Strategic and Economic Dialogue of USA and China in Beijing

USA - ChinaAs China and the U.S.A. meet in Beijing for a significant Strategic and Economic Dialogue, the world should watch with some apprehension. We should look for signs of progress on the Information Technology Agreement – not mentioned by Xi in his speech – and the Bilateral Investment Treaty – mentioned positively by Xi in his welcome speech.

Relations have been fraught this year against the background of the South China Sea and Snowden’s revelations.

The overall background is a Hillary Clinton inspired Asian tilt, echoing President Bush 2002 and Secretary Cheney 1992, is met by a China push back, and Asia is destabilised to some extent.

China is firm – that is its strategic approach. It is clear about its emergence as a regional and global player. The U.S.A. is strong and powerful but beset by debate about its underlying strength and the resulting strategic options.

The big issue in Chinese foreign policy is managing relations with the U.S.A.

But at the same time its relations with its neighbours and all of Asia, Africa and Europe, as well as South America are of great concern to an expanding trading and investing nation, already, or soon to be, the world’s largest economy.

The tectonic plates are shifting and adjustment is not simple, straightforward or easily achieved. The Chinese are too smart to target an Empire – as Empires all fall. China instead is focused on a multi polar world.

While the U.S.A. focuses on global leadership and China on a multi polar world, there is the potential for clashes of interests and strategies.

The U.S.A. and some other Western nations, advocate the Western democracy and human rights as the basis for global values. China and many other nations prefer a world that respects different systems and cultures

But it would seem that the values and systems differences are less the problem than the different view of how the world should be lead.

China’s view is that history shows empires have dominated the world for millennia, and the outcomes have been terrible in terms of wars and fights for power, with all empires finally ending, mostly in flames, but sometimes by decline.

The world, in China’s view, is a better place if each nation recognises self-interest, global norms of relations, free trade, so long as it does not destroy nascent economies and industries, and combines to maintain peace and sustainable development. But the key is to avoid interference in each other’s’ nations affairs, and avoid conflict as the means to settle disputes. China would only use military force as a final option. There are no Chinese troops fighting outside China.

Of course some would say that China’s nine or ten dash line is a variation on those stated aims. But again that is less important than the underlying economic issues that affect sovereign areas.

The U.S.A. in absorbing Hawaii and Alaska and many islands across the Pacific and beyond, the UK in countless islands across the world, and France, likewise, together account for sovereign sea space of about 30 million square miles, compared to China’s claimed area of about 3 million.

But numbers are not everything and the fear is that China will dominate Asia and that will tilt the balance of global economic power.

The U.S.A. is not excluded from Europe and enjoys many large economic benefits in Europe, but that is underwritten by NATO, which the U.S.A. leads. That was a consequence of Europe accepting the U.S.A. value that the Soviet Union was an existential threat to Europe after the Second World War, and that only the U.S.A. had the economic and military power to protect Europe from the Soviets. The U.S.A. was in a powerful position to require NATO to be the army of Europe. Not quite a condition of the Marshall Plan but a linked initiative. The two consolidated the U.S.A. power over the powerful of Europe and set the scene for 60 years of U.S.A. domination. This had been emerging for 60 years as the British Empire declined, but this form was the final expression of the American Empire leadership of the West.

That is what is being played out again in Asia. The U.S.A. wants to be the dominant nation, and probably is just that in Asia, but the change towards a new version of Asia is seen as counter to American economic interests.

The fear is of a Chinese take over and to those who buy that the U.S.A. is the only military counterweight to that.

You take your choice it appears.

Or is it that simple?

If the Soviets had not occupied and stayed in control of vast lands beyond their borders, then perhaps, the U.S.A. appeal to Europe might not have been so strong. Some might say that the Soviets kept those nations within their control as a response to the American Cold War and threat. But their rejection of that in 1989 shows it was counter-productive.

The Chinese do not occupy any other nations, nor are they likely to. So the parallel fails at its most important core, and the 9 dash line is an issue but nothing to compare with the Soviets absorption of East Europe.

