U.S. power and hegemony could readily mold China to the United States’ liking.
Nearly half a century since Nixon’s first steps toward rapprochement, the record is increasingly clear that Washington once again put too much faith in its power to shape China’s trajectory. All sides of the policy debate erred: free traders and financiers who foresaw inevitable and increasing openness in China, integrationists who argued that Beijing’s ambitions would be tamed by greater interaction with the international community, and hawks who believed that China’s power would be abated by perpetual American primacy.
Neither carrots nor sticks have swayed China as predicted. Diplomatic and commercial engagement have not brought political and economic openness. Neither U.S. military power nor regional balancing has stopped Beijing from seeking to displace core components of the U.S.-led system. And the liberal international order has failed to lure or bind China as powerfully as expected. China has instead pursued its own course, belying a range of American expectations in the process.
That reality warrants a clear-eyed rethinking of the United States’ approach to China. There are plenty of risks that come with such a reassessment; defenders of the current framework will warn against destabilizing the bilateral relationship or inviting a new Cold War. But building a stronger and more sustainable approach to, and relationship with, Beijing requires honesty about how many fundamental assumptions have turned out wrong. Across the ideological spectrum, we in the U.S. foreign policy community have remained deeply invested in expectations about China—about its approach to economics, domestic politics, security, and global order—even as evidence against them has accumulated. The policies built on such expectations have failed to change China in the ways we intended or hoped.
Greater commercial interaction with China was supposed to bring gradual but steady liberalization of the Chinese economy. U.S. President George H. W. Bush’s 1990 National Security Strategy described enhanced ties with the world as “crucial to China’s prospects for regaining the path of economic reform.” This argument predominated for decades. It drove U.S. decisions to grant China most-favored-nation trading status in the 1990s, to support its accession to the World Trade Organization in 2001, to establish a high-level economic dialogue in 2006, and to negotiate a bilateral investment treaty under U.S. President Barack Obama.
Trade in goods between the United States and China exploded from less than $8 billion in 1986 to over $578 billion in 2016: more than a 30-fold increase, adjusting for inflation. Since the early years of this century, however, China’s economic liberalization has stalled. Contrary to Western expectations, Beijing has doubled down on its state capitalist model even as it has gotten richer. Rather than becoming a force for greater openness, consistent growth has served to legitimize the Chinese Communist Party and its state-led economic model.
Trade in goods between the United States and China exploded from less than $8 billion in 1986 to over $578 billion in 2016.
U.S. officials believed that debt, inefficiency, and the demands of a more advanced economy would necessitate further reforms. And Chinese officials recognized the problems with their approach; in 2007, Premier Wen Jiabao called the Chinese economy “unstable, unbalanced, uncoordinated, and unsustainable.” But rather than opening the country up to greater competition, the Chinese Communist Party, intent on maintaining control of the economy, is instead consolidating state-owned enterprises and pursuing industrial policies (notably its “Made in China 2025” plan) that aim to promote national technology champions in critical sectors, including aerospace, biomedicine, and robotics. And despite repeated promises, Beijing has resisted pressure from Washington and elsewhere to level the playing field for foreign companies. It has restricted market access and forced non-Chinese firms to sign on to joint ventures and share technology, while funneling investment and subsidies to state-backed domestic players.
Until recently, U.S. policymakers and executives mostly acquiesced to such discrimination; the potential commercial benefits were so large that they considered it unwise to upend the relationship with protectionism or sanctions. Instead, they fought tooth and nail for small, incremental concessions. But now, what were once seen as merely the short-term frustrations of doing business with China have come to seem more harmful and permanent. The American Chamber of Commerce reported last year that eight in ten U.S. companies felt less welcome in China than in years prior, and more than 60 percent had little or no confidence that China would open its markets further over the next three years. Cooperative and voluntary mechanisms to pry open China’s economy have by and large failed, including the Trump administration’s newly launched Comprehensive Economic Dialogue.
Growth was supposed to bring not just further economic opening but also political liberalization. Development would spark a virtuous cycle, the thinking went, with a burgeoning Chinese middle class demanding new rights and pragmatic officials embracing legal reforms that would be necessary for further progress. This evolution seemed especially certain after the collapse of the Soviet Union and democratic transitions in South Korea and Taiwan. “No nation on Earth has discovered a way to import the world’s goods and services while stopping foreign ideas at the border,” George H. W. Bush proclaimed. U.S. policy aimed to facilitate this process by sharing technology, furthering trade and investment, promoting people-to-people exchanges, and admitting hundreds of thousands of Chinese students to American universities.
