This Article Was Originally Published in the Australian Financial Review on the 23rd of January 2019
Article by Kevin Rudd
Last year represented a fundamental strategic turning point in the 40-year history of US-China relations. This is not just an American view; it is also the Chinese view. Just as it is my own analytical view based on 40 years of observation of this relationship, going back to the time when I was an undergraduate student at the Australian National University.
The nature of this change is that the United States, after 40 years of strategic engagement with China following China’s decision under Deng Xiaoping to pursue a domestic policy shift toward economic reform and opening, has concluded that China is no longer a trustworthy strategic partner.
The analytical underpinnings of the period of engagement were that China, having embarked upon a series of economic, social, and some political reforms, was incrementally integrating itself into the American-led international rules-based order. This, in turn, was based on China’s decision in 1978 to abandon its policy of support for communist revolutionary movements around the world. This change followed the abandonment of a decade-plus of political radicalism pursued by Mao during the Cultural Revolution. And it followed, perhaps most significantly, China’s decision to embrace one series after another of market-based economic reforms, beginning with the introduction of price-based incentives in agriculture, then light manufacturing, then the services industry before extending across much of the rest of the Chinese economy.
On top of this, the normalisation of political relations between the United States and China, from Richard Nixon’s visit in 1972 to formal diplomatic recognition under Jimmy Carter in 1979, led to a sustained period of fundamental strategic realignment between China and the United States against a common strategic adversary in the form of the Soviet Union.
Despite the ebbs and flows of this relationship over the next 40 years, the underlying American assumption was that China had embarked upon a long-term, irreversible program of economic, political, and foreign policy reform that posed no long-term threat to US national values, interests, and the international order that America had constructed in the postwar period. Indeed, a number of Americans concluded that if China’s reform program continued, and if China eventually surpassed the United States first as an economic power and eventually as a military power, this would not itself constitute any fundamental threat to US interests or any real disruption to the stability of the global order.
According to this logic, as China became progressively more capitalist, more “democratic,” and more reliant on the integrity of the rules-based system for its own interests as a global power, China would, over time, accept the inherent logic of the system it was inheriting. Under these circumstances, the ultimate logic of the Thucydides Trap, whereby a rising power is ultimately challenged by an established power, would be avoided because a peaceful exchanging of the batons could eventually be accommodated.
2018 changed everything
This accumulated strategic logic over the last 40 years came crashing down during the course of 2018. It was not simply a product of the particular dynamics of the Donald Trump presidency, although they have had a profound catalytic effect. It’s also because of a more far-reaching analysis of the long-term trajectory of Chinese global power, and the strategic intentionalities underpinning it, across the US body politic. The United States, including its political establishment, both Republican and Democrat, its national security establishment, the foreign and intelligence policy communities, as well as American business across most sectors of the economy, have concluded that China is not becoming more internationalist in its policy direction, but instead is becoming progressively more nationalist and mercantilist. This has been reinforced by parallel analyses that the Chinese economy is becoming less market oriented, in its behaviours both at home and abroad, and that its political system, rather than becoming more liberal over time, is progressively becoming more illiberal.
Internationally, what the United States has observed is a China that is no longer content with the strategic status quo, but rather a China that is seeking to change the strategic reality on the ground, whether through island reclamation in the South China Sea, through the Belt and Road Initiative, or through China’s various cyber strategies. For these reasons, during the course of 2018, a remarkable strategic consensus began to emerge in the United States that China was no longer a strategic partner that could be accommodated by long-term strategic engagement. Indeed, it was concluded that China had now become a strategic adversary, and therefore the time had well and truly come for a fundamental adjustment in US national strategy.
These strategic conclusions have been reinforced by a widespread feeling among US elites that for many years now, China has deceived the United States, that the United States has been utterly naïve in its response, and that there is now an urgent requirement to adjust in response to an unadorned Chinese strategic realism before it’s too late. That’s why we saw the US National Security Strategy of December 2017 formally conclude that the period of US-China strategic engagement is over and a new period of strategic competition has begun.
A new and dangerous phase
We have, therefore, entered a new and dangerous third phase in the post-1949 history of the US-China relationship. The first phase was characterised by unrelenting strategic hostility and lasted from 1949 until 1972. The second phase of strategic engagement has been running for almost twice as long as the first. We now find ourselves in a new period of strategically uncharted waters. As I say in a collection of speeches published this week, one of the difficulties and dangers arising from this new period of “strategic competition” is that we now find ourselves without any real rules of the road.
