US-China relationship can be saved despite coronavirus and trade war
Renewed cooperation or even a fresh partnership between China and the United States remains a logical and compelling solution to the problems faced by both
The bilateral relationship may sour further as China becomes a major issue in this year’s US election, but mutual benefit should bring both sides back together
Illustration: Craig Stephens
The US-China relationship is on the rocks and possibly headed for a nasty break-up, but don’t rush to write it off. While this may seem like a contrarian view, renewed cooperation or even a fresh partnership between China and the United States remains a logical and compelling solution to the problems faced by both nations and the world.
We need to look past the current crisis. While the politics of blame and rivalry currently prevails, the fundamentals can be summarised thusly. The two countries remain mutually dependent and their economic relationship is more complementary than competitive; the US faces its worst domestic social and economic crisis since World War II and can ill afford another cold war; and the two countries are becoming more alike as the US government and central bank resort to massive intervention in the economy while China softens its version of state capitalism through deregulation and market opening measures.
China, not Canada or Mexico, remains the largest US trade partner. The US still depends on China as a key source of attractively priced consumer goods, credit, students, tourists and talent. Students from China account for more than one-third of all foreign students in America. China remains the world’s factory; for example, Chinese steel factories are responsible for more than half of global output.
China’s domestic consumer market, with an estimated 400 million middle-class consumers, is the world’s biggest. Globally, 31 per cent of annual growth in consumer spending is Chinese. In recent years, this has been one of the largest sources of export demand growth for American goods and services.
The US, meanwhile, is in great difficulty. Its economy is projected to record an 8 per cent contraction in 2020, according to the International Monetary Fund, which projects China to grow 1 per cent this year. According to a public opinion survey by NBC and The Wall Street Journal, eight out of 10 Americans believe things in their country are out of control.
Although US government figures show a trade deficit of US$345 billion with China in 2019, the real situation may not be so simple. This is because American companies such as Apple, Nike, Starbucks, General Motors and Procter & Gamble have been very successful in China’s domestic market. Their sales don’t show up in US export figures. Chinese companies have been far less successful in building up a domestic US presence.
Thus, if the overall situation is calculated to cover both trade shipments and in-country produced sales, the Sino-American economic relationship is roughly in balance, based on publicly available estimates.
The economic security of the US depends on staying connected to China. The alternative is to pursue austerity, tighten belts and rebuild national savings, but no US leader would be able to sell this to the American public unless there is a shooting war on the scale of World War II.
US companies continue to thrive in China. A recent survey by the American Chamber of Commerce on the Chinese mainland showed most US companies don’t want to leave the country. Most cited improvements in their business environment. It is obvious that while politicians talk politics, businessmen just chase money.
It is important to note that without economic security, national security is not possible. That’s why there is a good chance that after the US presidential election this November, American leaders confronted by worsening economic security will be motivated to look for a pragmatic compromise on China.
The world needs Sino-American cooperation. These two nations account for more than 40 per cent of the global economy, 52 per cent of the world’s military spending and 43 per cent of all carbon emissions. If they don’t get along, it is difficult to crack problems ranging from global security to climate change.
That leaves one question: what’s at stake for China? The leadership in Beijing has a long-term vision to make China an advanced country in terms of the economy as well as social and cultural achievements and national unity. President Xi Jinping has called this the “ Chinese dream”.
The one country that can disrupt that is the US. By acting tough on issues such as technology transfer, globalisation, the South China Sea and the flow of money in global financial markets, the US can cause serious setbacks for Beijing. It is probably too late to stop China from becoming the world’s biggest economy, though.
Beijing is highly motivated to repair its relationship with Washington. In the five weeks to early June, for example, China bought an estimated two-thirds of American soybean exports.
China and America were allies in both world wars. Their relationship is different from the Cold War rivalry involving the Soviet Union, which was focused on world domination. China has insisted it is not interested in exporting its ideology to other countries and has not competed with the US for world leadership.
The bilateral relationship may sour further as China becomes a major issue in this year’s US election campaign, but mutual benefit should eventually bring both sides back together. The world will benefit from a restored friendship.
Cheah Cheng Hye is the co-chairman and co-chief investment officer of Value Partners Group, an asset management firm in Hong Kong. He is also an independent non-executive director of Hong Kong Exchanges and Clearing Ltd. The above reflects his personal opinion only