US and China: No longer room to maneuver?

Experts offer essential context and possible paths in historic, deepening tensions

Allow me to write a bit longer today.

It is in my nature as an entrepreneur and backer of entrepreneurs that when conventional wisdom builds significantly to one line of thought, it is time to explore possible alternative scenarios.

Over the last several months I have been spending significant time with some of the best China experts I know both here and overseas and from a wide array of backgrounds including policy, investment, technology and more. It has been staggering how uniformly down even the most historically hopeful are.

It is not so much the standard concerns of two giants competing in all sectors, but more a fear that we collectively have lost all room to maneuver.  They fear that both sides seem increasingly disinterested in finding shared interests to build trust. That, worse, both sides are misreading the other in fundamental and alarming ways that tend to create their own, unstoppable momentum.

When I push them to unpack counter-scenarios, the answers remain limited.

I have found comfort in two important new books that explore in detail the Chinese – and in particular Xi Jinping’s – ambitions in a very new world and also where there might be both points of mutual agreement and frameworks of new engagement. The comfort is cold, however, because both books spend significant and revealing time on the former but come up thinner on where we can go from here.

But they are wonderfully written, from authors with multi-decade unimpeachable credibility and experience living in and studying China. Interestingly, none are from either China or the United States, which gives them an additional global lens and perspective on where we are.

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The first is ChinaPhobia written by my friend Karim Alwadi and his father Mohammed Kheir Alwadi. The former is an entrepreneur and political scientist based in Beijing since 2001, having built enterprises spanning manufacturing, infrastructure, travel and more, and he has been with leading think tanks both in China and the United States. His father is a well-regarded writer, journalist, politician, and diplomat originally from Syria – he, in fact, was the Syrian Ambassador to China – but has been regularly engaged with the country since 1992.

The book is a detailed, experienced and even scholarly dialogue between the two, and their shared experiences are perfectly situated to observe and be a part of the massive changes there bottom up. It analyzes in rich detail America’s history and view of China today and travels the globe from Europe to across Asia and emerging markets describing their ever-evolving perspectives.

At one level the very premises each nation holds of the other appear diametrically opposed. The authors note that the American framework is based on three beliefs. First that America failed to change China toward liberal Western direction despite decades of opening the gates to China’s rise economically and technologically with our assistance. Second America understands that the rise across all sectors of the economy, technology, military and world influence poses an unprecedented direct strategic threat. Third, Xi Jinping has strengthened the authority of the Communist Party and the socialist orientation in China ending “all American hopes of China’s ability to adopt a more liberal approach in its governance.”

China, on the other hand, believes this thinking is exaggerated. They note, “Beijing’s focus is to achieve the Chinese dream in building a modern, robust and advanced country that will enhance the spread of peace in the world. Beijing stresses that it does not interfere in America’s internal affairs, nor does it seek to expand, and export is system to the US. China is still a developing country which has yet to catch up with the United States.”

The authors pull no punches on their assessment of American slow and cumbersome appreciation and navigation of China’s rise. “US leadership was thinking of repeating with China what they did with Japan and Germany. America provided technical, economic, and financial assistance to its former enemies Germany and Japan… This experience enticed America to do the same with China, but the results were disappointingly opposite to expectations. Japan and Germany have not dared to compete with America for global leadership, but China is doing so with self-confidence.”  And they note that America has made their job easier by “recent US administration’s retreat from globalization.”

They underscore that what is shifting today is not just about size and scale in competition for economic and military performance but a new view of the world order and China’s leadership in it. It is a view that is a calling into question the existing order outright – founded primarily by the United State after World War II.

And, the authors suggest, why wouldn’t China do so? Through a combination of economic might, massive market size and an unprecedented global policy of soft power across the emerging world China is redefining a different kind of globalization. For several decades, China has been seen as the factory that supplies cheap goods benefitting people around the world.  “That role is no longer viable due to a changing labour market, environmental costs of pollution and shortage of natural materials.” No surprise they would redirect the economy to focus on future industries, which do not pollute the environment and do not need large quantities of raw materials, energy, or a large workforce. While areas of technology were at first places of great collaboration with the US, China now views itself as the new “Inventor and Innovator of the World” and one of the founders of the Fourth Industrial Revolution.

