- China’s Evolving Approach to Economic Diplomacy
china, economics, policy, strategic competition
This article argues that China’s approach to economic diplomacy following the global financial crisis, while designed to improve the country’s competitiveness, has weakened the role that trade and investment have traditionally played in restraining tensions with the U.S.
China’s approach to economic diplomacy has undergone significant changes in recent years, especially after the global financial crisis. Responding to China’s maturation as the second-largest economy in the world, Chinese leaders have called for their country’s transformation into a “strong trading power.” To this end, they have directed reforms to deepen Asia’s integration as a regional economy, modify international trade rules and standards, and secure needed technology, resources, and markets to improve China’s competiveness. This shift has occurred at a time of intensifying strategic competition with the U.S. and the Chinese economy’s increasing exposure to threats around the world. Concerned about its vulnerability in the face of these realities, China has begun to view requirements for economic growth in terms of national security. The net effect of these changes has been a weakening of the role that trade and investment ties have long played in restraining political and security tensions in U.S.-China relations. The bilateral relationship thus appears to be entering an era in which intense strategic competition coexists with deep economic interdependence.
• Due to the intermingling of economic and security issues, disputes over either type of issue are likely to grow protracted and more difficult to resolve. More research and creative policy work are required to think through ways of carrying out a peaceful competition in the economic, security, and political realms.
• To dampen economic competition, U.S. policymakers should seek ways both to participate in Chinese-led economic initiatives such as the Asian Infrastructure Investment Bank and to accommodate Chinese cooperation in U.S.-led initiatives, such as by reforming voting shares in the International Monetary Fund to better reflect China’s economic strength.
• U.S. policymakers should seek to increase dialogue with China and other large developing countries over international rules, norms, and principles. [End Page 158]
Although theorists of international relations have long regarded trade interdependence as pacifying,1 recent scholarship has arrived at a more ambivalent conclusion. In Transition Scenarios: China and the United States in the Twenty-First Century, David Rapkin and William Thompson cautioned against the expectation that trade interdependence would necessarily restrain competition between two great powers. They pointed out that in past instances in which an established system-leading power faced competition from a rising challenger, “competition and tensions have prevailed over the desire to prevent interruptions of commerce.”2 The authors further noted that many of these tensions have stemmed from strategies employed by rising powers to “catch up” to the established powers. Rising powers have frequently adopted centralized strategies, including government intervention and protection, subsidies, and industrial policies, which countries favoring the status quo resent as unfair. Economic development has historically resulted in greater convergence in similar sectors and industries, fueling competition for markets. Convergence has also heightened competition for energy and other key resources.
The deterioration in the U.S.-China relationship despite deep economic interdependence appears to conform to the pattern of interactions between rising and system-leading status quo powers outlined by Thompson and Rapkin. Tensions have risen sharply in recent years, despite the United States being China’s top trade partner and China remaining the second-largest trade partner for the United States (after only Canada). Noting these trends, Thompson and Rapkin argue that economic interdependence will have “mixed effects” on the U.S.-China rivalry. While such interdependence may produce a pacifying process at the bilateral level, it will likely “increase competition and tension” at both the bilateral and systemic levels.3
This article explores the role that changes to China’s economic foreign policy may have played in exacerbating strategic competition with the United States. The inspiration for this research project drew from the observation that a general deterioration in relations between China and the United States starting around...