My Say: How will US-China relations affect the region?

This article first appeared in Forum, The Edge Malaysia Weekly, on January 11, 2021 - January 17, 2021.
The incoming administration of Joe Biden will not want a distracting crisis with China and so will seek a new equilibrium with the world’s second largest economy

The incoming administration of Joe Biden will not want a distracting crisis with China and so will seek a new equilibrium with the world’s second largest economy

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It has been a bad few months for relations between the US and China. The Trump Administration has used its last few months in office to impose a series of sanctions against Chinese companies, while ostentatiously developing closer ties with Taiwan, which China considers a renegade province. Congress has passed laws targeting China over a number of issues, including China’s handling of Xinjiang and Hong Kong. The Chinese have struck back with sanctions of their own, retaliating against each perceived American slight.

Now, the imminent inauguration of Joseph Biden as president of the US has raised hopes for a more “adult” relationship between the two nations. But the underlying forces shaping this relationship are likely to limit any improvement we can expect while the strategic competition between the two big powers will probably stiffen. This evolving pattern of big power tussles in Asia will complicate the lives of the smaller nations in the region.

How will Biden approach China?

For the incoming administration, the priority will be to repair America’s many domestic weaknesses — overcome the pandemic, resolve the bitter partisan divisions, and address areas of American underperformance such as widening inequality, poor access to healthcare and decrepit infrastructure. It will not want a distracting crisis with China and so will seek a new equilibrium with China where the perceived threat to American interests is contained, mutually beneficial exchanges in trade and investment are preserved, and there is still room for the two big powers to cooperate on global challenges such as climate change. Specifically, it will want to push back on Chinese assertiveness and reverse the inroads China has made in expanding ties with key countries, including US allies. It will want a durable framework for economic relations, to ensure that ties are mutually beneficial.

To this end, we can expect the new administration to reset the relationship along the following lines:

•    First, it makes sense for the US to first pursue a new trade initiative to put the trade war behind it. Trade is an area of mutual interest where a compromise is more feasible than in other areas, and a quick win here will boost Biden’s standing. So, his team is likely to seek to update the “Phase 1” trade deal that President Donald Trump negotiated with China a year ago, moving away from Trump’s excessive emphasis on bilateral trade deficits to focusing on achieving a more level playing field. Remember that Biden dismissed Trump's Phase 1 deal with Beijing as "empty". His approach would address what the US sees as unfair trade practices and intellectual property theft;

•    Second, on technology, the Biden team will maintain the pressure on China but in a more subtle way. There will still be limits on Chinese acquisitions of technology from the US but we suspect that new administration will abjure more aggressive measures such as a blanket ban on Chinese companies with indirect links to the Chinese military. Biden’s approach to maintaining American supremacy in technology will be to step up government support for research and development rather than to make futile attempts at sabotaging China’s rise as a technology power;

•    Third, there is likely to be an early effort to rebuild alliances, with priority given to Europe and Japan, while countries such as Australia and India are also courted. Biden knows that the US can effectively counter China and Russia only if its traditional allies are on board. But this will also mean that the US will have to demonstrate its willingness to stand by allies. Thus, Australia, which has come under severe pressure from China over its forthright willingness to stand up to China, may see more active American help in withstanding such pressure;

•    Fourth, the incoming president is also a committed multilateralist, which means he will be more willing to support multilateral institutions. This could mean a more conciliatory approach on the reforms to the World Trade Organization, which the Americans have long demanded. A compromise under which the US no longer vetoes appointments of new judges to the WTO’s dispute resolution tribunal is now likely, and that would allow the WTO to resume its important work in settling trade disputes. But such a compromise would probably entail some cooperation with China, which is a key player in the WTO;

•    Fifth, Biden is unlikely to move away from the major defence build-up instituted under Trump. Under that plan, much of the new military assets would have been deployed to confront China in the western Pacific. That  too, is unlikely to change; and

•    Finally, some speculate that Biden is so keen on expanding the global accord on tackling climate change that he will make concessions to China in some areas to ensure its cooperation on the climate issue. We disagree with this view. The Biden foreign policy and national security team is experienced and will maintain a hard-nosed approach to China. They know that China, having already committed to ambitious targets on de-carbonisation for its own interest, will not need US concessions for it to do its part in climate mitigation.

