Recent headlines have made much of the fracas between the Chinese government and the Obama administration. For a while, the situation indeed seemed grim. Reacting to a variety of perceived slights – diplomatic, economic and military – both nations appeared to be preparing to square off.
In response to the US decision to sell weapons to Taiwan, Beijing made the unprecedented threat of sanctioning American firms involved in the sale. "China’s response, no matter how vehement, is justified," said the state-owned China Daily. President Barack Obama responded by moving up his meeting with the Dalai Lama. Hardliners on both sides gleefully leapt to their soapboxes.
Fortunately, it appears for the moment that cooler heads have retained their hold on the reins. Cognizant, perhaps, that it had backed the White House into a corner, Beijing announced it would allow a US carrier group to dock in Hong Kong – a privilege that had been revoked in the past in response to American support for "splittists." Anonymous government sources suggested that Beijing is now trying to move past the confrontation to smooth the way for President Hu Jintao’s upcoming visit to Washington. This is good news.
But contradicting the business-as-usual thesis is the degree to which Beijing pushed the Obama administration and the fact that it gained so little from the pushing. While it is usual for Beijing to test new US administrations, it has made Obama walk on coals, remaining recalcitrant on Iran and snubbing the US president in Copenhagen.
Weakened at home and facing obvious problems with its policy of engagement with China, the Obama administration had little to lose by addressing Beijing more directly. The US may have also concluded that if China was unwilling to offer carrots, it was also running out of sticks. The Chinese economy is more vulnerable to foreign sanctions than the other way around, and a large-scale selloff of US Treasuries is a non-starter.
From the Chinese perspective, there are deeper, more complex issues at work here. Beijing is sensitive to its people’s take – primed by the official media to take a certain view – on the country’s foreign interactions. It knows that China remains weaker than the US, but there is confusion on the issue among the citizenry; Chinese nationals residing in the US have reported receiving calls from mainland relatives offering financial support.
Perhaps Beijing is struggling to justify a policy of cooperation with Western nations it has intimated are on the wrong side of history, given China’s rise. The risk is that what the US sees as reasonable international interactions would be perceived within China as groveling to a has-been.
A turn inward would have an impact on international economic coordination. This is worrisome because the new phase into which the global economy is moving is, in some ways, more risky than that immediately following the crash.
At the outset, the economic crisis moved all nations together, the way a hurricane will force squabbling in-laws into the same house. During the first bleak months of the crash, for example, a cabal of nations, including the US directly and China indirectly, moved in tandem to coordinate interest rates. And if China took the opportunity to criticize US economic policy, it had reason on its side.
Now, as both countries look for an exit from their respective stimulus packages, they see less need to remain huddled under the same roof. Consequently, the classic trade agendas have reemerged – complaints to the WTO, threats of import tariffs, and a robust dialogue on the value of the renminbi. Differences of opinion over arms to Taiwan, the Dalai Lama and cyber-hacking graduate from minor spats to major flashpoints partly because of this more fractious wider mood.
The tensions are unfortunate, because timing is everything at the end of a stimulus, as the Japanese example illustrates. The growing interdependency of the US and Chinese economies also requires a measure of synchronization to avoid distortions.
Sacrificing international dialogue to score points with a domestic audience serves no one well.