In China, communications technologies have strengthened the hand of the state.
The crackdown on pro-democracy protesters in Tiananmen Square in 1989 dimmed hopes for the emergence of electoral democracy in China. Yet many experts and policymakers in the United States still expected the Chinese government to permit greater press freedoms and allow for a stronger civil society, while gradually embracing more political competition both within the Communist Party and at local levels. They believed that the information technology revolution of the 1990s would encourage such trends by further exposing Chinese citizens to the world and enhancing the economic incentives for openness. As U.S. President Bill Clinton put it, “Without the full freedom to think, question, to create, China will be at a distinct disadvantage, competing with fully open societies in the information age where the greatest source of national wealth is what resides in the human mind.” Leaders in Beijing would come to realize that only by granting individual freedoms could China thrive in a high-tech future.
But the fear that greater openness would threaten both domestic stability and the regime’s survival drove China’s leaders to look for an alternative approach. They took both the shock of Tiananmen Square and the dissolution of the Soviet Union as evidence of the dangers of democratization and political competition. So rather than embracing positive cycles of openness, Beijing responded to the forces of globalization by putting up walls and tightening state control, constricting, rather than reinforcing, the free flow of people, ideas, and commerce. Additional stresses on the regime in this century—including an economic slowdown, endemic corruption in the government and the military, and ominous examples of popular uprisings elsewhere in the world—have spurred more authoritarianism, not less.
Indeed, events of the last decade have dashed even modest hopes for political liberalization. In 2013, an internal Communist Party memo known as Document No. 9 explicitly warned against “Western constitutional democracy” and other “universal values” as stalking-horses meant to weaken, destabilize, and even break up China. This guidance demonstrated the widening gap between U.S. and Chinese expectations for the country’s political future. As Orville Schell, a leading American expert on China, put it: “China is sliding ineluctably backward into a political climate more reminiscent of Mao Zedong in the 1970s than Deng Xiaoping in the 1980s.” Today, an ongoing crackdown on journalists, religious leaders, academics, social activists, and human rights lawyers shows no sign of abating—more than 300 lawyers, legal assistants, and activists were detained in 2015 alone.
Rather than devolving power to the Chinese people, as many in the West predicted, communications technologies have strengthened the hand of the state, helping China’s authorities control information flows and monitor citizens’ behavior. Censorship, detentions, and a new cybersecurity law that grants broad government control over the Internet in China have stymied political activity inside China’s “Great Firewall.” China’s twenty-first-century authoritarianism now includes plans to launch a “social credit system,” fusing big data and artificial intelligence to reward and punish Chinese citizens on the basis of their political, commercial, social, and online activity. Facial recognition software, combined with the ubiquity of surveillance cameras across China, has even made it possible for the state to physically locate people within minutes.
A combination of U.S. diplomacy and U.S. military power—carrots and sticks—was supposed to persuade Beijing that it was neither possible nor necessary to challenge the U.S.-led security order in Asia. Washington “strongly promot[ed] China’s participation in regional security mechanisms to reassure its neighbors and assuage its own security concerns,” as the Clinton administration’s 1995 National Security Strategy put it, buttressed by military-to-military relations and other confidence-building measures. These modes of engagement were coupled with a “hedge”—enhanced U.S. military power in the region, supported by capable allies and partners. The effect, the thinking went, would be to allay military competition in Asia and further limit China’s desire to alter the regional order. Beijing would settle for military sufficiency, building armed forces for narrow regional contingencies while devoting most of its resources to domestic needs.
The logic was not simply that China would be focused on its self-described “strategic window of opportunity” for development at home, with plenty of economic and social challenges occupying the attention of China’s senior leaders. American policymakers and academics also assumed that China had learned a valuable lesson from the Soviet Union about the crippling costs of getting into an arms race with the United States. Washington could thus not only deter Chinese aggression but also—to use the Pentagon’s term of art—“dissuade” China from even trying to compete. Zalmay Khalilzad, an official in the Reagan and both Bush administrations, argued that a dominant United States could “convince the Chinese leadership that a challenge would be difficult to prepare and extremely risky to pursue.” Moreover, it was unclear whether China could challenge U.S. primacy even if it wanted to. Into the late 1990s, the People’s Liberation Army (PLA) was considered decades behind the United States’ military and those of its allies.
