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attack China with air and sea forces that would destroy and disrupt Chinese
forces—otherwise the Chinese forces would strike at US and allied combat-
ants in areas along China’s periphery. 43 This so-called air-sea battle concept calls for US forces to be prepared to attack Chinese sensors, radars, targeting systems, and/or weapons in order to break links in the Chinese process of
finding the US or allied target and striking it. This offensive posture is seen as likely to lead to a broader and very destructive US-China war, and so other
specialists call for an American response to a confrontation with China that
would involve an American and allied blockade of major shipping routes to
China. The blockade would seek to destroy Chinese shipping and supporting
naval vessels but avoid direct attack on Chinese territory.
On the other side are specialists who judge that it is futile for the United
States to endeavor to preserve its leading position in Asia through military
primacy. 44 Given the rapid increase in Chinese military power and the worldwide commitments of US forces, the United States is advised to seek an
agreement with China on a balance of power in the region that both find
acceptable. A challenge facing this proposal is persuading China, which has
in recent years seen significant advance in its control of contested territories and its related influence in Asia, to set aside its assertiveness in seeking its vision of the China Dream in favor of an accommodation with the United
States, a power seen on the decline and thus far ineffective in checking
China’s advances along its periphery.
President Trump, China, and the Crisis over North Korea’s
Nuclear Weapons
As noted in chapter 6, China’s approach to nuclear weapons proliferation
changed markedly after the Cold War. Beijing sometimes reluctantly but
steadily conformed more to international norms supported by the United
States. There was considerable cooperation and common ground between the
two powers in dealing with this issue with regard to Iran and, notably, North
Korea. Nevertheless, North Korea continued to develop and test its nuclear
weapons and ballistic missile delivery systems despite UN sanctions sup-
ported by the United States and China. The development reached a point at
the end of the Obama administration and the start of the Donald Trump
administration where North Korea was anticipated to soon have the ability to
launch a nuclear strike against the continental United States. 45
The Trump administration conducted a policy review and announced that
if North Korea could not be persuaded to stop its nuclear weapons develop-
ment, the United States would take unspecified unilateral actions. The result-
ing crisis featured intense consultations among US and allied leaders. It also
was a centerpiece in the April 2017 summit between President Trump and
President Xi Jinping. President Trump listened to President Xi’s explanation
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of China’s concerns with the North Korean situation. China opposed the
North Korean nuclear weapons program, but it put a high value on maintain-
ing stability in this important neighboring area. It favored negotiations and
avoiding confrontation. Against that background, President Trump publicly
and repeatedly appealed to China to use its leverage as North Korea’s neigh-
bor and main economic partner to compel North Korea to change its policy
and halt its nuclear weapons program. In these appeals, the US president
voiced his respect for the Chinese leader. He also indicated that progress on
the North Korean issue would lead to US moderation in dealing with trade
issues with China. 46
In June 2017 there was still no resolution to the crisis. North Korea
continued its testing of delivery systems despite UN sanctions against them.
Its commitment to nuclear weapons development seemed undiminished.
There were reports that China was tightening restrictions on economic inter-
action with North Korea, but there also were reports that Chinese businesses
had managed to circumvent such restrictions despite Beijing’s avowed com-
mitments to economic sanctions that it established to persuade North Korea
to stop its nuclear weapons program. 47
Chapter Nine
Economic and Environmental Issues in
Contemporary US-China Relations
The rapid growth of the Chinese economy and close integration of Chinese
development into the global economy have been the most salient accomplish-
ments of the reforms pursued by Chinese leaders since the death of Mao.
China’s economic modernization has had a staggering impact on the lives of
Chinese people. It is the foundation of the legitimacy of the ruling Chinese
Communist Party, the source of China’s growing military power, and the
main reason for China’s international prominence in the early twenty-first
century. The implications of Chinese economic development also have had
negative features at home and abroad, notably regarding trade disputes and
environmental protection. 1
As the world’s leading economy, source of foreign investment and tech-
nology, and leading importer of Chinese products, the United States has had
an important influence on, and in turn has been influenced in important ways
by, China’s economic advance and integration into existing international
economic structures and agreements. The burgeoning Sino-American eco-
nomic relationship had a positive effect on relations between the two coun-
tries. In the post–Cold War period, it replaced the strategic cooperation be-
tween the United States and China against the Soviet Union that had pro-
vided the key foundation of US-China cooperation in the 1970s and 1980s.
