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The US and China are too busy to fight
At the dawn of the US civil rights movement, Atlanta mayors William Hartsfield and his successor Ivan Allen promoted Georgia’s capital as “the city too busy to hate.” Whatever the reality of race relations at the time, both men wanted Atlanta to avoid the confrontations plaguing other southern US cities, and to open their city as the commercial hub of the “new South.”
In recent decades, US and Chinese leaders have relied on a similar approach to relations between the two countries. The risk of conflict was obvious, given differences in their interests and political ideologies, but there was much money to be made and stability to be gained as long as they protected their mutually profitable business opportunities.
But over the past five years, US and Chinese words and deeds have taken on a harder edge. As US post-Cold War dominance of the international system has eroded, and as Xi Jinping has more explicitly offered China’s leadership as an alternative to the West’s global rule-setting, Washington and Beijing have seemed headed toward a digital-age Cold War. Former US President Donald Trump pushed for a more open confrontation between the two powers, and current President Joe Biden has done little to change course.
There is good news, however, for those who believe that a US-China Cold War would be catastrophic for both countries and the world. In reality, both countries are far too busy to transform rivalry into hate. But it isn’t just business opportunities that now preoccupy them. It’s also major domestic challenges and distractions, particularly for China, that demand something close to their full attention.
Troubles at home
One year into the job, Biden knows the success of his presidency will depend on helping to end the pandemic, revive the US economy, and deliver on more of his legislative promises. With midterm elections in November, his need to focus on these priorities is increasingly obvious. Fights with China won’t help, because they undermine investor confidence in the country’s immediate and longer-term future and distract from the issues his voters care more about.
Xi faces an even longer list of domestic problems. In a year in which he wants a smooth path toward a third term as China’s leader, and the indefinite extension of his power, he’s coping with both urgent and longer-term challenges for China.
First, China is days away from hosting the Beijing Winter Olympic Games in the middle of a public health emergency — and Xi is well aware that the credibility of his government’s COVID response is very much on the line. From the beginning of the pandemic, China has enforced a zero-COVID policy, imposing large-scale lockdowns in response to small numbers of infected people.
Now, with the Games about to begin, the much more transmissible omicron variant has appeared inside multiple Chinese cities, and more than 20 million people have been locked down in response. An added complication: it will be months before China can roll out an mRNA vaccine that’s more effective than currently available Chinese vaccines.
This problem arrives at a moment when China’s economy was already cooling off — and this slowdown creates a more urgent worry in China than a temporarily stalled economy in the US or Europe. China is still a middle-income country. To reach Western levels of prosperity, it needs growth above 6 percent for another generation, according to Eurasia Group estimates.
But in a world where factories’ production depends less heavily on cheap labor and more on robots, that’s a serious concern for China’s future. The country’s changing demographics — fewer workers and more retirees as birth rates remain low — compounds that problem.
Then there’s China’s debt problem. For decades, the state has boosted growth by encouraging Chinese lenders, some of them state-owned, to finance real estate and other speculative projects with little worry over the financial wisdom of each investment. When big companies have struggled to repay, the state has subsidized repayment to avoid a systemic financial crisis.
But when borrowers believe that government will prevent default, they take on even more risk, including by borrowing more from foreign lenders, creating a debt bubble. In recent years, China has tried to allow some companies to default and fail. But reform comes with risks that demand careful attention.
Bottom line: Biden and Xi have good political reasons to talk tough, and to challenge one another at the margins. But both leaders have bigger worries to manage, and the two countries still need strong economic ties to address their own problems.
China and US economic interdependence hasn't lessened
Ian Bremmer shares his insights on global politics this week with a look at the China-US economic relationship, North Korea's missiles tests, and the New York Times' investigation of the US drone strike in Afghanistan.
China owns more than $1 trillion US debt, but how much leverage do they actually have?
I mean, the leverage is mutual and it comes from the enormous interdependence in the economic relationship of the United States and China. And it's about debt. And it's about trade. It's about tourism. It's about sort of mutual investment. Now. There is some decoupling happening in terms of labor, increasingly moving domestic in terms of the China five-year plan, dual circulation focusing more on domestic economy, and in terms of data systems breaking up, the internet of things, being Chinese or American, but not both. And indebtedness is part of that. But I don't see that unwinding anytime soon. And certainly, the Chinese knows if they're going to get rid of a whole bunch of American debt, they wouldn't be as diversified in global portfolio. Not as great, it's much riskier. And also, the price of those holdings, as they start selling them down would go down. So, I don't think there's a lot of leverage there, frankly. I think the leverage is interdependent.
North Korea tested new long-range cruise missiles. What message is Pyongyang trying to send?
Well, they're medium-range missiles. They don't have the ability to hit the United States. And if you remember in the early Trump days, that was the red line. It also started reprocessing at Yongbyon, again their facility; that is, they had stopped that. I mean, clearly this is a couple of incidents where Kim Jong Un is angry that he's not getting engagement in any sanctions reduction from the Biden administration. Certainly no bilats, and so he's pushing a little bit. He wants more attention and he's going to get it from the Biden administration, but I don't think he's going to get much of a negotiating stance change. And in that regard, I would expect at some point more saber-rattling from Kim Jong Un. Maybe that could be more destabilizing. But what we're seeing right now are very early days.
What was revealed in the New York Times' investigation of the US drone strike in Afghanistan?
Well here, this is an ugly one. I mean, this is 10 Afghan civilians who were killed in this drone strike by the United States. President Biden, and seniors in the administration, and the Joint Chiefs, Milley, and others said that this was a strike that got a suicide bomber who was about to attack the United States and Afghan civilians at the Hamid Karzai International Airport. That was not the case. That information was faulty. The trigger finger was too quick. And as a consequence, the last act on the ground of the Americans at a 20-year war in Afghanistan was killing a bunch of civilians. It's horrible. Certainly, accountability needs to be made. The New York Times did a fantastic job of forensic investigating on the scene. They had to be applauded. Surprised it hasn't gotten more news, frankly, more coverage. Broadly though, now the US troops are all gone in Afghanistan, we are not spending as much time talking about it. So, but we still will, here at GZERO.
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