The world is also in a different place with hugely increased trade and investment moving across all the world, and making a separation of the type the Cold War created unimaginable, but possibly attractive as an idea to some multinationals.

This EU-NAFTA/TPPA creation of a new Western Trade Block is similar to the building blocks of the original Iron Curtain.

To some multinationals fearful of Chinese commercial expansion, the instinctive response of protectionism is attractive and this is a huge example of that.

But the world is not what it was, and China is not the Soviet Union and there are many other major economic forces in the world that have a voice in what happens.

While some in Europe may like the feel of a protected global market, it is a road to monopolies that ultimately denies capitalism its essential ingredient – competition to create progress. As Adam Smith pointed out capitalism is at its weakest when it’s greed produces monopoly formation. EU-NAFTA and TPPA will produce global monopolies and rising profits and prices. It will hold back innovation and competition. It is the very reality of new markets that motivates innovation and productivity gains.

The world knows that consolidation of economic power, such as seen in recent times in the financial services industry, produces the worst aspects of capitalism.

So it is likely that this tendency will produce opposition and be difficult to achieve.

Is this EUNATP(EU-NAFTA TPPA) a negotiating position to bring China, and others, to a realisation that they must accept American leadership? In the end the U.S.A. will sacrifice the positive structures they have created in acts of self-protection. Empires always do.

So Europe and other areas will find this road less tempting the more they realise the dependency on the U.S.A. that it produces.

On the other hand how does China respond to this challenge?

It is clear that their first level of response is push back, and in the South China Sea. We can see more sparks beginning to fly in Hong Kong and in China’s western areas. But China will have anticipated all this, and its plans will not be affected by Western media judgements. But anticipation alone may not calm troubled waters as we in the UK know well

So that level of flurry will increase and Japan, Philippines and Vietnam may take sides. Instability may arise and be fomented beyond this immediate theatre. Even a military clash may happen.

But the core is not there.

It is in U.S.A. –China relations.

China’s new direction of domestic consumption and a non-ideological state means the expansion of normal market forces, guided by the State, but releasing major private sector development.

So are the benefits limited to the Chinese private sector?

Clearly not. The Chinese market is opening up to Asian nations in a big way, and Europe and the U.S.A. have a choice to make.

After Tiananmen they chose to boycott China and lost out to the Taiwanese, Koreans, Japanese and others who exploited the new opening up of China that occurred in the early 1990’s. Soon the West was to follow Asia into major investment in Joint-Ventures in China. Not reading Xi’s speeches today is as ignorant as ignoring Deng’s speech in 1992 in Shenzen was then.

Now there is another such big opening up period in China’s economic development. The Third Plenum, anticipated major shifts in the Chinese market economy. The initial thresholds of foreign market share are being raised considerably over the next 2-5 years.

The U.S.A. has so much to gain from the Chinese market and from Chinese investment in the U.S.A., and the same for Europe.

This is where the long-term issue will be played out and China has prepared well. It has major concessions to make to enable the West to enjoy the Chinese market, but they have a price. The current exchanges in Beijing around Technology and Investment agreements are just the areas where China is preparing to move the boundaries. Some majors have already missed the first offers. But, in the end, the market attractions are likely to prove very attractive.

That is around respecting China, and a shared world.

I cannot see a NATO in Asia as that was a consequence of a World War. If we were to have a world war there is every likelihood that nuclear bombs would make the world a terrible place. That is very unlikely.

We have had our WMD moment with Saddam and it is unlikely to be allowed again.

We may have military clashes and local tensions within China and on its borders.

For example, some in, and outside, Hong Kong may try to end its 150 years of prosperity in a foolish attempt at confronting Beijing. (All Western nations have their leaders nominated by a format, what is new about China’s ideas for Hong Kong. The Chinese are implementing the Agreement. There are some differences between China’s way for Hong Kong and ours, but both involve choosing between pre-selected choices.)

So after a protracted period of tactics, I would expect a positive outcome based on new ideas of security and global openness to characterise ongoing relations between these two nations. But we really are in a sensitive period and mistakes can happen.

I am sure China has thought this through – have we?


Categories: Economic policy, Foreign policy, Uncategorized, USA

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