The two world economies became increasingly interdependent. They were so
important for each country’s development that by the first decade of the
twenty-first century, signs of serious economic dispute or confrontation be-
tween the great economic powers had profound impacts on world markets
detrimental to the well-being of each country. 2
The rapid growth of China’s economy and US-China economic relations
were driven by forces of international economic globalization. The overall
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process has had profound effects, both positive and negative, on broad
swaths of public and elite opinion, economic and other interest groups, and
political leaders in both societies. On the whole, China’s rapid growth and
rise to great power status as a leading world economy have shown the pro-
cess in recent years as highly beneficial to China’s interests. The Chinese
government has generally avoided major initiatives that have the potential to
disrupt existing economic relationships seen as largely beneficial for its interests. 3
Complaints and initiatives to change existing economic relations have
come in recent years largely from the US side of the Sino-American relation-
ship. They were particularly prominent for mainly political reasons in the
wake of the Tiananmen crackdown, when the US administration and the
C
ongress considered whether to place conditions on the United States’ provi-
sion of most-favored-nation trading status to China. Those efforts ended in
US agreement with China on China’s entry into the World Trade Organiza-
tion (WTO) and the passage of US legislation granting China permanent
normal trade status in 2000. 4
More recent US complaints reflect a wide range of US interests and
constituencies disadvantaged by perceived unfair negative aspects of the
massive US-China economic relationship. They are supported by varying
numbers of congressional members and generally less vocal officials in the
US government. The US administration has followed a pattern of dealing
with such economic and trade disputes through a variety of bilateral discus-
sions and dialogues with Chinese counterparts. The Chinese government
favors this approach in dealing with these and other issues. It reacts negative-ly to American public pressure or US policy initiatives on trade and related
economic issues that it tends to see as protectionist or otherwise adverse to
Chinese interests. Chinese officials also were openly critical of US financial
management and other policies that negatively affected China’s economy in
the global financial crisis and recession beginning in 2008. 5
For many years, periodic US complaints and initiatives on economic and
trade issues caused public disagreements with China as the United States
pressed for change and China resisted US demands on various economic
questions. Against the background of continuing negative if not alarmist US
public opinion on the threat China’s economic practices posed for the United
States came more recent hardening in US attitudes. Strident charges against
Chinese economic practices were featured in the rhetoric of the leading can-
didates of both political parties during the 2016 US presidential election
campaigns. President Donald Trump’s victory was based on a promise to
right glaring economic wrongs with China. American organizations usually
moderate in dealing with China were sharply critical of Chinese economic
practices. 6
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187
Many US experts and government leaders came to see as incorrect their
past expectation, consistent with the liberal school of international relations (IR) theory, that growing trade and economic interchange would prompt
China to conform more to international economic practices in line with
American interests. What they found, as explained in a prominent report by
the Asia Society in February 2017, was that Chinese practices reinforced,
from a decade earlier, state-directed “zero-sum, mercantilist trade and invest-
ment policies that are highly . . . damaging to US commercial and economic
interests.” 7 This darker view of Chinese economic behavior was more in line with the realist school of IR theory. Using that lens, China was seen deliberately eschewing economic reforms that would open China more to invest-
ment and trade advantageous for the United States and other developed coun-
tries. The Chinese government practiced a form of “state capitalism” that
used its control of bank lending and important state-owned enterprises
(SOEs) and its influence over China’s dynamic private sector to carry out
industrial policies designed to advance a wide range of protected segments of
the Chinese economy; and in this way, China eventually acquired advanced
technology from abroad in a high-priority effort to create national industries
that would prevail in the China market and international markets at the ex-
pense of American and other international competitors. 8
Whether this growing realist view of economic relations with China
would result in strong US countermeasures or have a broader impact on
overall US policy toward China remained uncertain at the outset of the
Trump administration. On the one hand, it could mesh with growing
