U.S.-China relations: Washington's bold moves have few buyers

The intensifying U.S.-China strategic competition is not in the interests of Japan and other regional stakeholders.

By now, it is widely known that Washington is tightening the screws on Beijing across all areas of competition — from trade, technology to security. Chief among the signature initiatives by the Trump administration that have damaged the interests of Japan and other stakeholders in the region is the U.S.-China trade war.

American allies such as Japan that have any manufacturing footprint in the Chinese market were subject to American tariffs directed at goods being exported out of China into the U.S. Supporters of American tariffs would argue that they would balance bilateral trade between the world’s two largest economies, as well as encourage businesses to reshore back to the U.S. or other countries.

The facts are a convenient measure of how effective tariffs have been in terms of balancing U.S.-China relations.

For example, in August, China reported a 27 percent increase in its trade surplus with the U.S. from the same period last year. In contrast, imports from the U.S. only increased 1.8 percent.

The argument that tariffs accelerate reshoring is also flimsy. According to surveys recently conducted by PwC China and the American Chamber of Commerce in China, “the majority of members will not be packing up and leaving China anytime soon.”

The survey found that while some businesses may consider diversifying or reshoring back to the U.S., the cost is not cheap. It is time-consuming, and may shut American businesses out from the Chinese market.

In the context of the COVID-19 pandemic and China becoming the first economy to go back to business even as most Western economies languish, there are further disincentives for companies to pull out of an economy that is actually functioning.

In Japan, U.S. businesses are taking a page from Tokyo’s playbook, which was formulated from its experience of dealing with Beijing’s economic coercion — to diversify their exposure to China by keeping one aspect of their business in China and the other in Southeast Asia or elsewhere.

Japan’s supplementary budget could be mistaken to be a commitment to decoupling from the Chinese market and an effort to move away from Japan’s own China strategy.

In reality, the supplementary budget includes subsidies meant to promote domestic investment for support of supply chains, and for supporting diversification of global supply chains. These are not divorce papers, rather the supplementary budget is meant to help Japanese corporations deal with shocks to supply chains in and out of China.

Japan and other regional stakeholders are firmly wedded to the Chinese economy with China being the biggest trading partner for all its neighbors. Proximity to China and dependence on its market size and comparative advantages means U.S. economic policies towards China in the region have few buyers, if any.

As Prime Minister Lee Hsien Loong stressed at his speech at the 2019 Shangri-La Dialogue, Singapore and other Southeast Asian countries do not want to choose between their relationship with China and the U.S. Their development, prosperity, and future as a region is dependent on having good relationships with both states.

Japan, South Korea, and India are in the same boat. Their biggest trading partner is China and any U.S. approach to pressuring China will not succeed if stakeholders have to choose between trade and security, they are inseparable.

China is complicate in this negative spiral in bilateral relations. Economic coercion, assertive economic, cyber and maritime expansionism and political influence campaigns have all rocked confidence in the Chinese leadership. Further adding fuel to the fire, China’s practice of hostage diplomacy and politically targeted arrests as illustrated by this week’s near arrest of Australia’s ABC television reporters Bill Birtles and Mike Smith raise questions in capitals throughout the region as to what kind of regime they will need to deal with going forward.

Likewise, domestic policies in Xinjiang, Hong Kong, and towards Taiwan foster trepidation about the nature and evolutionary trajectory of socialism with Chinese characteristics and official ideas known as Xi Jinping Thought.

What is clear is that Japan and stakeholders in the region want a trading relationship with China, they want more diplomatic engagement of the U.S. in the region, and they would like a U.S. Indo-Pacific strategy to focus on the needs of the interests of the littoral states in the region.

These interests include multilateral trade, developmental assistance, infrastructure and connectivity, and a significant commitment to dealing with nontraditional security issues such as piracy, illegal fishing, climate change, uncontrolled migration, and now, the economic tsunami to the formal an informal economies throughout the region.

These interests are not based on a China or U.S. formula. In fact, most countries in the region would prioritize U.S.-China cooperation in all these areas as they see these issues as the interests of all stakeholders in the region.

While nontraditional security areas are fertile ground for the U.S. and China to promote cooperation that could get real buy-in from stakeholders in the region, there are lingering hard security issues that will remain an area of rigorous contestation.

The advocacy of techno-authoritarianism domestically as well as initiatives such as the BRI, which transform the regional economic architecture away from an ASEAN centered integration, are both demonstrations of efforts to reshape the region along Beijing’s lines.

Chinese incursions into the waters surrounding the Senkaku Islands remain a problem as does China’s building and militarizing of islands in the South China Sea. These are both evidence of revisionism and a long-term concerted effort to become the regional hegemon.

The question for regional stakeholders such as Japan is what is the best way to deal with this assertive Chinese behavior? Through expanded military cooperation? Enhanced diplomatic and economic investment in the region? Or both?

Obviously, both would be idea but the challenge for Japan and other countries is to get buy-in from their public. In Japan as well as other states in the region, citizens are deeply concerned about being pulled into a kinetic conflict between the U.S. and China.

Policy makers and citizens want the U.S. in the region. They want friendly relations with China. They also want the U.S. to focus on enhancing its diplomacy, returning to multilateralism, and to returning to trade agreements as a central pillar to engagement in the region.

Diplomacy means regular and top-level engagement in forums in the region. It means enhanced cooperation, coordination, and communication (three C’s) with and between allies and friends in the region. The three C’s must include security, trade, technology, and diplomacy.

Multilateralism means a pragmatic approach to cooperation. Here Prime Minister Abe demonstrated a realist track-record of forging a multitude of relationships with democracies to authoritarian states as evidenced by the CPTPP, RCEP, and the Japan-EU Infrastructure and Connectivity Initiative. Taking a card from his play book would accrue political capital in the region and help rebuild the U.S.’s reputation in the region.

In the areas of security cooperation, here again Japan has something to teach the U.S. about the region. Rather than weapons and battleships, Japan has actively tried to enhance the capabilities of states in the region through diplomacy, interoperability training, the provision of coast guard vessels, and the provision of developmental aid. The logic is that stronger economies with better human capital and resources can manage security challenges through cooperation not confrontation.

The U.S.-China strategic competition may define the Indo-Pacific region going forward. This can and will happen if Japan and other middle powers don’t proactively and pragmatically find ways to shape both U.S. and Chinese policies in the region. Japan has stepped up to the plate under Prime Minister Abe in terms of a willingness to shoulder more of a burden in the region as has successive governments in Canberra. Burden sharing can ensure that the U.S. remains fully engaged in the region. At the same time, Japan and others need to focus their diplomatic and other resources to ensure that China understands that the region will be an Indo-Pacific centered region and not a Sino-centric region.

Stephen R. Nagy (@nagystephen1) is a senior associate professor at International Christian University and a visiting fellow with the Japan Institute for International Affairs.

KEYWORDS

China, Southeast Asia, U.S., TPP, trade

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