Frenemies: Will China and the United States Live Happily Ever After?

Part two: Battle lines are drawn and erased

Mike Richman

May 30, 2018

In part one of this article, we discussed the origins of the United States and China, and how their relationship began to emerge.

Many people might point to the United States as the ultimate example of a laissez-faire, free market, unfettered capitalist system. Some would also say that China embodies a controlled, top-down, socialist paradise. There are elements of truth to these notions, but in a larger conception there are far more similarities than differences between the U.S. and Chinese economic systems.

The United States government has embraced certain quasi-socialist principles since at least 1933, when the country, led by president Franklin D. Roosevelt, was driven by desperation to create monetary redistribution policies and social safety nets. Since that time, support programs have proliferated, causing more than a few moneyed interests to pine for the good old days of 60-hour work weeks and nonexistent regulations.

The latent power of the Chinese economy, a sleeping giant so long anticipated and feared, began to rouse.

China’s lengthy and legendary place as a center of commerce was frozen by Mao and his revolutionaries in 1949; for the next several decades few places, not even Russia, were as stringent with Marxist doctrine as China. Yet by the mid-1960s, Mao detected whiffs of resurgent capitalism in his nation. The resulting Cultural Revolution destroyed any semblance of a functioning economy; were it not for Mao’s cult of personality, the entire system may have collapsed. But it was not until Mao died in 1976 that the ill-conceived Cultural Revolution finally ended. Since then, leaders like Deng Xiaoping in the 1980s and, especially, Xi Jinping today loosened the government’s tight hold on the economy. Slowly but surely, the latent power of the Chinese economy, a sleeping giant so long anticipated and feared, began to rouse.

It started, of course, with manufacturing. Deng had helped institute a program called “The Four Modernizations” in 1977, shortly after the death of Mao. The plan was intended to make China a global economic power by the year 2000. Deng and the rest of the country’s Communist Party leadership released a “Resolution on the Reform of the Science and Technology Management System” in 1985, which sought to solve a longstanding disunity between China’s research and development functions and the nation’s manufacturers. The 1985 resolution brought together not only R&D and industry, but academia, too. It was a major turning point in China’s march toward manufacturing, technological, and economic self-sufficiency.

Even as the Chinese have evolved in recent decades into a manufacturing powerhouse, complete self-sufficiency still seems to remain an aspiration. Despite neomercantilist China’s successful grabbing of foreign capital reserves, the United States holds some advantages. Nowhere is that clearer than in the surprising fate currently befalling Chinese telecommunications giant ZTE—a death sentence that, shockingly, may eventually be commuted by President Donald Trump, of all people.

There are compelling reasons for the U.S. government to slap onerous restrictions on ZTE, which relies almost wholly on U.S. components for its products. Not the least of these involves national security, because the company stands accused, with reason, of sharing forbidden technology to Iran. Yet there may be equally persuasive reasons to relax the penalties and allow U.S. suppliers to turn the component spigot back on for ZTE. Trump recently tweeted, “President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost.”

Now, Sino-American trade is complex in many ways, but forbidding access to critical components one moment and then offering to resume access at the next goes beyond complex. Might something else be going on?

If you think about the lessons that Xi and his team might take away from the ZTE affair, high among them is the realization that reliance on high-tech U.S. components puts China at a significant competitive disadvantage. What is that disadvantage worth annually? $25 billion? $50 billion? $100 billion?

Is it wise for the U.S. government to be driving the Chinese away from U.S. components and toward a greater degree of self-sufficiency?

It’s also fair to ask if it’s wise for the U.S. government to be driving the Chinese away from U.S. components and toward a greater degree of self-sufficiency at the highest levels of technology. This could very well hurt the United States in the long-run, and maybe not that long of a long-run.

Bear in mind that China is not necessarily moving toward self-sufficiency because the United States, Japan, Europe, etc., may cut off its supply chain in critical parts. China is doing so because self-sufficiency is generally a good thing, for reasons of general prosperity, development of a broader-based economy, risk management, and potentially exporting your wares if you can provide a better product.

The British, back in the 1840s, were mesmerized by Richard Cobden’s ideas of free trade and open borders. They converted, not without struggle, to this utopian faith and threw open their markets to the world. Across the Atlantic, however, America’s more closed system (at least where it came to imports) was embraced.

Further back in history, it’s important to note that the second bill signed by President George Washington was the Tariff Act of 1789. In his first address to Congress, Washington said, “A free people… should promote such manufactures as tend to make them independent on others for essential, particularly military, supplies.”

In his 1791 Report on Manufactures, Alexander Hamilton wrote, “Every nation ought to endeavor to possess within itself all the essentials of national supply. These comprise the means of subsistence, habitat, clothing, and defence.”

This was wisdom born of experience.

At Yorktown, Americans had to rely on French muskets and ships to win their independence. The founding fathers were determined to erect a system that would end their reliance on Europe for the necessities of the young nation’s existence, and establish new bonds of mutual dependency—among Americans.

Britain’s folly became manifest during World War I, as a self-reliant America stayed out of the conflict, while selling to an import-dependent England the food, supplies, and arms she needed to survive but could not produce.

All of this is germane to China’s rise. Its actions are in its own self-interest, something that should be expected of any nation—until it gets so rich that it becomes consumed by guilt about its own success and wealth. This usually happens after about two or three generations of spoiled citizens. Sound familiar?

Whose century is it, anyway?

The 19th century (and the one or two that preceded it) belonged to England. The 20th century was unquestionable an American one. Who will the 21st century belong to?

