U.S.-China Business Relations: Black And White Or Many Shades Of Gray?
There might be many reasons for the U.S. to be unhappy with China. But is unhappiness a basis for policy? Or is the point of policy to solve problems and to get better outcomes?
A related question: Is China an implacable foe, in which case no effort by the U.S. would ever result in that better outcome? Or is China a modernizing, complicated society, with a nicely performing economy, but with more than its share of problems, all while operating under a single party dictatorship and grappling with the challenges that entails?
If the former, and it is a black or white question, decoupling is arguably reasonable. We are in a zero-sum world in which every advance China makes is inescapably to the detriment of the U.S. As a long-time China hand argues: “The U.S. and China’s Communist Party are strategic and ideological competitors. CEOs have to decide which side they want to help win.” China is making the U.S. unhappy and the U.S. should therefore make them unhappy. Call this Trumpism without Trump.
If the latter, and it is many shades of gray, then the point of policy is not to radiate unhappiness but to pursue better outcomes. In this scenario, we would need to be wise enough to disaggregate what we are doing, and apply the right tools against the right problem. As Secretary of State Antony Blinken put it, our relationship with China “will be competitive where it should be, collaborative where it can be, adversarial where it must be.” We can treat the core geopolitical issues of territorial assertion differently than we treat differences in tariffs, and we can continue to sell Coca-Cola and welcome students while we do so.
In this shades of gray scenario, let me offer three tactics for dealing with China in a time of great power competition.
First: Continue to build the positive elements. Take current U.S. exports. I have just published a book, “The Smart Business Guide to China E-Commerce,” which shows how businesses around the world can win in China e-commerce. Indeed, despite the economic turmoil and political friction, U.S. consumer sales in China have never been better. Chinese consumers like U.S. consumer goods, from cosmetics to apparel, for the same reason U.S. consumers do: because Americans make great products and these products help the customer enjoy a better life. Beyond consumer goods, America has a favorite place in China with regards to agricultural products, educational opportunities, and in many other areas. So goal one is to enhance whatever good news there might be.
Second: Don’t mimic China’s economic nationalism. China has held an internal debate between economic rationalism and economic nationalism for over 40 years, with nationalism gaining under President Xi Jinping. But this might be as much good news for the U.S. as a competitor. Economic nationalism means China might lurch into unfair trading practices and subsidize certain industries. But it also means China can misallocate resources, take on debt, reward rent-seekers and foster economic inefficiency. China simultaneously produces cutting edge technology and Soviet-style five year production plans. Sometimes these contradictions can take place in the same project, such as with high-speed rail. An engineering marvel—speaking from personal experience—but with at times unclear cost-benefit analysis. China will play to its strength and the U.S. should play to its. The U.S. response to China’s state-directed economy should not be mimicry, but unleashing the creativity and dynamism that makes the U.S. the innovation capital of the world.
Third: Let’s do away with the rancor. Friction is a clumsy management tool and has the habit of feeding on itself. Push back when we must, build areas of collaboration where we can, and do it with as many friends and allies as possible. The utility of diplomacy is not to get along with friends, the utility is that it gives us architecture to deal with nations that are not intrinsically friendly. Denigrating China can play to a domestic audience at times, but it can also be corrosive and makes it less likely to attain the desired outcome. I don’t think a country has ever been insulted into agreement. Let’s communicate displeasure when it might lead to a better outcome, but let’s not adopt it as an obligatory operating premise.
The ultimate working relationship between China and the U.S. will be defined over the coming years of give and take. By building out the positive aspects of the relationship, by playing to our strengths, and by avoiding gratuitous hostility, the U.S. will be positioned to manage for the best outcome.