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Talking Trade blog

US-China relations: Remarks of Singapore PM Lee (Part 1)

Published 06 June 2019

This is an excerpt from Singapore PM Lee’s Shangri-La Dialogue’s keynote speech from last weekend. This is the middle section on US-China relations:

Imagine, conversely, that China had remained closed and undeveloped. A failing China would have exported many problems to the world, quite possibly still including armed revolution. Its huge population would have been resentful and restless at being left behind by other countries. A generation ago, when China was still poor, Deng Xiaoping was asked by US President Jimmy Carter to allow more people to emigrate. He answered: “Well, Mr President, how many Chinese nationals do you want? Ten million? Twenty million? Thirty million?”

China’s success has enabled the world to avoid this disastrous outcome. At the same time, China’s growth has shifted the strategic balance and the economic centre of gravity of the world, and the shift continues.

Both China and the rest of the world have to adapt to this new reality. China has to recognise that it is in a totally new situation created by its own success. It can no longer expect to be treated the same way as in the past when it was much smaller and weaker. China may still be decades away from becoming a fully developed advanced country, but it cannot wait decades before taking on larger responsibilities.

Having gained much from the international system, China now has a substantial stake in upholding it, and making it work for the global community. Chinese leaders have spoken up strongly in support of globalisation and a rules-based international order. China must now convince other countries through its actions that it does not take a transactional and mercantilist approach, but rather an enlightened and inclusive view of its long term interests.

For example, when China joined the WTO in 2001, its merchandise trade accounted for only 4.0% of world trade. Since then China’s share has almost tripled, to 11.8%. This is why the trade arrangements and concessions that China negotiated when it joined the WTO are no longer politically wearable for other countries. It is in China’s own interest to prevent the international framework of trade from breaking down, and to implement timely changes that bring about greater reciprocity and parity with its trading partners, and that are more consistent with present day China’s more advanced state of development.

Similarly, in security, now that China is a major power with the second largest defence budget in the world, its words and actions are seen differently. To protect its territories and trade routes, it is natural that China would want to develop modern and capable armed forces, and aspire to become not just a continental power but also a maritime power. At the same time, to grow its international influence beyond hard power, China needs to wield this strength with restraint and legitimacy.

Frictions will arise between China and other countries from time to time. The overlapping maritime claims in the South China Sea are an example. China should resolve these disputes peacefully, in accordance with international law, including UNCLOS. It should do so through diplomacy and compromise rather than force or the threat of force, while giving weight to the core interests and rights of other countries. Then over time it will build its reputation as a responsible and benevolent power that need not be feared. Instead China will be respected as a power that can be relied on to support a stable and peaceful region. In the long term, this will allow China to continue to benefit from a conducive and friendly international environment, and enhance its influence and standing in the world.

The rest of the world too has to adjust to a larger role for China. Countries have to accept that China will continue to grow and strengthen, and that it is neither possible nor wise for them to prevent this from happening. China will have its own legitimate interests and ambitions, including to develop indigenously advanced technologies like infocomms and artificial intelligence. As a major stakeholder in the international system, China should be encouraged to play commensurate and constructive roles in supranational institutions like the IMF, World Bank, and WTO. If China cannot do so, it will create its own alternatives.

The US, being the preeminent power, has the most difficult adjustment to make. But however difficult the task, it is well worth the US forging a new understanding that will integrate China’s aspirations within the current system of rules and norms. New international rules need to be made in many areas, including trade and intellectual property, cybersecurity and social media. China will expect a say in this process, because it sees the present rules as having been created in the past without its participation. This is a reasonable expectation.

The bottomline is that the US and China need to work together, and with other countries too, to bring the global system up to date, and to not upend the system. To succeed in this, each must understand the other’s point of view, and reconcile each other’s interests.

Meanwhile, stresses and strains have built up between the two over multiple issues including cyber-espionage, 5G technology, freedom of navigation, human rights, and especially trade, where the two countries have reached an impasse.