Against this backdrop, U.S. officials took considerable care not to stumble into a confrontation with China. The political scientist Joseph Nye explained the thinking when he led the Pentagon’s Asia office during the Clinton administration: “If we treated China as an enemy, we were guaranteeing an enemy in the future. If we treated China as a friend, we could not guarantee friendship, but we could at least keep open the possibility of more benign outcomes.” Soon-to-be Secretary of State Colin Powell told Congress at his confirmation hearing in January 2001, “China is not an enemy, and our challenge is to keep it that way.”
Even as it began investing more of its newfound wealth in military power, the Chinese government sought to put Washington at ease, signaling continued adherence to the cautious, moderate foreign policy path set out by Deng. In 2005, the senior Communist Party official Zheng Bijian wrote in this magazine that China would never seek regional hegemony and remained committed to “a peaceful rise.” In 2011, after a lively debate among China’s leaders about whether it was time to shift gears, State Councilor Dai Bingguo assured the world that “peaceful development is a strategic choice China has made.” Starting in 2002, the U.S. Defense Department had been producing a congressionally mandated annual report on China’s military, but the consensus among senior U.S. officials was that China remained a distant and manageable challenge.
For Beijing, the United States’ alliances and military presence in Asia posed unacceptable threats to China’s interests.
That view, however, underestimated just how simultaneously insecure and ambitious China’s leadership really was. For Beijing, the United States’ alliances and military presence in Asia posed unacceptable threats to China’s interests in Taiwan, on the Korean Peninsula, and in the East China and South China Seas. In the words of the Peking University professor Wang Jisi, “It is strongly believed in China that . . . Washington will attempt to prevent the emerging powers, in particular China, from achieving their goals and enhancing their stature.” So China started to chip away at the U.S.-led security order in Asia, developing the capabilities to deny the U.S. military access to the region and driving wedges between Washington and its allies.
Ultimately, neither U.S. military power nor American diplomatic engagement has dissuaded China from trying to build a world-class military of its own. High-tech displays of American power in Iraq and elsewhere only accelerated efforts to modernize the PLA. Chinese President Xi Jinping has launched military reforms that will make Chinese forces more lethal and more capable of projecting military power well beyond China’s shores. With its third aircraft carrier reportedly under construction, advanced new military installations in the South China Sea, and its first overseas military base in Djibouti, China is on the path to becoming a military peer the likes of which the United States has not seen since the Soviet Union. China’s leaders no longer repeat Deng’s dictum that, to thrive, China will “hide [its] capabilities and bide [its] time.” Xi declared in October 2017 that “the Chinese nation has gone from standing up, to becoming rich, to becoming strong.”
At the end of World War II, the United States built institutions and rules that helped structure global politics and the regional dynamics in Asia. Widely accepted norms, such as the freedom of commerce and navigation, the peaceful resolution of disputes, and international cooperation on global challenges, superseded nineteenth-century spheres of influence. As a leading beneficiary of this liberal international order, the thinking went, Beijing would have a considerable stake in the order’s preservation and come to see its continuation as essential to China’s own progress. U.S. policy aimed to encourage Beijing’s involvement by welcoming China into leading institutions and working with it on global governance and regional security.
As China joined multilateral institutions, U.S. policymakers hoped that it would learn to play by the rules and soon begin to contribute to their upkeep. In the George W. Bush administration, Deputy Secretary of State Robert Zoellick memorably called on Beijing to become “a responsible stakeholder” in the international system. From Washington’s perspective, with greater power came greater obligation, especially since China had profited so handsomely from the system. As Obama emphasized, “We expect China to help uphold the very rules that have made them successful.”
In certain venues, China appeared to be steadily, if unevenly, taking on this responsibility. It joined the Asia-Pacific Economic Cooperation organization in 1991, acceded to the Nuclear Nonproliferation Treaty in 1992, joined the World Trade Organization in 2001, and took part in major diplomatic efforts, including the six-party talks and the P5+1 negotiations to deal with nuclear weapons programs in North Korea and Iran, respectively. It also became a major contributor to UN counterpiracy and peacekeeping operations.
Yet Beijing remained threatened by other central elements of the U.S.-led order—and has increasingly sought to displace them. That has been especially true of what it sees as uninvited violations of national sovereignty by the United States and its partners, whether in the form of economic sanctions or military action. Liberal norms regarding the international community’s right or responsibility to intervene to protect people from human rights violations, for example, have run headlong into China’s paramount priority of defending its authoritarian system from foreign interference. With a few notable exceptions, China has been busy watering down multilateral sanctions, shielding regimes from Western opprobrium, and making common cause with Russia to block the UN Security Council from authorizing interventionist actions. A number of nondemocratic governments—in Sudan, Syria, Venezuela, Zimbabwe, and elsewhere—have benefited from such obstruction.