However justifiable the criticisms of the period of strategic engagement may be, the reality is that it produced a deep fabric of collaborative behaviours between China and the United States anchored in a series of formal and informal protocols and rules and a general culture of bilateral cooperation. That is now slipping away more rapidly than we think, and thus far it has not been replaced by a new set of strategic understandings capable of managing a relationship that is now replete with strategic tension. In the history of international relations, it is often in these periods of transition between stages of evolution in major bilateral relationships that the greatest disruptions occur and there is a greater risk of crisis, conflict, or even war. It is precisely in such a period that we now find ourselves.
For these reasons, during the last 12 months, I set out to deliver a series of addresses in an attempt to understand what precisely is happening in the US-China relationship. I also explored what, in practical terms, can be done about it. I sought to do this against an overriding strategic objective of recognising the reality of China’s growth and preserving the liberal international rules-based order, while also preserving the peace that has underpinned the Asian economic growth miracle of the last half century.
In March 2018, I spoke at the United States Military Academy at West Point, seeking to provide a seven-part framework for understanding Xi Jinping’s world view. I sought to define what has long been constant in Chinese strategic approaches and what has changed since Xi Jinping assumed power in 2012-13. It concluded that China is certainly no longer a status quo power.
In a subsequent address to the Lee Kuan Yew School of Public Policy at the National University of Singapore, I sought to explore further the ideological underpinnings of Xi Jinping’s grand strategy. This took me down the somewhat unfashionable road of re-examining the Marxist-Leninist origins of Xi Jinping’s thinking. My conclusion was that in Chinese politics and foreign policy, ideology is no longer dead and buried but has re-emerged as a significant driving force behind China’s national and international behaviours.
Pence speech was a line in the sand
Following Vice President Mike Pence’s address to the Hudson Institute, which formally proclaimed the death of strategic engagement and the birth of strategic competition in the US- China relationship, I addressed a conference at the US Naval Academy at Annapolis, posing 10 fundamental questions as to what the United States could, would, and should do within the new strategic framework that the vice president had enunciated.
The second half of 2018 was dominated by the US-China trade war, beginning with the imposition of a range of US tariffs, provoking retaliatory action by China against US imports. To a large extent, however, the trade war masked a much more fundamental unfolding economic reality in the US-China relationship whose focus was intellectual property protection, Chinese state support for its own high-technology policy, and its determination to secure the commanding heights across the range of new information technologies, including artificial intelligence, under its Made in China 2025 strategy. That’s why I sought to explain the underlying “technology war” that was then beginning between the United States and China in a speech to the Asia Society Northern California in Silicon Valley in September.
The new period of strategic competition between the United States and China has particularly stark ramifications for Southeast Asia. As these countries are increasingly pulled in various directions by competing security and economic forces, the Association of Southeast Asian Nations (ASEAN) has a window of time to find a new strategic equilibrium for common peace and prosperity for the region. This was my core message to the Foreign Policy Community of Indonesia in Jakarta in November.
Finally, the slowing of the Chinese economy during 2018 has given rise to major debates within the country on its current economic policy direction. The slowdown in the pace of market-based economic reforms, the re-emergence of state-owned enterprises, domestic confusion over China’s new so-called mixed ownership model, together with a general collapse in private investor confidence within China has created new dilemmas for China’s leadership. On the one hand, Xi Jinping’s administration must continue to grow the economy in order to prevent China from falling into a middle-income trap. On the other hand, there is a parallel political concern on the part of the Chinese Communist Party to reassert political control across the country, including any medium- to long-term threat to the power of the Party arising from China’s growing entrepreneurial class. It is precisely this inherent tension in China’s political economy that I sought to address in December at a public lecture at the Asia Society in New York City.
All factors now collide
One of the overriding complexities in dealing with US-China relations during 2018 is that the interrelationship of domestic political, economic, foreign policy, and strategic factors has become increasingly inextricable. Therefore, in trying to define China’s way ahead, America’s way ahead, and the implications for the rest of the world, it’s been critical to draw all these threads together to the greatest extent possible in our analyses.
This is no easy task, particularly given the opacity of Chinese domestic politics and the paucity of reliable Chinese economic data. Nonetheless, it’s an analysis that must be done if we are to produce a rounded picture of the emerging China, as well as the impact of the new dynamics alive in the US-China relationship. The days of discrete, freestanding analyses by Sinologists, economists, or foreign policy analysts, free of the complexities of other domains of knowledge that may complicate the narrative, are well and truly gone.
In all of this, there is the continued strategic hazard of hearing only “the sound of one hand clapping”. The preponderance of international analyses of the many, many questions arising from China’s rise are largely based on American and broader Western perceptions of China. Very few of them, outside China, deal with how China perceives the various realities described here. Needless to say, reality as viewed through Beijing’s lens is of a different quality altogether. Many in China’s national security establishment have long viewed the United States as pursuing a de facto policy of containment against China’s rise.