If both sides treat their trade dispute purely on its own merits, I have no doubt their trade negotiators will be able to resolve it. But if either side uses trade rules to keep the other down, or one side comes to the conclusion that the other is trying to do this, then the dispute will not be resolved, and the consequences will be far graver than a loss of GDP. The broader bilateral relationship will be contaminated. Other areas will inevitably be affected, including investments, technology, and people-to-people relations. Every action taken by one side will be seen as a direct challenge to the other, and will elicit a counter-action. We will all be headed for a more divided and troubled world.

Worryingly, this is starting to happen. Attitudes on both sides have been hardening. The US National Security Strategy and National Defense Strategy documents describe China as a “revisionist power” and America’s “strategic competitor”. The recent Presidential Executive Order on securing the information and communications technology and services supply chain, states that it is aimed at “foreign adversaries”. It stopped just short of naming any particular country, but made quite clear what actions the US intends to take.

There is a growing bipartisan consensus in the US: that China has taken advantage of the US for far too long; that China has overtaken, or will soon overtake, the US in areas of advanced technology, such as artificial intelligence and some aspects of military technology, through underhand means; that instead of opening up and becoming more like the US, China has regressed in terms of political openness, and hence represents a challenge to American values and leadership.

Americans now talk openly of containing China, and to do so soon before it is too late, the way they used to talk about the USSR and the Soviet bloc. This negative view of China has permeated the US establishment. It is not confined to the White House or the Administration, but is shared widely by Congress, the military, the media, academics and NGOs too. Those inclined to a more positive view of China have been marginalised.

Even US business sentiment towards China has soured. American businesses used to be the strongest supporters of China, because they benefited directly from China’s growth and economic opportunities. They had strongly advocated China’s accession to the WTO. When protectionist or nativist sentiments built up in the US, they were a balancing voice that counselled good relations with China.

Now, that goodwill has all but evaporated. US businesses feel let down that China has not adjusted its policies on trade and investments, and in fact systematically disadvantages foreign businesses operating in China, while Chinese businesses operate uninhibited in the US. They want greater access to the China market, and not just to use China for their global supply chains. This loss of goodwill on the part of an important constituency is a serious problem for China, which the Chinese have not fully appreciated or dealt with.

In China, views are hardening too. There are those who see the US as trying to thwart China’s legitimate ambitions - convinced that no matter what they do or concede on individual issues, the US will never be satisfied. They are alarmed by talk of a “clash of civilisations” between the US and China. They reject what they see as efforts by the US to impose its political system and values on China.

This is coupled with a strong vein of nationalist fervour. Chinese television is rebroadcasting old movies of the Korean War, which is known in Chinese as 抗美援朝战争 - the war to resist America and assist North Korea. There is even a “US trade war song” circulating on the internet, based on a musical track from a popular 1960s war movie about fighting the Japanese in the Sino-Japanese War! Hardly anyone in China, whether in government, academia or the media, can be found who is prepared to speak up for a more positive and benign interpretation of the US’ intent.

The fundamental problem between the US and China is a mutual lack of strategic trust. This bodes ill for any compromise or peaceful accommodation. But to go down the present path would be a serious mistake on both sides. There is no strategic inevitability about a US-China face-off. But at the same time, if such a face-off does happen, it will be nothing like the Cold War.

First, there is no irreconcilable ideological divide between the US and China. China may be communist in political structure, but it has adopted market principles in many areas. The Soviets sought to overturn the world order. But China has benefited from, and by and large worked within, the framework of existing multilateral institutions. During the Cold War, the Communist bloc sought to export Communism to the world. But China today is not attempting to turn other countries Communist. Indeed, it is often criticised for being too willing to do business with countries and leaders regardless of their reputation or standing, citing non-interference in the internal affairs of other countries.