American concern over China’s international assertiveness at the expense of
neighbors and US interests in the Asia-Pacific region and concern over Chi-
na’s increased domestic repression of civil society and individual rights to
support an overall tougher US policy toward China. On the other hand, many
important American companies have a large stake in continuing to work
constructively with China. And they have important connections with senior
leaders of the Trump government and the Congress. Meanwhile, the willing-
ness of the US government to pressure China on salient economic issues may
be overshadowed by need to cooperate with Beijing on other more immedi-
ately important issues, such as North Korea. 9
CHINA’S ECONOMIC IMPORTANCE
Since the beginning of economic reforms following the death of Mao Zedong
in 1976, China has been the world’s fastest-growing major economy. From
1979 to 2014, the average annual growth rate of China’s gross domestic
product (GDP) was about 10 percent. By 2010 China became the world’s
second-largest economy, after the United States. In 2011 it became the larg-
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est manufacturer, surpassing the United States. In 2012 it became the world’s
largest trader. China also has become the second-largest destination of
foreign investment, the largest holder of foreign exchange reserves, and the
largest creditor nation. 10 Several predictions said that China was on track to surpass the United States, the world’s largest economy, in the next decade. 11
Chinese growth rates declined steadily from 12.8 percent in 2012 to 6.7
percent in 2016. Chinese foreign trade growth stopped and overall trade was
less in 2016 than in 2015. In 2013 Chinese leaders began a wide range of
more than sixty sets of mainly economic reforms to deal with existing or
anticipated economic weaknesses involving the inefficient practices of SOEs
and the state banking system, resource and energy scarcities, massive envi-
ronmental problems, and China’s strong dependence on the health of the
global trading economy, which stalled in the financial crisis and recession
begun in 2008. 12 Active foreign direct investment (FDI) in China continued, and growing Chinese investment abroad surpassed China’s FDI in 2015 and
later years. 13
Economists generally attribute much of China’s rapid economic growth to
two main factors: large-scale capital investment, financed by large domestic
savings and foreign investment; and rapid productivity growth. The two fac-
tors appear to have worked together during the reform period, 14 though decline in productivity has prompted recent economic reforms seeking higher
efficiency in the economy.
In foreign affairs, the growing importance of the Chinese economy was
manifested most notably by the growth in economic interchange between
China and countries throughout the world, notably the United States. Most
important in this regard was the growth of trade and foreign investment in
China. International trade played a key role in increasing Chinese influence
around the world and in enabling China to import the technology, resources,
food, and consumer goods needed to support economic growth, to finance
China’s military buildup a
nd other aspects of its national power, and to
maintain the legitimacy of the Communist Party government. Greater Chi-
nese access to foreign markets also enabled China to attract foreign invest-
ment. Foreign-affiliated companies played a key role in generating economic
growth and employment and in the manufacture of world-class products.
China’s joining the WTO in 2001 added to reasons for strong foreign invest-
ment in China, which in turn boosted the size of Chinese foreign trade.
Chinese exports and imports in 2004 were both more than twice as large as
those just three years earlier, in 2001. 15
For many years, about half of Chinese foreign trade was so-called pro-
cessing trade, where a commodity crosses China’s border, perhaps several
times, before the final product is produced and the value of each cross-border
transfer is duly registered in Chinese import and export figures. In 2012 the
level of processing trade was said to be 34.8 percent of the value of Chinese
Economic and Environmental Issues in Contemporary US-China Relations
189
foreign trade, down from a level of 44 percent in 2011. Some other more
recent estimates have been higher. In effect, such processing trade results in a good deal of double-counting in Chinese import and export figures, which
tends to exaggerate the actual size and importance of Chinese foreign trade.
This consideration aside, the fact remains that the internationally recognized
figures for Chinese exports surpassed those of the United States in 2007. 16
Though China has sometimes run trade surpluses and sometimes run
trade deficits in the reform period since the late 1970s, in the past two
decades (as of 2017) China has run only trade surpluses. The surplus grew to
about $300 billion in 2008, declined somewhat after that, and rose again to
reach $500 billion in 2016. The US global trade deficit in these years was
enormous, amounting to more than $700 billion for several years. It was
$500 billion in 2016; China was the lion’s share of that deficit with a US
merchandise trade deficit with China valued at $350 billion. Merchandise