U.S.-China Economic Relations: The Next 40 Years
How can the United States and China each accomplish their economic goals, while not doing so at the other’s expense?
April 10, 2012
Forty years ago, when President Richard Nixon made his historic visit to China, geopolitics and the external environment pushed us together. Today, many of the compelling priorities for the United States and China are internal in nature — jobs, growth, the environment, social equity.
We must find ways to ensure that U.S.-China relations support these internal objectives in both countries — and that one side does not seek to accomplish them at the other’s expense.
If we can successfully strengthen this ever-more complex and important relationship, and capitalize on the opportunities it presents while narrowing our differences, it is not just both countries that will be better for it, but so will the world.
By reinforcing and strengthening high-standard global practices, we aim to discourage a trend toward more nationalistic domestic standards, regulations and restrictions that some countries — China among them — too often see as an attractive model for their economies.
In my view, what produced a spectacular rise in the living standards of hundreds of millions of people and in China’s overall economic growth may not be the kinds of policies or practices that will do so over the next forty.
Chinese leaders of the past recognized that institutionalizing internal reforms to better comply with the main requirements of international institutions was in their interest. China today needs to recognize that it has a similar interest in further adjusting its domestic practices to conform with both the letter and spirit of the current global system, rather than attempting to carve out exceptions or to take advantage of gray areas.
Initiatives to encourage Beijing to play a fully engaged, constructive role in the global system will be most effective when they are framed in a way that clearly relates to China’s own interests. One example is the highly positive role China played in the G20 in managing the recent international financial crisis.
The most astute U.S. approach would be to anticipate (rather than resist) China becoming richer and more powerful and encourage it to recognize that adhering to global rules and norms is not incompatible with this process, but in fact will enhance it and ensure its sustainability.
This applies not only to economic policy, but also to environmental policy. China’s skyrocketing demand for water and other natural resources, and its adverse impact on the country’s environment, are damaging the health and well-being of its own people and the global environment. And its voracious appetite for energy and other raw materials risks leading to a destructive international competition for resources.
Can we frame the agenda in such a manner that has considerable appeal to many Chinese? I’d say so. Just think of goals such as better income distribution, less reliance on exports, greater efficiency in the use of natural resources, real competition that is not state-driven, nondiscrimination in government procurement and investment policies, as well as a more efficient allocation of capital.
All of these elements can strengthen and sustain prosperity for greater numbers of Chinese, while at the same timing reduce economic tensions and imbalances with the rest of the world.
Policies for the future
If we work together and avoid seeing our relationship as a zero-sum game, then mutual success is possible. If we do not, then success in each of our economies will be far more difficult.
There are a number of ways to advance U.S. economic relations with China, strengthen the American economy and help China accomplish its own goals on domestic economic reform as well. A few examples:
Increasing Chinese investment in the United States would help balance our economies, contribute to domestic jobs and growth here, and support China’s more outward orientation.
Ensuring that Chinese companies do not compete here or elsewhere using pirated intellectual property or by taking unfair advantage of other government support they receive at home. On this, as on other issues, we should make common cause with other countries.
Ramping up agricultural trade would lead to more U.S. exports and help China meet its food security needs.
Engaging China in the World Trade Organization and other multilateral institutions will remain critically important. China’s accession to the WTO has been good for China and the world — but just as China insists that others abide by WTO rules, so should Beijing.
Encouraging “competitive neutrality” with respect to state-owned and state-supported enterprises will aid China’s own rebalancing efforts.
We don’t argue with China’s desire to have SOEs, but often massive government support of these entities grossly distorts international and domestic competition. As China seeks to boost the prospects of job creation in its private sector and especially in small- and medium-sized Chinese enterprises, such tactics are doubly harmful.
Insisting that China maintain an environment for innovation that respects intellectual property rights and trade secrets — and is non-discriminatory. This will benefit Chinese innovators and American companies as well. It will also allow closer collaboration and greater trust between Chinese and many foreign companies.
If China expects — and it should — its growing body of intellectual property to be protected around the world, it must protect foreign intellectual property in China, not only at the national level but in the provinces and among SOEs as well.
Cooperating on food and product safety can promote the health of citizens in both our countries. But we need to do more together and China needs to do more to enhance its reputation as a safe supplier.
Collaborating on the environment, clean water and climate change by fostering exchanges of scientists and policymakers can combat environmental degradation in China, as well as global climate change. It will also help China to address the problems of social instability and ill health that its enormous reliance on coal and other major CO2 emitters produce.
Bringing together Chinese and American governors, provincial and municipal leaders to collaborate on all of the above issues can provide a series of mutual benefits in our bilateral relationship.
Finally, it is also important to recognize that the more dynamic, innovative and resilient the American private sector — and the greater the capacity of our political system to address the fiscal, infrastructure, educational and energy needs of the country — the more successful will be the U.S. response to China’s competitive challenge. And the more credible the U.S. economic model will be to other nations.
What produced a spectacular rise in the living standards of hundreds of millions of Chinese people may not be the kinds of policies that will do so over the next forty.
China's voracious appetite for energy and other raw materials risks leading to a destructive international competition for resources.
The more dynamic, innovative and resilient the U.S. private sector, the more successful will be the U.S. response to China's competitive challenge.
Robert D. Hormats
Vice Chairman, Kissinger Associates Robert D. Hormats is Vice Chairman of Kissinger Associates. He served as Under Secretary Under Secretary for Economic Growth, Energy and the Environment at the U.S. State Department from 2009 to mid-2013. Prior to that, he was Vice Chairman, Goldman Sachs (International) and Managing Director of Goldman, Sachs & Co. Mr. […]