China Defense & Security Diplomacy & International Relations Economics

The U.S. Must Resurrect Multilateralism To Curb China’s Economic Rise

While it is undeniable that China’s economic rise poses security risks to the U.S. and undermines its national interests, the dangers of a Cold War mentality cannot be overstressed.

Heightened polarization in America has shrunk the common ground between Republicans and Democrats. Though, both sides agree that China is a growing, imminent threat and an unfair trade partner that needs to be neutralized. The global supply chain shocks induced by the COVID-19 pandemic revealed the negative consequences of extensive economic interdependence between the U.S. and China. More generally, it fueled the flames of a new age of autarky that has emerged over the past four years. In the U.S., popular discontent with trade policy played a crucial role in the 2016 presidential campaign. Since then, major economies like the U.S., China, and India have turned towards economic independence, partially retreating from globalization and pursuing self-sufficiency.

With China becoming an increasingly powerful challenger to America’s global primacy, improving economic engagement with China is critical. In particular, the Biden Administration should balance necessary trade with China and growing domestic demands for fair trade. Substantial economic interdependence between the two powers would make economic decoupling neither feasible nor beneficial for the U.S. economy. However, the Biden Administration’s China policy cannot ignore the rising popular dissatisfaction with neoliberalism and the waning domestic flexibility surrounding trade issues. 

Recognizing this, the Biden administration’s approach to the U.S.-Sino bilateral trade relationship is, in many respects, a continuation of former President Trump’s protectionist policies. Though an amendment was added to exempt certain goods, the administration will maintain tariffs on over two-thirds of Chinese exports imposed during the last presidency. Biden has also advocated for enormous investments in increasing domestic economic capacity, namely in infrastructure. Most notably, the Infrastructure and Investment and Jobs Act, signed into law on November 15, enforces greater protectionist policies for American workers and companies. In this way, the Biden administration has maintained America’s autarkic trend, turning it inwards as a strategy to retain global supremacy. 

The pandemic exposed the risk that damaged U.S. supply chains pose to both America’s economic and national security. The presence of Chinese technology in the U.S. defense supply chain has grown increasingly alarming in light of China’s military modernization and the remarkable success of its technology sector. In 2020, Beijing signaled plans to leverage supply chain chokepoints and use its antitrust, intellectual property, legal, and standard tools to globally advance its industrial policies. According to a report released in July by the House Armed Services Committee’s Defense Critical Supply Chain Task Force, “the defense supply chain presents a national security risk: a significant amount of material in the Defense Industrial Base is sole-sourced from the People’s Republic of China.” 

While preventing Beijing from taking advantage of supply chain vulnerabilities is crucial, Washington must tread a fine line between promoting protectionism and globalization. Instead of choosing between the ideologies of “America First” and “globalism,” it must articulate the case for a new mix of protectionist policies and internationalism. This is the only way for the Biden administration to adhere to America’s longstanding commitment to international economic cooperation whilst maintaining domestic political support. The administration has expressed its intention to preserve many aspects of Trump’s protectionist policies and to bolster American manufacturing by strengthening the federal government’s ‘Buy American’ requirements. However, it has provided few specifics about an allied multilateral approach to address concerns over China’s trade practices and growing economic influence. In order to successfully restrain China’s rising economic dominance and enforce rule-based trade, Washington must restore multilateral economic cooperation.

Policy Recommendations

Making the Most out of the WTO

First, Washington must respond to Beijing’s hegemonic economic ambitions by addressing its grievances using the World Trade Organization as a platform. Beijing oscillates between championing globalization and state sovereignty, depending on when it is most convenient and helps advance Chinese interests. Made in China 2025 not only raises concerns about the Chinese government’s provision of subsidies granted to state-owned and private enterprises but also raises security concerns. The policy appears to incentivize technology transfer, cyber espionage, technology and intellectual property theft, and state-funded acquisitions of U.S. companies. Thus, policies like Made in China 2025 aim to create competitive advantages for China in strategic high-tech industries in part by acquiring technology and expertise from U.S. firms. While technology cooperation with China has been commercially significant for U.S. firms, the transfer of American capabilities and technology to China will likely undermine U.S. firms’ competitiveness in the long run. However, since most of China’s problematic actions (i.e. via industrial subsidies and intellectual property) are covered by WTO rules, they can be litigated through dispute resolution. Popular opinion views this route as futile, but such litigation has proven to be effective. For example, American challenges to Chinese trade practices between 2002 and 2018 went undefeated, and the U.S. has won several more cases since then. Moreover, in the past, China has tended to comply with the decisions when it lost WTO disputes. Although Chinese compliance has not been perfect, it has arguably been better than that of the U.S., which has notoriously shirked WTO rulings on anti-dumping rules, internet gambling, and subsidies.

