By: Zhao Minghao    Source: China-US Focus    Published: 2020-01-07

China and the United States will sign a phase one trade deal this month, an important step forward in their attempts to ease tensions. Their trade negotiation teams have made great efforts to this end.

Needless to say, responses to the agreement have been mixed, and there are some criticisms both in the United States and China. However, this only shows that the final agreement has a certain balance, and it definitely cannot satisfy everyone. The two sides have achieved a necessary compromise.

Today, concerns center on prospects for negotiation of a phase two deal and further talks to come. In fact, the decisive factor is not negotiating skill or bargaining in specific areas but how China and the United States recognize and respond to the significant differences between their economic and political systems and ideologies. These differences are more complicated than past disputes over capitalism and socialism between the U.S. and the Soviet Union.

Since the global financial crisis of 2008, Western analysts have used multiple labels to describe China’s systems. They have suggested that China’s state capitalism poses a challenge to the Washington Consensus. After Donald Trump became U.S. president in 2017, the West’s characterization of the Chinese systems turned even more negative than it already was. It even defined the situation as a “clash of civilizations.”

Steve Bannon, the former chief strategist to the White House, called China’s development model “the Chinese Confucian mercantilist authoritarian hegemony,” which he believed was a fundamental threat to “Judeo-Christian liberal democracy.”

Obviously, such labels are intended to dress China as “the other” or even a “rival,” but they are too simplistic to help the West effectively respond to the so-called China challenge. Under the guidance of pejorative labeling, biased perceptions about China are everywhere.

For example, White House trade adviser Peter Navarro fiercely accused China of intellectual property theft, often using the exaggerated rhetoric to the effect that China is “basically trying to steal the future of Japan, the U.S. and Europe.” But the fact is that since China’s WTO accession, the country’s annual intellectual property fees have exceeded the international average. In 2000, it paid $1.3 billion in fees; by 2017 they had increased to $28.7 billion, an average annual growth rate of 20 percent in a period when the average annual increase of the world was only 9.5 percent.

In addition, on the issue of industrial subsidies, the United States has applied double standards. The U.S. government’s various forms of subsidies for industries such as advanced manufacturing and agriculture are huge, and the existence of the military-industrial complex has given U.S. government subsidies some legitimacy. Amazon, for example, received at least $613 million in local government subsidies between 2005 and 2014. From 2010 to 2016, the U.S. government invested more than $100 billion in basic research in biomedicine.

Ironically, while the Trump administration is asking the Chinese government to reduce its “intervention” in industry, it is learning from China how to use government power to promote innovation. The administration is advancing artificial intelligence with a whole-government approach.

In May 2018, the U.S. government hosted the Artificial Intelligence for American Industry Summit, emphasizing government coordination in combining the strengths of industry and academia to maintain U.S. leadership in the age of artificial intelligence. In February last year, Trump rolled out the American Artificial Intelligence Initiative, which is actually an executive order that expressly requires the federal government to increase investment in the artificial intelligence industry. The White House has also set up the Select Committee on Artificial Intelligence, which includes officials from government agencies including the Office of Science and Technology Policy, the National Science Foundation and the Defense Agency Research Projects Agency. The Pentagon has established the Joint Artificial Intelligence Center to strengthen the partnership between the U.S. military and Silicon Valley tech giants.

As Forbes magazine commentator Harry G. Broadman said, during the Trump administration the government’s dominance of trade affairs was further strengthened and the role of business was weakened. Trump even wanted to order U.S. companies to withdraw from China. Broadman teased that Trump longed for state control of the U.S. economy.

Of course, China has been working hard to find a balance between the government and the market that is conducive to economic development. Stephen Roach, a senior researcher at Yale University, believes that China’s difficult economic transition is continuing, though its reforms have actually achieved a lot in the past few years. People should pay attention to the “Next China.” Meanwhile, the Trump administration is flailing away at antiquated perceptions of the old China and isn’t helping to solve the problem.

If the United States blindly seeks to achieve unrealistic goals in Sino-U.S. trade negotiations, it will lead to results that deviate sharply from U.S. goals. On the assumption that the United States harbors a fundamental hostility to the Chinese system, the pace of China’s domestic reform and opening-up may slow, and the pressure on reformists will increase. At the same time, the trade war provoked by the United States has greatly damaged the interests of Chinese private enterprises, including Huawei, which in turn will prompt Chinese companies to ask the Chinese government to increase its protections and arouse economic nationalism in China.

Like it or not, Washington must accept the reality that China will not just copy the U.S. model. As the world’s second-largest economy, China cannot easily be defeated by the United States. The fact that China and the U.S. have reached a phase one agreement shows that the two sides hope to find a way to achieve a peaceful coexistence of their different economic systems. This is crucial for the continuation of Sino-U.S. trade negotiations.

Of course, competition between the two is inevitable, but it should be based on rules that are acceptable, and should not cause losses to the interests of other economies in the world.

In short, it’s misleading to look at the Chinese and American systems as an irreconcilable barrier, nor is it wise to look at China’s development model from a static perspective. After all, there is a third route between China and the United States beyond the binary choice of “deep integration” or “decoupling.” As Ambassador Cui Tiankai said, the resilience of Sino-U.S. relations lies in their ability to solve problems and overcome difficulties.

If the United States can get rid of its zero-sum, confrontational approach in handling relations with China, it can still make an important and positive impact on China’s future development.

The author is a visiting fellow at the Chongyang Institute for Financial Studies at Renmin University of China.