Unsurprisingly this all is a direct threat to what American has thought for decades was our birth right. Since World War II to make it in the global tech economy was effectively to have it made in or sold to America. The Intels, Googles, Instagrams, Whatsapps of nearly everywhere in the world were…. Intel, Google, Instagram, WhatsApp and so on. China, instead, wants its technology infrastructure in places like 5G and the future of video and data on platforms of their making.

The net effect across industry, the authors note, is “The continuing trade frictions between China and America have become one of the most important factors in feeding hostility toward China.” From the American lens we are standing up for our economic priorities. From the Chinese lens we simply want to limit China’s growing influence in the world. Often compared to the Opium War in the 18th century China argues our goal is “to prevent China from catching up with global industrial revolutions - this will never happen again.”  And China has the economic where with all to put up with a lot – including absorbing tariffs and slower economic growth – to ensure this end.

The authors take no sides but lay out the world as it is and note that China has its own challenges in the policies it is pursuing. Those in China who believe in America decline the authors push back on passionately and with detail – that our financial might, our military spending, technology, and innovation advantages remain without precedence. China has real challenges with tremendous pressures on their own internal budgets, enormous infrastructure needs; aging of society; challenges with zero covid; difficulty in making Chinese values and customs easily accessible around the world; the difficulty of the Chinese language and an unclear and even lack of allies and supporters around the world.

The authors note that Japan’s experience can be instructive: “Until a few years ago, Japan owned the most advanced technology, and its economy became second in the world, before being pushed down to third place by China. Due to its ageing society and its diminishing vitality, Japan then suffered from success crises, which affected the Japanese labor market by causing severe shortages and an economic downturn. In this regard, we notice a striking similarity between Japan and China."

In all this push and pull, the authors note, there will be winners – and they may surprise us. Places like Vietnam, much of Southeast Asia and Mexico all with 50% of their populations under 30, and ports and sea routes now competitive in costs compared to China. Their governments do not push global tech companies the way China does, taxes are low, and they have the labor cost advantage China once had. Africa, rather than doing whatever China tells it to do are coming into their own. They have no interest in taking sides in the US-China conflicts but are not without uneasiness by the scale and lack of clarity of China’s policies towards their countries. Because of the historical, cultural and economic links especially in Latin America, America has historical opportunity, but needs to up its game as the world now has economic choice. It would be, they warn, “a mistake to think all of America’s allies are ready to adopt American’s position against Beijing.”

What is to be done? The authors effectively are asking us all to collectively breathe, understand each other on each other’s terms, focus on mutual interests and bring the volume down. ChinaPhobia is as articulate and clear a tour of each other’s perspectives – and no common ground can be formed in the absence of that clarity and check on one’s own premises.

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The second book is by one of the most thoughtful experts on China today, Australia’s former Prime Minister Kevin Rudd. His new book The Avoidable War: The Dangers of a Catastrophic Conflict Between the US and Xi Jinping's China comes from impeccable China credentials, from years of experience physically in as well as studying China on its terms, and multiple meetings with Xi.

He strikes a hopeful tone noting that while the two nations’ come from “two radically different cultures [the] peoples nonetheless aspire to remarkably similar futures: prosperity for their families, the best education for their children, the opportunity to build their businesses with a minimum of government interference, respect from others for their extraordinary individual and national achievements, and a desire to live in reasonable peace with their neighbors." He notes neither of us have a long-standing tradition of having vast overseas empires, and neither chose to colonize the world beyond their shores. All this is at least a place to start.

His magisterial new book, while offering useful history and context overall, delves more deeply top down into where we are and heading. He delves particularly into the fundamental shifts and thinking led specifically by Xi. All this is decidedly less hopeful.

He shares with the ChinaPhobia the view that much begins on a “rigorous distillation of the capabilities and intentions. In fact, a clear, blunt assessment independently and in relationship building how each side perceives each other (his emphasis) is often absent.”

Much of his book analyzes in rich detail ten priorities of the Communist Party as set by Xi Jinping, and underscores each is essentially connected to the other:

1)      The centrality of Xi and the party and the hard business of staying in power.

2)      Maintaining and securing national unity.

3)      Growing the Chinese economy

4)      Environmental sustainability threatened by China’s rapid economic development.

5)      Modernizing the military central for China security and project global power.

6)      Managing neighbors, of which China has 14, defensively and with soft power.

7)      Securing maritime periphery, where it perceives strategically allied against it.

8)      Securing their economic depth from Europe, the Middle East and Africa.

9)      Increasing leverage across the developing world including Latin America.