How successful will Biden’s approach be?

All this sounds good in theory, but the new team in Washington will soon run into some hard realities.

First, elite opinion as well as nationalist sentiments among the masses in both countries constrain leaders on both sides. Neither Biden nor President Xi Jinping will want to look weak. So, can these leaders make the concessions necessary to place the relationship on a more solid footing? Any sign of moderation on Biden’s part will almost certainly be assailed by the hard-liners on the right. Similarly, China’s leaders are in no mood to concede. In speaking over the New Year on relations with the US, Foreign Minister Wang Yi did not signal much room for compromise. While highlighting the opportunity for the two powers to “open a new window of hope” and begin a new round of dialogue, he seemed to blame the US for the deterioration in relations and placed the onus for improvement on the US reversing its hostile policies towards China.

Second, each side’s perception of the other is unhelpful. China’s leaders seem to believe that the US is in terminal decline, giving China a historical opportunity to reshape the world order more to its liking. In China’s eyes, this is clear from the self-inflicted wounds of the 2008 financial crisis and the mismanagement of the pandemic, not to mention the chaotic outcome of the American presidential election. On its part, the US now sees China as aggressive and ill-intentioned, a repressive regime that is determined to displace the US and press for changes to the international order that are inimical to American interests and values.

Third, Biden will inherit a regime of tough sanctions, as the Trump Administration has added even more aggressive interventions against China during the presidential transition period. It will not be easy for him to create a more conducive atmosphere for relations with China, as he will have to expend precious political capital to ease some of those sanctions.

Fourth, much as America’s allies welcome Biden’s election, they have decided to show that they will move ahead with their own interests, and not necessarily always in line with the US. Take the European Union’s decision to finalise its Bilateral Investment Treaty with China just weeks before Biden is sworn in, a move that made many US officials deeply unhappy.

Finally, aside from continuing a large and costly military build-up, the US will also need to expend resources to strengthen economic ties with countries whose goodwill it will need. But the US government is severely budget-constrained. There is already a determined pushback by conservatives in Congress against the large deficits the US has taken on to fight recent crises. As its society ages, the US will face even higher budget deficits because spending on social security and medical care will rise inexorably in coming years. The US will simply not have enough funds to match China’s extravagant wooing of allies through the Belt and Road Initiative and other generous schemes.  

The US under Biden will struggle even to match China in offering profitable market access and economic partnerships. Domestic politics will not allow Biden to return the US to the Comprehensive and Progressive Trans-Pacific Partnership agreement, which it walked away from under Trump. Neither will the new administration be able to offer any appealing trade agreement such as the Regional Comprehensive Economic Partnership, which China is a member of, together with Asean and other Asian economic powerhouses, but not the US. Without a compelling economic dimension to engaging with key countries in Asia, how can the US truly match China’s appeal?

Conclusion: What does all this mean for the rest of Asia?

It is not going to be an easy time for the smaller nations of Asia.

At one level, while Biden’s more professional and structured approach to foreign policy will make for a more orderly relationship with China, the contestation between the two is likely to intensify. That means both sides, in their eagerness to secure support from Asian countries, may put much heavier pressure on those countries to lean more to one power than the other.

Moreover, there will be a higher risk of military tensions or even clashes over time. China is unlikely to back away from its more assertive stance in hot spots such as Taiwan, the South China Sea and the East China Sea. Chinese air and naval activities over Taiwan and close to the islands whose ownership it disputes with Japan have increased by leaps and bounds. China’s strategy of wearing down its much smaller neighbours will intensify. If the US is serious about maintaining its leadership position in Asia, it will have to find a way to help its allies push back. We think these hot spots — particularly Taiwan — could well raise the risk of a clash at some point.

This is the challenge for the smaller Asian countries: how to strengthen regional integration so that they can muster the strength in numbers they will need to chart a secure path through these dangerous times. Only by acting more in unison can they deflect pressures from the US and China while buffering themselves against possible military or other tensions in their backyard. Even more than ever before, they need the political will to overcome the current disarray in integration efforts. Without that, the future could be bleak.

Manu Bhaskaran is CEO of Centennial Asia Advisors

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