A worrisome confrontation is escalating between the United States and China. Washington charges that Beijing is unfairly bolstering Chinese exports by keeping its currency artificially low and is troubled by Beijing’s dispute with Google over Internet censorship. Beijing is telling the United States to mind its own business and is chafing over U.S. arms sales to Taiwan and President Obama’s recent meeting with the Dalai Lama.
With the anger on both sides intensifying, American and Chinese leaders urgently need to take steps to defuse the situation. Otherwise, China’s continuing rise may soon result in a classic rivalry between reigning hegemon and ascending challenger.
I have just returned to Washington from Beijing; the mutual antagonism is palpable in both capitals. Amid a stubborn slump in U.S. employment, Washington is awash with disgruntlement over the trade imbalance with China. In one of the few remnants of bipartisanship, Democrats and Republicans alike are calling for retaliation against China’s alleged manipulation of its currency. Talk in Washington is that Beijing’s once-cautious foreign policy has suddenly become assertive and caustic.
Beijing is abuzz over the accusations from Washington. Chinese leaders contend that Americans are blaming China for economic problems that are homegrown. In a recent press conference, Prime Minister Wen Jiabao denied that the Chinese currency is undervalued and asserted that responsibility for “serious disruptions” to the China-U.S. relationship “does not lie with the Chinese side but the U.S. side.” Angry calls for the country’s leadership to stand up to American intimidation dominate the Chinese press and blogosphere.
Despite the rising rhetoric, the current discord is not about a fundamental clash of national interest. Rather, it is the product of domestic pressures on both sides that are cornering their governments into a counterproductive game of tit for tat. There is a win-win way out, but American and Chinese politicians both need to see through the haze of mutual recrimination to recognize it.
The declarations of Chinese leaders aside, it is in China’s interest to allow for a significant appreciation of the yuan. Doing so would allow the government to address its most pressing political challenge: reducing income inequality and raising the quality of life for millions of Chinese. The best way to achieve this goal is to move the Chinese economy away from export-led growth, huge dollar reserves, and high savings toward domestic investment and the stimulation of domestic consumption. An appreciated yuan would further these ends by increasing the purchasing power of China’s consumers and reallocating wealth away from large, often state-owned exporters to the broader citizenry. China — along with the rest of the world — would benefit from this re-balancing and the global stimulus it would produce.
Beijing is not pursuing this course of action in part because of lobbying from powerful exporters. But at least as important in prompting Beijing’s intransigence is pressure from Washington. Amid the blustery nationalism that is now a staple of Chinese politics, the more intensely the United States presses Beijing to revalue its currency, the more firmly Chinese leaders dig in their heels.
Washington is right to want a revaluation of the yuan, but wrong to pursue that objective through bullying Beijing. The problem is that President Obama — just like his counterparts in Beijing — is under pressure to get tough. Labor unions are pressing him for relief from Chinese imports. And standing up to Beijing can help Mr. Obama counter charges that he is not sufficiently firm in dealing with illiberal regimes.
So how to get out of this box? Washington and Beijing should engage in mutual accommodation, each taking actions that will give the other more domestic room for maneuver. Washington could send a benign signal by loosening the technology export controls that have long rankled Beijing. The United States could propose joint research and development programs on green technology and resource management. And Washington should cease its public pestering of China about the value of the yuan, instead working through the cover of the G-20 and deliberately giving Chinese leaders the wider berth they need to act.
Beijing can reciprocate by supporting U.S. efforts to tighten sanctions against Iran if Tehran continues to refuse compromise on its nuclear program. Beijing’s cooperation would win China a significant measure of good will in Washington. So would Beijing’s willingness to ease its clamp down on Internet freedom. If a mending of fences results from these acts of mutual accommodation, Beijing would be in a much better position to revalue the yuan, a move that would further dissipate frictions.
The United States and China certainly have their differences over Taiwan, human rights and other issues. But at least for now, the two countries are not on a geopolitical collision course. They are, however, fast traveling down a route that has the potential to turn differences of opinion into a dangerous rivalry. Both powers must now firmly apply the brakes.
Charles A. Kupchan, a professor of international affairs at Georgetown University and a senior fellow at the Council on Foreign Relations. He is the author of How Enemies Become Friends.