20 November, 2011

In the past week President Obama has taken several opportunities to stand up to the Chinese and reassert American dominance.  This BBC article describes the past week’s events in three Acts.  In Act One the US moved swiftly to advance the Transpacific Partnership, which would create a free trade area among major countries in the Pacific Rim, but for now would exclude China.  While China was told the door was open, the underlying message was that entrance would require some swift internal changes on their exchange rate policy and the protection of intellectual property.  In Act Two, President Obama announced the deployment of up to 2500 troops in Northern Australia.  Although President Obama asserted this had nothing to do with China, no one really believes that.  Finally in Act Three in Bali Indonesia, President Obama signaled his desire to discuss the ongoing territorial disputes in the South China Sea (or is it the West Philippine Sea, or the East Vietnamese sea??)  Naturally, the smaller nations in the area welcome the presence of the US in negotiations with China over rights in the area.  Equally naturally, China finds the US presence to be especially unwelcome and would prefer to deal with each nation separately.  To add further to the dispute, India announced today its intention to explore for oil in the South China Sea.

In normal times a little bit of angry rhetoric between countries is harmless.  Leaders posture and pronounce but little else comes of it.  Hopefully that will be true this time too.  However, we are not living through normal times.  The economic climate in the world is increasingly dismal.  There is a strong chance that sluggish growth and high unemployment will remain for some time in the US.  In China there is a real danger that growth could slow tremendously and they will suffer their first major recession since the transformation to freer markets began in the late 1970s.  If this economic malaise continues, popular discontent may rise up in both countries and leaders will seek ways to quiet their masses.

One effective technique is to turn popular anger outward rather than inward.  Politically, it is preferable that unhappy citizens vent their frustrations towards a foreign enemy than towards the current leadership.  The political incentives are similar in China and the US.  The blame game can be effective if you can convince one’s citizens one of two things:  either 1) that the current troubles are really being caused by the unfair actions of other parties, or 2) that the greater prosperity of an external group is a sign of some inequity.  The first of these is currently being applied by the Obama administration as well as by many in the Republican presidential field (with the exception of Jon Huntsman).   The second is the more likely response of the Chinese as they fend off accusations of blame from the US, their much more prosperous trading partner.

The main problem with these public pronouncements is that they can lead to real hostilities with shots being fired and soldiers being killed.  Hopefully, it will not come to this.  But simply imagine a year or two from now.  Imagine the US Presidential election with even more accusatory rhetoric from both political parties each trying to demonstrate they will be “tough on China!”  Imagine the US economy continuing to struggle, and China’s economy beginning a serious economic downturn.  Under such circumstances, minor incidents could have serious repercussions.

Recall the incident 10 years ago when a Chinese jet damaged a US reconnaissance plane in flight forcing it to land in China.   A similar incident today after a period of harsh rhetoric could escalate into something much more serious.  In China there is a well-known reluctance to “lose face” in the arena of public opinion and thus they may be encouraged to stand up to the Americans.  However, the reluctance to lose face would be just as strong in the US after a period of harsh rhetoric.  Neither side would be able to back down from such an incident for fear of looking weak against its professed antagonist.

If economic conditions in China led to internal instabilities, the Chinese government might be inclined to divert its citizens’ attention by wrestling control of energy resources in the South China sea, or by reasserting its professed rights over Taiwan.   If the US responds by defending the rights of the Asian countries, China could easily rally internal popular opposition to the interference by the US hegemon in the Asia region.

Again, hopefully, these scenarios will never occur.  I raise them merely to suggest that they are plausible under the right set of circumstances.  Some of those circumstances, like the length and severity of the economic downturn, are difficult to prevent.  However, some of the conditions, like the accusatory rhetoric against each other, can be avoided.  A better approach to problems in the US-China relationship is to discuss them in diplomatic circles.  Exchange rate policy and monetary policy coordination can be (and is) discussed on a continual basis in meetings between government officials at many meetings between the countries.   Intellectual property rights are also discussed by government and the businesses that are directly affected by enforcement problems.   The underlying problems are real but they will take a long time to resolve.  For example, China cannot immediately solve intellectual property problems.  The changes will take decades and China is working slowly in the right direction.  But, even if they picked up the pace, it is unlikely to have noteworthy effects in the short term.  In much the same way the US cannot just snap its fingers and resolve its unemployment problems.  Achieving an outcome requires much more than desiring the outcome.

For these reasons it would be prudent for leaders on both sides to avoid the accusatory rhetoric and prevent two associated face-saving problems.  The first problem is that public pronouncements that another country change its ways is more likely to inspire resistance to change rather than the change that is desired.  What proud country wants to be seen capitulating to the demands of another?  And both the US and China are proud countries.   Secondly, the accusations can paint leaders into the corner suggested above:  if real hostilities ever accidentally broke out, neither country would be able to renounce it previous positions and unnecessary military escalation could become a reality.

President Obama suggested last week that China needs to act more like a grown up in the world.  My suggestion is that both countries act grown up, which means not using accusatory rhetoric against the other in public for political purposes.  I am doubtful that such restraint will prevail, however, there were some hopeful signs of cooperation on the South China sea issue at the end of the East Asia Summit in Bali.

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