A Framework for U.S.-China Engagement

Charting a course for U.S.-China relations, currently described as at their “lowest point” since normalization in 1979, is arguably the most pressing foreign policy challenge facing the Biden administration. The White House readout of a call last month between U.S. president Joe Biden and Chinese president Xi Jinping referenced “Beijing’s coercive and unfair economic practices, crackdown in Hong Kong, human rights abuses in Xinjiang, and increasingly assertive actions in the region, including toward Taiwan,” making clear that a change in administration has not relieved the most acute strains on the relationship. The readout also referenced, however, the “shared challenges of global health security, climate change, and preventing weapons proliferation,” signaling a departure from the all-or-nothing approach that characterized the waning days of the Trump administration. It is clear that progress on many of the biggest challenges facing the United States and the world will require constructive U.S.-China engagement, even as Washington confronts Beijing in a number of other areas.

The operational challenge facing U.S. policymakers is determining where U.S. objectives can be advanced through engagement, and conversely, where disengagement is the most effective (or possibly the only) way to promote and protect the national interest. The CSIS Economics Program is developing a framework to make such determinations, beginning with the identification and prioritization of U.S. objectives, and taking into account the actions of allies and partners in calibrating the U.S. approach to China.

The perceived divergence of U.S. and Chinese interests has accelerated under President Xi and fueled ongoing debate on the merits of continued engagement versus decoupling from China. Setting aside the tough rhetoric and hardball tactics, the phase one Economic and Trade Agreement between the United States and China—signed three years into the Trump administration—is, at its core, pro-engagement. It commits China to “import no less than $200 billion of U.S. goods and services on top of the amounts that it imported in 2017” (emphasis added) and “expands opportunities” for U.S. financial services providers in China. These aspects of the agreement deepen U.S. ties to China, making it an even more important market for U.S. exports and boosting investment opportunities in an economy that (for now at least) offers higher growth and potential returns than the United States and other advanced economies.

But a raft of other actions, many taken in the final months of the Trump administration, are aimed at decoupling economic and financial activity. These include the addition of Chinese companies to the Entity List, a Department of Commerce tool restricting the export of certain sensitive items; a prohibition on transacting in public securities of Chinese military companies; as well as a ban on engaging with certain “Chinese connected software applications” such as Alipay and WeChat Pay. It is difficult to reconcile these actions with the phase one deal and promised (although never initiated) phase two negotiations. The balance of actions under the Trump administration seemed to favor disengagement, but absent a coherent strategy to guide policy, it is unclear whether and how these actions advanced U.S. objectives.

The Biden administration recognizes the need to bring greater coherence to U.S. policy toward China. It has created an “Indo-Pacific coordinator” at the National Security Council, naming senior diplomat Kurt Campbell to a post that reports directly to National Security Adviser Jake Sullivan. The position signals an approach to the region that reflects the wide range of issues shaping the U.S.-China relationship as well as the fact that the U.S. approach to China will inform and be informed by actions of other countries in the region, including some of the United States’ closest allies.

The Department of Defense also recently announced a China Task Force to address the “proliferation of policies, activities and initiatives related to China . . . to ensure that those activities [are] synchronized, prioritized, and coordinated to the greatest extent possible.” Its director, Ely Ratner, confirmed the task force will delve into “innovation and supply chain and technology protection issues.” For decades, discussions on innovation and trade were generally associated with efforts to foster closer U.S.-China ties—take for example, the first Science & Technology Cooperation Agreement signed by President Carter or the Strategic Economic Dialogue launched during the George W. Bush administration. But looking at these issues through a defensive lens will surely discourage engagement.

The Pentagon’s China Task Force and other reviews of U.S.-China policy will no doubt take into account the relative positions of the United States and China in terms of economic size, centrality, and technological leadership. When the United States and China formally normalized diplomatic relations in 1979, the United States accounted for more than one-quarter of global economic output, and China accounted for less than 3 percent. Today, the U.S. share is still around 25 percent, but China is nearing 20 percent in U.S. dollar terms and is already larger than the United States as measured by purchasing power. China has considerable leverage over third countries and is not shy about denying access to its domestic market to achieve strategic objectives, as Norway, South Korea, and Australia can attest. China is also challenging the United States for leadership in advanced technologies and may already be at the technological frontier, alongside the United States, in some areas such as artificial intelligence. These realities should be taken into account in calibrating the U.S. approach to China.

Our framework for assessing specific economic activities will start by identifying U.S. objectives. Next, we will assess if and how those objectives are impacted by U.S.-China engagement in a specific activity. Activities that are neutral or advance U.S. objectives will not be subject to further review; we expect that most economic activities between the United States and China will fall into this category, thereby avoiding a broad decoupling scenario. But for those activities where engagement might undermine U.S. objectives, we will evaluate the effectiveness of actions to disengage, taking into account China’s domestic capacity and the relative positions of China and the United States, as well as the likely response of third countries to efforts at restricting activity. This effectiveness check would protect the United States from taking actions that could hurt the United States but fail to achieve objectives absent coordination. At the same time, the framework will consider and prioritize competing U.S. objectives, recognizing that some, for example, promoting the rule of law and protecting human rights, may override other considerations.

Of course, a framework is not a panacea. But it forces the identification and prioritization of U.S. objectives and a realistic assessment of U.S. and Chinese strengths and position in the world. Our framework explicitly recognizes the importance of actions by third countries in affecting outcomes. Perhaps most important, a framework can bring greater clarity and predictability to the U.S. approach to China, something that will be needed if U.S. companies, research institutions, and, critically, our allies and partners are to work in common cause with the U.S. government. Surely that is an important objective across all policy areas, and none more so than in the high-stakes arena of U.S.-China relations.

Stephanie Segal is a senior fellow with the Economics Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Stephanie Segal

Stephanie Segal

Former Senior Fellow, Economics Program