The knee-jerk reaction, naturally, would be to connect the dots penciled out above and answer, “China.” Maybe that will turn out to be the correct answer, but there are many contenders for the crown.

First, the United States continues to be the one indispensable nation supporting democracy and the rule of law across the world. America’s moral authority has sometimes been questioned, with reason, but no other country combines hard and soft power in quite as persuasive a way. It would not be a surprise if the United States ended this century in much the same position as it began.

The European Union, even without the participation of the United Kingdom, is a huge, complex, and cosmopolitan marketplace that is currently throwing itself open to the problems and opportunities inherent in mass immigration. With mature democracies in many of its biggest members, not to mention highly productive economies and strong social safety nets, Europe could easily reemerge as the enlightened ideal of the 21st century society, should the U.S. recede.

Russia has several things going for it, not least of which is a commitment to realpolitik and some deeply integrated lessons from the collapse of the Soviet Union and the end of the Cold War. However, kleptocracies are inherently unstable (not to mention unpredictable), and the economy isn’t varied enough to support an uncertain future for oil prices.

Japan and India have certain competitive advantages. In the case of the former, these include stability, innovation, and quality; for the latter, it’s all about quantity—of people, of companies, of opportunity. But Japan’s population is aging rapidly, and India’s is exploding so quickly that managing its growth will be a tremendous handicap.

For these reasons, the 21st century will likely be dominated by the United States or China, or probably both, in an ever-shifting pattern. These two nations are the ultimate “frenemies,” with at least as much pulling them together as tearing them apart. Each one’s success or failure relies in a large measure on the other. But can this marriage, composed of a strange mixture of love, fear, and mutual need, be saved from jealousy on both sides of the Pacific?

The United States is now enmeshed in a political moment that may eradicate much of the established order that has shaped the post-war world. President Trump ran on a populist message which insisted that everything he and his administration would do would put America first. He’s been true to his word, and the big-picture economic indicators seem to be reacting favorably to this approach.

The two nations are the ultimate ‘frenemies,’ with at least as much pulling them together as tearing them apart.

Many economists, however, were horrified at his perspective on outsourcing and trade, insisting that a focus on winning back (or even maintaining) manufacturing jobs in the United States was a fool’s errand. President Obama consistently spoke to his belief that the jobs of the 21st century would be in service and transaction sectors, not manufacturing, which has been beset not only by wholesale outsourcing but also the advent of large-scale industrial automation.

Trump believes that he is right, and the experts (who supposedly had irrefutable data on their side) are wrong. The jury is still out, but there’s at least some re-examination of those data that shows that perhaps the Trump team has some valid points to make.

Back to the future

The half-year spanning the end of 1949 into the middle of 1950 described at the beginning of this two-part article serves as a helpful reference point for how and why the economies of Asia and the United States developed as they did.

If Mao had not won his revolution, there would not be a nominally socialist superpower in China today. Had Deming not trained the Japanese, U.S. industry might never have had to face the kind of existential threat represented by the Toyota Production System. And if the Korean War had not begun, we wouldn’t have such a perfect example of how political philosophy affects economic output—after all, it’s hard to imagine two more economically different nations that the powerful South Koreans and their impoverished neighbors to the north. Their division makes the old West German-East German schism look like an argument over which is better, Harvard or Yale.

And yet, when Americans consider where the power lies in East Asia, it’s not Japan, or South Korea, or even North Korea that they wonder about. It is, naturally, China that is predominant: China, with its territorial aspirations; China, with its burgeoning military (and middle) class; China, with its emerging confidence, or perhaps arrogance. China is the bogeyman. China is the hope.

We’ve all doubtless heard that the Chinese word for “crisis” is composed of characters meaning “danger” and “opportunity.” However, this is largely incorrect. The one for “danger” is accurate; however, the other character is more properly translated as “moment of change.” Prominent American political figures, including John F. Kennedy, Condoleeza Rice, and Al Gore, have all made this error, intentionally or otherwise, in various speeches over the years.

This strikes me as a particularly cogent metaphor for the convoluted relationship between these two great and historic powers: One (the United States) never letting the truth get in the way of a good story; and the other (China) gifted with a certain cultural ambiguity that others are always destined to misinterpret, and taking due advantage.

Much that will happen in the remaining 82+ years of this century will have little if anything to do with China and the United States. However, it is almost a certainty that the biggest, most important moments—those that affect billions of lives in countless ways, large and small—will begin or end with Americans and Chinese working together, or apart, for good, or for ill. If those unknown events are to be managed in such a way as to bring positive results, then the core relationship between the governments and people of China and the United States must be nurtured and nourished. The lesson of history is that powerful nations that aren’t engaged with each other risk seeing that disengagement fester and turn into engagement of a different kind.

It’s in everyone’s interests that this not occur. The time to begin is now.

About The Author

Mike Richman’s picture

Mike Richman


Absorbing Read with Great Incite

Mike Richman has given us a great perspective on the "how's" and "why's" of our World ecomomy today. The real contributors to our current economic situation have endured so many contrary opinions that it is refreshing to see a writer sum it up so succintly. A very engrossing read. 

Many thanks!

Hello, Devin! I very much appreciate your kind thoughts. These are extremely complex topics and I only just scratched the surface in 4,000 words, but hopefully it sets the table for the other content in our series on the many facets of the U.S.-China relationship. Have you read the other articles we've posted on this topic? If so, what did you think? Thanks again for your readership!