July 17, 2013

US-China bilateral relationship talks still lack strategic depth

The following article originally appeared in the Economic Times on July 17, 2013.

When the top diplomatic and economic leaders from the US and China met last week for the Strategic and Economic Dialogue, there were few significant breakthroughs. But the annual official jamboree provided a good opportunity for both sides to take stock of their complex bilateral relationship, one that has become increasingly relevant for the rest of the international community.

Over the past year, cyber security has assumed greater salience in US-China relations. Although Washington has shied away from criticising Beijing for government snooping — the US is, after all, on weak ground in this respect, following revelations concerning the NSA's elaborate surveillance programme — it has complained about the theft of trade secrets. This was a point US President Barack Obama brought up in his meeting with Chinese representatives.

What About the Pivot?

Beyond the cyber realm, security competition between the US and China has taken on greater complexity due to a combination of Chinese assertiveness, the American response, and leadership transitions in both countries. China's new leadership under Xi Jinping and Li Keqiang has indicated a willingness to repair tense relations with neighbours. But sceptics argue that their conciliatory gestures mark a tactical shift rather than a sincere move, pointing to such incidents as the PLA's incursion in Ladakh in April.

The US, for its part, appears to be conflicted about the "pivot" or "rebalance" to Asia it announced two years ago. The pivot comes just as the US seeks to cut its military budget, and American officials have recently emphasised its non-military aspects, including a greater diplomatic presence and a more active role in Asian economic integration. Even these policies have been criticised for being too feeble.

Some have noted that US Secretary of State John Kerry seems far more intent on addressing thorny diplomatic problems in Middle East than on pursuing American objectives in Asia. Others have pointed to the Obama administration's lukewarm approach to international trade liberalisation. The political and military contradictions in China and the US also echo ambiguities in the economic space.

American leaders understand that a consumption-driven model may not be sustainable and that their economy will need to adapt to keep pace with new technologies and competitors. China's leaders, meanwhile, know that their country faces complex challenges associated with avoiding a middle-income trap and coping with decelerating growth. Many experts in the US and China believe that the answer lies in redressing the imbalances in the two economies.

The US needs to expand its manufacturing sector and cut its current account deficit, while China must transition away from exports and consume more. The decision by Chinese negotiators to drop some of their opposition to a bilateral investment treaty with the US could be seen in this light. But others question the merits of such an approach, believe that mutual interdependency will continue to prove politically stabilising, or simply think that such a rebalance will be impossible to achieve.

Given new leaderships in both countries, the fifth US-China Strategic and Economic Dialogue could not have realistically provided either side with much greater clarity about the other's intentions. This is not reassuring for the rest of the world, for whom the relationship between the two most potent economic and military powers will have important consequences.