During 2018, however, that view became entrenched across the broader Chinese body politic as well, including both liberals and conservatives who populate China’s political and foreign policy apparatus. China also has a deep view that American and wider Western behaviours toward China are driven by a latent racist sentiment that simply cannot abide the possibility that the world’s largest economy will soon, for the first time in a quarter of a millennium, be a non-Western economy.
The view from China
China also continues to bridle against the assumption in most Western capitals that liberal democracy is held to be a universal norm that the West seeks to impose on China and other developing countries, notwithstanding the ugly history of the collective West in its colonial occupation of much of Asia and Africa over the previous 500 years. China also sees the attack on its own state industry policies as profoundly hypocritical given the role, for example, of the US military-industrial complex in support of American industry during the postwar period, and the particular role of the US military in incubating US computer and information technology industries in the 1960s and 1970s. Indeed, “Western hypocrisy” are words now heard with increasing frequency across much of China’s official commentary, describing the West’s efforts to impose norms on China’s behaviour, which the West has never bothered to impose on itself in the past.
For all of these reasons, the underlying perceptions gap between the United States and China is growing larger and larger.
As we begin 2019, the obvious question is whether the United States and China can peacefully and productively negotiate or navigate their relationship in the midst of the new uncertainties that have been unleashed during the past year.
In my judgment, there are five key points to be considered.
Trade war detente won’t solve everything
First, it is likely that there will be some resolution to the US-China trade war. But this will not deal with the main economic game, which is the unfolding economic war in cyber, information technology domination, and global standard setting.
Second, there is a great danger that if we have an increasingly embattled President Trump (given the cumulative impact of the Russia investigation on his presidency, arising from accusations of collusion with the Russian Federation) that the administration over the next two years may double down on its foreign and security policy strategy toward China in order to demonstrate the toughness of US presidential resolve in asserting and defending US national security.
Third, if Xi Jinping comes under continuing pressure as a result of declining domestic economic performance, then the probability of a more nationalist China, once again on foreign and security policy questions, becomes greater. Sabre rattling against Taiwan may well intensify. But, more critically in terms of the stability of the US-China relationship, freedom of navigation operations in the South China Sea are likely to become more confrontational. The accumulated risks, therefore, of collision between aircraft or naval craft are also likely to become greater. Crisis management between Beijing and Washington may be tested to the limits.
Fourth, a temporary resolution of the trade war may be of some assistance in stabilising the global economy. But we have yet to fully factor in the impact of a significant slowdown of the global economy (arising from non-US-China trade war factors) affecting China’s future domestic economic trajectory.
Although China has now embarked upon a significant new policy of both fiscal and monetary policy loosening in order to re-stimulate growth, it is an open question whether this will succeed in turning the economy around, particularly if global demand for Chinese exports slows radically as a consequence of a parallel slowing in global growth.
The worst-case scenario for Xi Jinping would be a failure of the Chinese domestic economy to pick up in response to the application of domestic growth levers, and for this declining domestic growth performance to be compounded by the prospect of a global economic downturn. Even slower growth in China in 2019, compared with what we saw in 2018, may well make China more nationalist rather than less in handling the overall complexity of its relationship with the United States.
North Korea: quiet now but for how long?
Finally, there is the sleeper issue of North Korea. Since the Singapore summit between Kim Jong-un and President Trump, and the rolling campaign of normalisation between North and South Korea, tensions on the Korean Peninsula have been at an all-time low.
Nonetheless, it has become increasingly clear that Kim Jong-un is unlikely to make any substantive move toward nuclear disarmament in the absence of further strategic concessions by the United States. It is also equally clear that the US administration will be highly reluctant to do so – notwithstanding President Trump’s proclamation in Singapore of a new era of peace. The opportunities and the vulnerabilities that the Korean nuclear question presents for the overall dynamics of the US- China relationship will need to be analysed carefully in the year ahead.
Will Xi Jinping be able to arrest any further strategic deterioration in the US-China relationship by taking a more active role in urging a more accommodating approach on the part of Kim Jong-un toward the US administration on the nuclear disarmament question? If so, will Kim Jong-un be at all obliging given his own past problematic relationship with China prior to his bilateral encounters with Xi during 2018?
On balance, I fear that the intractable nature of the North Korean nuclear dilemma is more likely to result in further levels of frustration emerging in the US-China relationship than we have seen so far.
This is an edited extract from The Avoidable War: Reflections on US-China Relations and the End of Strategic Engagement, released this week by the Asia Society Policy Institute.