Second, China has extensive economic and trade links with the rest of the world. It is a major node in the world economy, unlike the USSR, whose economic links outside the Soviet bloc were negligible. In fact, all of the US’ allies in Asia, including Japan, South Korea, the Philippines, Thailand and Australia, as well as many of its friends and partners, including Singapore, have China as their largest trading partner. They all hope that the US and China will resolve their differences. They want to be friends with both: to nurture security and economic ties with the US, as they grow their business links with China. In a new Cold War, there can be no clear division between friend and foe. Nor is it possible to create NATO or Warsaw Pact equivalents with a hard line drawn through Asia, or down the middle of the Pacific Ocean.

On the other hand, if there is indeed a conflict between the US and China, where will it end? The Cold War ended with the total collapse of the sclerotic planned economies of the Soviet Union and its allies, under the pressure of enormous defence spending. Even then, it took 40 years. It is highly improbable that the vigorous Chinese economy will collapse in the same way.

China cannot take down the US either. The US is still by far the strongest country in the world. Its economy remains the most innovative and powerful, and its military capabilities and spending far exceed anyone else's. Americans worry about China catching up with the US, but although China may be abreast or even ahead in some fields, it will be many years before China can equal the US. And contrary to what some people in China think, the US is not a declining power, nor is it withdrawing from the world. In fact, the US has made clear its intention to compete robustly, though in a different mode than before.

Even short of outright conflict, a prolonged period of tension and uncertainty will be extremely damaging. Many serious international problems like the Korean situation, nuclear non-proliferation, and climate change cannot be tackled without the full participation of the US and China, together with other countries. In economic terms the loss will be not just a percentage point or two of world GDP, but the huge benefits of globalised markets and production chains, and the sharing of knowledge and breakthroughs that enable all countries to progress faster together.

We should therefore do our utmost to avoid going down the path of conflict, and causing enmity on both sides that will last for generations. Of course, it is the duty of security and defence establishments to think the unthinkable, and plan for worst case scenarios. But it is the responsibility of political leaders to find solutions to head off these extreme outcomes.

This is hard, because both sides have leaders facing powerful domestic pressures. In the US, the political mood is deeply divided and disgruntled. Large segments of American society have lost confidence in globalisation and multilateralism. According to a Pew survey last year, nearly half of all Americans have an unfavourable opinion of China. As the presidential elections approach, these attitudes will surely deepen, because neither the Republicans nor the Democrats will want to risk being accused of being ‘soft’ on China. Regardless whether President Trump is re-elected, or another Republican or Democrat wins, these sentiments will not go away.

China may not have US-style presidential elections, but their leaders face strong internal pressures too. In fact, the orientation of the Chinese leadership is primarily domestic. They know they have major issues to deal with at home. These include unevenly distributed growth, significant rural poverty, an ageing population, and rising expectations for a better quality of life.

Both sides are sensitive about being perceived as weak. Out of political necessity, the US wants to show that it has come out ahead in any deal. On the other side, because of China’s long history with the West, its leaders cannot afford to appear to succumb to Western pressure to accept an “unequal” treaty. Just a few weeks ago, China commemorated the centennial of the May 4 movement. In 1919, at the Versailles Peace Conference, a feeble China was forced to accept the decisions of the big powers. China was on the winning side, but the settlement went against their interests. This caused Peking University students to demonstrate in protest, launching a nationalist movement to modernise and revive the country. This was a seminal moment in modern Chinese history.

This zero-sum dynamic makes it very hard to construct an agreement that is politically acceptable to both parties. But ultimately it is in the interests of both the US and China to reach such an accommodation, and to persuade their domestic publics to accept it. They both need to keep their relationship steady, so that both can focus on their respective pressing domestic priorities, and not be distracted by troubled relations with the other.

The next Talking Trade post contains PM Lee’s remarks on what other countries should do now…

For the complete text of his speech, click here.


This Talking Trade is a reprint of PM Lee’s speech from the International Institute for Strategic Studies (IISS) Shangri-La Dialogue

© The Hinrich Foundation. See our website Terms and conditions for our copyright and reprint policy. All statements of fact and the views, conclusions and recommendations expressed in this publication are the sole responsibility of the author(s).

Dr. Elms is Head of Trade Policy at the Hinrich Foundation in Singapore. Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

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