China has also set out to build its own set of regional and international institutions—with the United States on the outside looking in—rather than deepening its commitment to the existing ones. It has launched the Asian Infrastructure Investment Bank, the New Development Bank (along with Brazil, Russia, India, and South Africa), and, most notably, the Belt and Road Initiative, Xi’s grandiose vision for building land and maritime routes to connect China to much of the world. These institutions and programs have given China agenda-setting and convening power of its own, while often departing from the standards and values upheld by existing international institutions. Beijing explicitly differentiates its approach to development by noting that, unlike the United States and European powers, it does not demand that countries accept governance reforms as a condition of receiving aid.
The assumptions driving U.S. China policy look increasingly tenuous.
In its own region, meanwhile, Beijing has set out to change the security balance, incrementally altering the status quo with steps just small enough to avoid provoking a military response from the United States. In the South China Sea, one of the world’s most important waterways, China has deftly used coast guard vessels, legal warfare, and economic coercion to advance its sovereignty claims. In some cases, it has simply seized contested territory or militarized artificial islands. While Beijing has occasionally shown restraint and tactical caution, the overall approach indicates its desire to create a modern maritime sphere of influence.
In the summer of 2016, China ignored a landmark ruling by a tribunal under the UN Convention on the Law of the Sea, which held that China’s expansive claims in the South China Sea were illegal under international law. U.S. officials wrongly assumed that some combination of pressure, shame, and its own desire for a rules-based maritime order would cause Beijing, over time, to accept the judgment. Instead, China has rejected it outright. Speaking to a security forum in Aspen, Colorado, a year after the ruling, in July 2017, a senior analyst from the CIA concluded that the experience had taught China’s leaders “that they can defy international law and get away with it.” Countries in the region, swayed by both their economic dependence on China and growing concerns about the United States’ commitment to Asia, have failed to push back against Chinese assertiveness as much as U.S. policymakers expected they would.
As the assumptions driving U.S. China policy have started to look increasingly tenuous, and the gap between American expectations and Chinese realities has grown, Washington has been largely focused elsewhere. Since 2001, the fight against jihadist terrorism has consumed the U.S. national security apparatus, diverting attention from the changes in Asia at exactly the time China was making enormous military, diplomatic, and commercial strides. U.S. President George W. Bush initially referred to China as a “strategic competitor”; in the wake of the September 11 attacks, however, his 2002 National Security Strategy declared, “The world’s great powers find ourselves on the same side—united by common dangers of terrorist violence and chaos.” During the Obama administration, there was an effort to “pivot,” or “rebalance,” strategic attention to Asia. But at the end of Obama’s time in office, budgets and personnel remained focused on other regions—there were, for example, three times as many National Security Council staffers working on the Middle East as on all of East and Southeast Asia.
This strategic distraction has given China the opportunity to press its advantages, further motivated by the increasingly prominent view in China that the United States (along with the West more broadly) is in inexorable and rapid decline. Chinese officials see a United States that has been hobbled for years by the global financial crisis, its costly war efforts in Afghanistan and Iraq, and deepening dysfunction in Washington. Xi has called on China to become “a global leader in terms of comprehensive national strength and international influence” by midcentury. He touts China’s development model as a “new option for other countries.”
Washington now faces its most dynamic and formidable competitor in modern history. Getting this challenge right will require doing away with the hopeful thinking that has long characterized the United States’ approach to China. The Trump administration’s first National Security Strategy took a step in the right direction by interrogating past assumptions in U.S. strategy. But many of Donald Trump’s policies—a narrow focus on bilateral trade deficits, the abandonment of multilateral trade deals, the questioning of the value of alliances, and the downgrading of human rights and diplomacy—have put Washington at risk of adopting an approach that is confrontational without being competitive; Beijing, meanwhile, has managed to be increasingly competitive without being confrontational.
The starting point for a better approach is a new degree of humility about the United States’ ability to change China. Neither seeking to isolate and weaken it nor trying to transform it for the better should be the lodestar of U.S. strategy in Asia. Washington should instead focus more on its own power and behavior, and the power and behavior of its allies and partners. Basing policy on a more realistic set of assumptions about China would better advance U.S. interests and put the bilateral relationship on a more sustainable footing. Getting there will take work, but the first step is relatively straightforward: acknowledging just how much our policy has fallen short of our aspirations.