Despite booming trade, US-China relationship evolving into an ‘ideological rivalry’

Trade in goods between US & China crossed $700 bn in 2022. Despite this, political tensions have risen leading to US, reliant on Chinese market, making efforts to mend fences.

Flags of China and U.S.| Reuters

New Delhi: The US imported $ 575.69 billion worth of goods from China in 2022, the highest value of imported goods since 2018, according to the United Nations Comtrade Database.

Despite an increase in the trade of goods between the two countries — reaching $729.525 billion in 2022, as per the UN Comtrade Database — there has been a dramatic decrease in US foreign direct investment (FDI) in China between 2020 and 2022 according to the World Economic Outlook first published by the International Monetary Fund (IMF) in April 2023 and updated in July 2023.

According to the IMF, US FDI in China fell by 37.9 per cent between the second quarter of 2020 and the fourth quarter of 2022 and the first quarter of 2015 till the first quarter of 2020. In comparison, US FDI increased in countries like Costa Rica, Colombia and India during the same period by 109.12 per cent, 30.78 per cent and 18.72 per cent, respectively.

According to the China Business Climate Survey Report 2023 published by the American Chamber of Commerce in the People’s Republic of China (AmCham China) — a non-profit and non-governmental organisation comprising members from over 1,000 companies operating in China — less than half (45 per cent) of the members consider China as their first or a top three investment priority for their companies.

This not only marks a fall of 15 percentage points since the 2022 annual report, but is also the first time in 25 years that less than half of the organisation’s members are seeing China as a priority for global investment.

Nearly 45 per cent of members reported that China’s investment environment is “deteriorating” — a 31 percentage point increase from the previous year — while 55 per cent reported no expansion of investment or plans to decrease investment in China.  Moreover, 24 per cent of the members reported that they plan to relocate manufacturing or sourcing outside of China, a 10 per cent increase from the previous year.

Srikanth Kondapalli, Dean, School of International Studies and professor of China Studies at Jawaharlal Nehru University (JNU), explained to ThePrint that since 2019, China has been penalising American companies like Micron Technology — the memory chip giant that recently announced an investment deal in India.

China and the US have been in the midst of a trade war since 2018, when the Trump administration first placed a 25 per cent tariff on $34 billion worth of Chinese imports. China retaliated by placing a 25 per cent tariff on $34 billion worth of US imports.

The trade war escalated in May 2019 when the US placed a 25 per cent tariff on $200 billion worth of Chinese imports, and China placed similar tariffs on $60 billion worth of US imports.

Tensions further rose earlier this year over the appearance of a Chinese balloon over US airspace, which was then shot down by the US Air Force.

Amid such tensions, Secretary of State Antony Blinken, Secretary of Treasury Janet Yellen and US Climate Envoy John Kerry have all visited China between June and July this year to mend fences between the two nations.

China’s growing influence 

Experts speaking to ThePrint highlighted how despite over $700 billion worth of trade in goods, the view of China in the US has slowly evolved from an economic partner to that of an ideological rival.

In the 1970s, rapprochement with China was viewed by officials in the US from a liberal point of view. They believed that intensifying economic trade would eventually lead to democratisation of China, said Gunjan Singh, assistant professor at O.P. Jindal Global University.

“The US helped China become a member of the global order. It started with [Henry] Kissinger’s secret meetings with Chou En-Lai in 1971. It was under President [William] Clinton in the 1990’s when the idea of democracy following economic liberalisation was pushed aggressively,” Singh added.

Sriparna Pathak, an associate professor of China Studies at the O.P. Jindal Global University, explained to ThePrint that the western powers failed to truly understand how serious China was about not reforming their political systems when Deng Xiaoping liberalised their economy.

“While realpolitik and pragmatism led to a thaw originally, China needed the west in the 1980s and 1990s economically. But today, China is economically strong,” Pathak added. As China’s economic strength and the US’ reliance on Chinese markets grew, so did China’s influence in the international sphere.

During the 19th Communist Party of China’s congress in 2017, President Xi announced that China wants to “occupy centre stage” and become the global hegemonic power, a position held by the US, Kondapalli told ThePrint.

“China never thought the US would push back the way it has,” said Singh. “China’s policy making has been in silos — the economy in one and politics in another — the US will no longer accept this.”

“Democracy and human rights have underlined US’ foreign policy, while China has focused on better living standards as the standard for human rights. This dichotomy has led to the US-China relationship evolving into one of ideological rivals,” she added.

‘China is a necessary partner’

Pathak explained to ThePrint that the recent efforts to deescalate the situation by the US stems from its reliance on Chinese markets and the fact today China has become a necessary partner.

“China accounts for 19 per cent of US agricultural exports today. It is a large market for US’ soybean exports. Even a key propellant for US’ Hellfire missiles used by its drones comes from China. The US today is economically dependent on China,” Pathak added.

Singh agreed. The US, she said, has also realised that it holds certain cards to equalise the issues of dependency on Chinese markets. “It holds the card on advanced technologies. This is where America holds an edge and will use all tools, including sanctions to maintain its position,” she added.

Nevertheless, China sees itself in a comfortable situation currently, given its stranglehold on other resources, such as the inputs for generic antibiotics, and is willing to use this to its advantage, said Pathak.

“Janet Yellen’s actions during her visit to China, including bowing multiple times to Chinese officials, was an unseemly gesture and a breach of protocol. But to the Chinese it showed they were in control,” Pathak added.

The Chinese have always had a unique position on its own cultural values and have always aimed to meet the world on its own terms, said Pathak and Singh, adding that the western world is only now waking up to this fact.

Despite this perceived political strength, China’s investments, especially in western real estate, has been declining, according to a report by the Wall Street Journal. 

The Chinese investment retreat also coincides with its own domestic economic problems. High youth unemployment — roughly 22 per cent as per government reports — to a real estate crisis and zero COVID, has seen China retreat from Belt and Road Initiative projects and across the world, said Kondapalli.

Globalisation as we know it reached its end point during the Covid-19 pandemic, said Singh.

“Both sides seem to be keen to mitigate the fallout from political tensions as their economies would be negatively affected,” she added.

(Edited by Zinnia Ray Chaudhuri)