April 12, 2021
Having resisted the urge for some weeks, it is time again to talk about everybody’s favorite topic: China. I am writing about it again because I sense we are approaching an inflection point in the relationship, although the pace is more like a slow-motion train wreck than an impending high speed car crash. Sadly, the victims will be Western companies.
On the Chinese side, the government’s policies and actions are becoming more difficult to swallow. Economically, China continues to move away from market reforms, discriminate against foreign businesses, and harass companies that do not toe its rhetorical line. Politically, it continues to step on other nations’ rights in the South China Sea under the Law of the Sea Treaty; threats against Taiwan escalate, as do threats against third countries that support Taiwan. Domestically, the Chinese government is busy eliminating the last shreds of Hong Kong’s autonomy, and its repression of the Uyghurs and other minorities continues, as do harsh attacks on anyone who criticizes that.
These actions confirm the view that China believes the United States is a declining power and China a rising one, and it seems determined to move aggressively to take advantage of that, doubling down on repressive policies and harassing anybody who objects—Australia being a recent good example.
Twenty years ago, the signals from China were very different, but governments change. Xi Jinping is very different from Jiang Zemin, and as long as he remains in power, which could well be for some time, China’s more aggressive direction is not likely to change.
The change in China is reflected in a change in the Unites States. In public opinion, the bottom has dropped out of support for China. In 2011, China had a 51-36 favorable rating. In 2020, it had dropped to 22-73. This shift is echoed in Congress, where both parties have adopted a hardline position. The economic issues may be complicated and boring to the average observer, but forced labor, concentration camps, and the jailing of Hong Kong residents who support democracy have captured the public’s attention.
Presidents George W. Bush and Barack Obama have been criticized for not pressing China harder, although the most distressing political events occurred after they left office. They did give China a pass on economic reform because they wanted its cooperation on other matters, notably Iran and climate change. Donald Trump, who cared about neither, brought economics to the forefront. President Biden, who has little room to maneuver thanks to Congress, seems to share Trump’s dim view of China but says he will differ in tone and strategy.
The Biden strategy is not yet clear, but some elements are beginning to emerge. First, he intends to consult broadly and deeply with allies and partners in the hope of building coalitions, whose members might differ from issue to issue, to confront China collectively. He will likely spend a year or more doing that, so don’t expect a rush to negotiate. Existing tariffs will remain, but additional actions will depend more on further Chinese provocations than anything else. Simultaneously, he is embarking on a broad set of plans to revitalize our innovation capabilities so the country is in a stronger position to address China’s challenges. That will also take time. Biden’s innovation efforts will succeed. We are good at that, have done it before, and will do it again. His efforts to get China to moderate its policies will fail. In their view, everything we are asking will undermine the Party’s control of the country, which is the last thing they would ever agree to. Strengthening our own capabilities and building a coalition will put us in a stronger position once our inability to change their behavior becomes obvious.
China, of course, is not standing around waiting for the United States to confront it. The government is busy pursuing ever more objectionable policies, and it is foreign businesses that are caught in the middle. Apparel companies are boycotted in China if they do not use Xinjiang cotton and attacked in the United States if they do. Companies being taken to court in China and forced to license their intellectual property at far less than its value are being threatened with large daily fines if they respond with litigation in Western courts. Companies are threatened if their maps do not designate Taiwan in an approved manner. As the use of sanctions against entities or individuals complicit in Chinese human rights violations grows and Chinese counter-retaliation escalates, as it recently has with the European Union, Western companies will inevitably find themselves in a position where no matter what they do they will be violating somebody’s law and policy.
Developments like these presage the train wreck. The private sector, as well as private individuals, are essentially being told by both sides they have to choose. Politics and economics are merging, and there can be no bystanders. Decoupling will grow, not because the U.S. government demands it, though it might, but because U.S. companies will find themselves in untenable positions. Smart companies have already figured out that China is both their best customer and biggest threat. They see what is coming down the tracks at them but do not want to give up the money they are making there. Unfortunately, they will discover that keeping their heads down won’t do the job, and they will ultimately have to choose.
Because the Biden administration appears to want to play the long game, these events will play out in slow motion, and companies may have time to plan an effective strategy, but they should have no illusions about what is going to happen. The light at the end of the tunnel signals an oncoming train, not the end of their difficulties.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
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