10)  Rewriting the global rules-based order beyond the Post-War US-led efforts created without them.

In these priorities, and central to their achievement, Xi has reset the very approach and role of the party. With this has come a “new authoritarianism” with a renewed role of political ideology over pragmatic policy, and a “zealous reassertion of Marxist-Leninist ideology across the full fabric of Chinese life” while embracing a rehabilitation of Confucianism which emphasizes a continuity of benign hierarchical governance. “China’s historical greatness, across its dynastic histories, always lay in strong, authoritarian, hierarchical Confucian governments. By corollary, China’s historical greatness was never the product of Western liberal democracy or any Chinese variation of it.” As such the Western liberal democratic value system of the US is anathema and a counter case to his core thesis: “That state direction and ideological control are essential preconditions for both national greatest and individual prosperity.”

For decades, Americans have welcomed unity and shared global innovation in technology embracing an unleashing of talent and ideas from anywhere.  For China now, Rudd notes however, that tech talent is a strategic advantage to be protected at home. “It is critical (Rudd’s emphasis) that those [tech} graduates become patriotic engineers capable of helping China produce world-leading manufacturing capabilities, and for middle-class consumers to be able to afford homes, raise and educate multiple children and so power the dual-circulation.” Gone is a desire to go head-to-head in ride sharing financed by western investors or have global fintech players compete in China, as a new era of central planning and prioritization is upon us.  “Otherwise seemingly scattershot policies and announcements from Beijing’s’ regulatory crackdown on the private sector become parts of a coordinated strategic shift on how China’s economy is intended to function and for whom.”  What is less clear is whether Xi may be right or “strangle the goose that laid the golden egg altogether” by the more globalist approaches of his predecessors.

No area is a clearer example of looking inward than AI. He unpacks China’s advantages, starting with access to mass data sets. But it is unclear how serious is this advantage as the US, UK and Europe are finding their own paths to permission-based data. The US providing 45 percent of the total global supply of chips, plus strong relationships with Taiwan and Korea, are a clear challenge to China. But “what China is seeking to do is to overcome its natural deficiencies in specific AI technologies and systems by direction a massive state research effort across the industry at large… The reality is, that a significant degree of technological decoupling between the United States and China is already underway.”

Rudd calls Xi in his economic, technology and business view a “Marxist nationalist.” Xi is “not a natural believer in markets. At best, he sees them as a necessary evil – of instrumental importance in increasing living standards and enhancing national economic power, but they are not a natural part of his deepest ideological beliefs.” As there is conflict between the market and the future power of the party, “Xi will instinctively side with the party, which marks a radical difference between his worldview and Deng’s.”

And his worldview offers three core propositions: 1) Chinese ideological orthodoxy is to be an amalgam of Marxism-Leninism, Chinese Tradition and Chinese nationalism – with the precise weighting of the amalgam to be defined by the party leadership from time to time depending on need. 2) This orthodoxy embraces the current move toward the left on politics and the economy and to the right on nationalism. 3) Beyond intellectual cognition and moral legitimation, this new ideology legitimizes struggle as a necessary means of practical action for realizing progress… struggle, (Rudd’s emphasis) in the Chinese Communist political vernacular, can take many forms – including both nonviolent and violent.”

Militarily, Rudd notes, modernizing the military is not merely an exercise in catch up but a dominance for future areas of security. Rudd notes China under Xi has been sophisticated in aggressively seeking to bring their satellite efforts on par with the US (though well behind in numbers now), and negotiating a “space silk road” among the Shanghai Cooperation Organization and the BRICS. On nuclear power and weapons, they equally are moving forward on their own agenda with China continuing to “spurn US invitations to engage in either bilateral nuclear arms control negotiations or trilateral negotiations with Russia.” There are factors hard to predict – in relative sophistication of these efforts, the effectiveness of their battlefield experience and training, how they will react to America, the success of their efforts at soft power and more.

But it is clear the capabilities gap has narrowed, and outcomes in places like Taiwan, the Senkaku Islands and more are far less pre-ordained. With great clarity, he outlines in detail ten scenarios on how Taiwan could unfold, half of which involving major armed conflict. “Such profound geopolitical and military unpredictability should therefore weigh heavily on the minds of decision makers in both Washington and Beijing.’

