The challenge of one world, two systems

Unbridled strategic competition between China and the west would be a disaster

Martin Wolf

The accelerating breakdown in relations between China and the US is the most significant current event. How is this to be managed, given today’s global interdependence?

Three recent pieces of evidence reveal alarm over the rise of China to its current status as the world’s “junior superpower”, in the words of Yan Xuetong of Tsinghua University. One is the campaign against Huawei, standard bearer for Chinese technological ambitions, which must be viewed in the context of the US trade war with China and its description of the latter as a “strategic competitor”. Another is a paper from the free trade-oriented BDI, Germany’s leading industry association, which labels China a “partner and systemic competitor”. The last is the description of Xi Jinping’s China by George Soros as “the most dangerous opponent of those who believe in the concept of open society”.

This, then, is a point on which a nationalist US administration, German free-traders and a noteworthy proponent of liberal ideas agree: China is no friend. At best, it is an uncomfortable partner; at worst, it is a hostile power.

Should we conclude that a new “cold war” has begun? The answer is: yes and no. Yes, because so many westerners think of China as a strategic, economic and ideological threat. This comes not just from Donald Trump, nor only from the security establishment, nor just from the US, nor merely from the rightwing of the political spectrum: it is increasingly becoming a unifying cause. The answer is also no, however, because the relationship with China is very different from that with the Soviet Union. China is not exporting a global ideology, but behaving as a normal great power. Again, unlike the Soviet Union, China is embedded in the world economy.

The conclusion is that across-the-board hostility towards China might be far more disruptive than the cold war. If, above all, the Chinese people were to be convinced that the west’s aim is to stop them from enjoying a better life, the hostility would be bottomless and endless. Co-operation would collapse. Yet no country can today be an island.

It is not too late to avoid such a breakdown. The right path is to manage relations that will be both competitive and co-operative and so to recognise that China can be both foe and friend. In other words, we must embrace complexity. That is the path of maturity.

In so doing, we need to recognise that the US and its allies (if the former still recognises the value of the latter) possess huge strengths. China’s rise has been stupendous. But the US and its allies, in aggregate, spend vastly more on defence, have bigger economies and account for a larger share of world imports than China. Again, China’s dependence on markets in high-income countries is far greater than US dependence on China. It is likely that these advantages will last, because China is turning away from the path of reform, as Nicholas Lardy of the Peterson Institute for International Economics argues in a new book, and so its economy could slow sharply.

Moreover, despite the global rise of authoritarianism and the post-financial crisis malaise, the high-income democracies continue to possess a more attractive ideology of freedom, democracy and the rule of law than China’s communism offers. Furthermore, it is obvious that the west’s recent failures are overwhelmingly self-inflicted: they should not be blamed on others, however attractive that option might be.

Thus, the US should view its situation with far greater equanimity than can China, provided it retains its network of alliances, especially given its geographical location and economic strengths. If it did so, it could also recognise that its interdependence with China is a stabilising force, since it strengthens both sides’ interest in peaceful relationships.

Similarly, the US would recognise that making common cause with allies, in the context of the rules-governed trading system it created, would increase pressure on China to reform. Indeed, in an interview in Davos, Shinzo Abe, Japan’s prime minister, argued that the best way to deal with China is precisely in that context. To make concessions in support of a global agreement would be far easier for China than in response to bilateral US pressure. If that required reform of the World Trade Organization’s rules, that would also be fine.

Co-operation is as essential as interdependence. We cannot manage the global environment or ensure prosperity and peace without co-operation with China. Moreover, if every country were forced to choose one side or the other, there would again be deep and costly divisions among and within countries.

None of this implies that western countries need accept whatever China wants. Takeovers of strategically important businesses could be legitimately out of bounds, on both sides. Simultaneously, if evidence of strategic danger from the presence of certain companies within our economies did exist, then action against them should be taken. But the word here is “evidence”.

Finally, and to me most significantly, it is indeed vital, as Mr Soros suggests, that we protect our freedom and those of Chinese people living in our countries from China’s new “social credit” system and other forms of extraterritorial reach, so far as we can. But this would be easier to justify if the US were not so extraterritorial, too. Indeed, the belief of the US that it is entitled to impose its priorities upon the world, willy-nilly, is highly destabilising.

A new great power has emerged, one that was never part of a western-dominated system. In response, many are trying to shift the world into an era of unbridled strategic competition. History suggests this is dangerous. What is needed instead is a combination of competition and co-operation with a rising China. The alternative will be deepening hostility and rising disorder. Nobody sensible should want that. So stop, before it is too late.

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