Creating a Cohesive Allied Approach

In addition to utilizing the WTO, the Biden administration must focus on mending relations with its allies in Europe and Asia to counter China’s economic dominance. Faced with a China that limits market access to American companies–most notably in the healthcare, film, and cloud computing industries– the U.S. and its allies must multilaterally deter Chinese economic coercion. They are in a strong position to confront China’s growing economic influence because together, the U.S. and its allies maintain an overwhelming economic and military advantage. Measured by nominal GDP, the world’s top ten largest economies include the (1) the U.S., (3) Japan, (4) Germany, (6) the UK, (7) France, (8) Italy, and (10) Canada. Although China’s estimated military spending has increased by 85% over the last decade, the U.S. and its allies still account for roughly 60% of global military spending.

Despite a general trend towards a tougher stance on China, deep fault lines among America and its allied partners have prevented the materialization of a united multilateral approach towards Beijing. Structural differences between allied economies make the presentation of a cohesive allied approach on the economic front very difficult. In 2019, over 50% of all EU exports to China were from Germany. In light of Germany’s close trade ties to Beijing, the Merkel government was more reluctant to officially criticize Beijing on issues such as human rights violations. Overcoming the divergent economic interests of the U.S. and its allies is even more urgent given EU leaders’ decision in the last moments of 2020 to move ahead in principle with a new EU-China Comprehensive Agreement on Investment (CAI). 

Join the CPTPP

Furthermore, Washington should join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which China has officially applied to join. Leveraging current trade deals will be an effective way for the U.S. to work with its allies in Europe and the Indo-Pacific to counter Chinese economic dominance. Washington must adapt to the increased international embrace of regional economic integration, embodied first by the CPTPP and then by the Regional Comprehensive Economic Partnership (RCEP). Until now, it has remained on the sidelines, unable to shape China’s behavior. Since China is a larger trading partner (in terms two-way trade as a percentage of total national trade) than the U.S., for all but two CPTPP member states, Washington also faces the risk of member states making concessions to China and accepting weaker standards in exchange for more access to Chinese markets. This is made all the more likely because a number of the pact’s rules are not strictly defined and members can sign letters permitting extended timelines and exceptions.

Joining the CPTPP would not only allow the U.S. to more actively counter China’s increasing influence on international markets but also provide economic benefits to American workers. CPTPP member states enjoy lower tariffs on goods, the removal of restrictions on cross-border services, and greater access to foreign markets among other benefits. Speaking before the House Foreign Affairs Committee about America’s Indo-Pacific strategy, CFR President Richard N. Hass warned, “The United States risks waking up to a region where China is the ever more dominant center of trade and investment, which would give it worrisome leverage over governments’ geopolitical decisions.” 

Looking Forward

Given rising popular dissatisfaction with neoliberalism and U.S.-Sino economic interdependence, U.S. policy must reconcile with these two realities. As the Biden administration has already signaled its intention to maintain protectionist policies, multilateral economic cooperation is the missing piece that must be resurrected to achieve a hybrid U.S. policy of protectionism and internalism. While it is undeniable that China’s economic rise poses security risks to the U.S. and undermines its national interests, the dangers of a Cold War mentality cannot be overstressed. Fueled by American pundits, policymakers, and the media, talk of a new Cold War has dominated current discussions of foreign policy. The Biden administration must recognize that U.S.-Sino relations fundamentally differ from the U.S.-Soviet relationship during the Cold War, most notably on the economic front. With China as a major U.S. trading partner, holder of U.S. debt, and integral to U.S. and global supply chains, the U.S. must avoid the belligerent posturing that a Cold War mentality fosters. This will not only be unlikely to change China’s behavior but also may, inadvertently, provoke miscalculations and disastrous reactions. 

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By Shuyi Li

Shuyi Li is a third year Political Science and Economics major at the University of California, Los Angeles. Growing up in three different countries fueled her passion for international relations, especially US-China relations.

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