Like ChinaPhobia, Rudd believes China should be pleased with their place in the world. Russia is almost “completely on side” with China;  Japan may hedge but has enormous economic reliance there; India and South East Asia even more so with Korea “trending positively.”  In Europe French president Emmanuel Macron’s concept of “strategic autonomy” leans towards a more neutral look at the power struggles of China and the US, especially as the former has shown signs of unstoppable ascendency. China’s influence and proactive efforts with the developing world – especially Latin America and Africa – have created enormous dividends especially “with the relative decline in American power, reinforced by American complacency and lack of attention to the importance of its traditional friends and partners around the world.”  Ever hungry by necessity for resources, China has poured resources into jointly developing the “Arctic Silk Road”

All these efforts are in line of redefining not only the borders and partnerships in global and economic trade, but to reset the very premises of global engagement since World War II.

A core question, even challenge, remains for America: “whether President Biden will sufficiently revive [multilateral and economic institutions and frameworks] and reassert US moral authority to frustrate China’s aims to remake the rules-based international system in a manner amenable to its power, interest and values – just as it claims the United States did after 1945.”

Rudd takes no prisoners on what is at stake here: “Beijing’s call is for a multipolar world, appealing to decades of international political resentment over American unilateralism – most dramatically demonstrated by the folly of the second Iraq War and more recent forms of Trumpian exceptionalism. In China’s internal discourse, multi polarity is a simple proposition: a dilution of American power and the increase of its own deliberative processes of the current multilateral system. Once again, China, to is great surprise, has found itself pushing on an open door.”

If the lines are being so starkly drawn, is there even cause for efforts to engage and if so, what is the best strategy for engagement?

On the first question Rudd is clear that the stakes and connectivity are simply too high. “Despite the current tension in Chinese American relations, the facts indicate that a total separation and decoupling of the two giants is impossible. To the tune of a quarter of a trillion dollars of American investment in China, and trillions of Chinese financial holdings in American government bonds and traded securities. Climate change, future pandemics and other global issues cannot be addressed without collaboration. Supply chain benefits continue. The conflict is not ideological thus diplomatic engagement can be based on clear understanding of each’s interests and working through mutuality.”

On the second, Rudd argues for what he calls the case of Managed Strategic Competition. It is anchored in three propositions:

1)      The United States and China must “both develop a clear understanding of the other’s irreducible strategic redlines in order to help prevent conflict through miscalculation.

2)      The Two sides would channel the burden of strategic rivalry into a competitive race to enhance their military, economic and technological capabilities.

3)      This framework would create the political space necessary for the two countries to continue to engage in strategic cooperation in a number of defined areas where both global and national interests would be enhanced by such collaboration.

These propositions are not silver bullets, but a framework that must be “anchored in a deeply realist view of the global order. It accepts that states will continue to seek security by building a balance of power in their favor while recognizing that, in doing so, they are likely to create security dilemmas for other states whose fundamental interests may be disadvantaged by their actions… The rules would enable each side to compete vigorously across all policy and geographical domains. But if either side breaches the rules, then all bets are off, and it’s back to all the hazardous uncertainties of the law of the strategic jungle.”

In such a framework, Rudd has been accused of kicking deep tension down the road. But he embraces this label. “There is nothing wrong, let alone cowardly, with kicking this particular can (i.e., war) a long way down the road… Once we hear the drumbeats of war and respond to them, reason is suspended as worst-case scenario planning comes to the fore, brute force enters in, and any prospect of a peaceful resolution disappears forever.”  He doesn’t believe managed strategic competition will automatically prevent war, “but it would provide the best possible chance.”

And buying time isn’t always a bad thing for a slower-moving democracy forced to make hard choices. “For example, to compete effectively with China, America would need to reform and resume large-scale immigration to continue to grow its domestic market, just as it would need to expand its international markets through a new approach to regional and global trade liberalization. American innovation would need to be supported by a new combination of tax, industry, higher education and innovations policy… And American efficiency demands that federal and state governments finally crack the nut on modernizing the country’s crumbling infrastructure… [as well as regaining] a place at the forefront of the fintech revolution sweeping global financial markets.” The US Federal Reserve would need to manage the privileged international status of the US dollar, avoiding its further weaponization for political and foreign policy purposes… All this is a tall order for any government….And all this would require time.”

Do we have such commitment and time?  Does the democracy we hold so dear allow us to move beyond near suicidal focus on internal division and finger pointing?

The stakes could not be greater. Missing this opportunity for creativity, and for competing by competing, will be the central questions historians will navigate in assessing us in these times.

Assuming there are any historians around to do so.