The great Sino-American divorce

By Mark Leonard
August 23, 2012

All breakups are tough. But the divorces we have learned to fear the most are protracted, conflict-prone and ultimately unresolved. All the signs are that China and America are in the middle of one of these messy divorces between abusive couples who hate and need one another at the same time. As Washington and Beijing prepare for new political leaderships, they cannot avoid a major renegotiation of the terms of their relationship.

Since the global financial crisis in 2008, we have been living through the slow and painful end of Chimerica — the period when the American and Chinese economies acted as one. It drove one of the longest periods of global growth and prosperity in history. This perfect symbiotic relationship — popularized by the historian Niall Ferguson — was based on China saving half of its GDP while America borrowed the money to finance a spending binge it could not afford. The romance ended in September 2008 with the collapse of Lehman Brothers. Now the terms of the separation between the two nations risk awkward discomfort for the rest of the world.

On a recent visit to Beijing, I was struck by the near-universal assumption that American demand will not return to pre-2008 levels. This has led to a lively debate about how to reorient China’s economy. On the one hand, China is hedging against the dollar by investing in companies and assets outside the U.S. On the other hand, Beijing is bracing itself for slower growth, while looking for substitutes for exports and fixed investment.

There is an ongoing discussion in China about how to encourage the growth of small and medium-sized enterprises, how to stimulate domestic consumption and how to invest in social welfare rather than infrastructure. The American economic debate is less strategic, but there is a realization that the level of debt incurred in the boom years is unsustainable and some of the stimulus measures like quantitative easing will make it increasingly unattractive for the Chinese government to stockpile Treasury Bills.

As if in anticipation of the “Great Decoupling,” the political atmosphere between Washington and Beijing has soured. A film released in the U.S. this week called “Death by China” — narrated by the nation’s favorite fictional president, Martin Sheen — says that “China is the only major power that is systematically preparing to kill Americans.” A publicity poster features a blood-soaked map of the United States stabbed by a huge knife that is engraved with the words “made in China.” But the fear-mongering in the film is moderate when compared with the daily attacks on “perfidious” American leaders on Sina Weibo (the Chinese answer to Twitter) or in best-selling books such as “China is Unhappy” (an ultranationalist tract that sold over 1 million non-pirated copies in 2009).

Tensions have increased because the post-American world has become a reality — driving both a weakened Washington and a strengthened Beijing to be more assertive. The hawkish Chinese academic Yan Xuetong claims the world order is changing from “a unipolar system with the United States as its center to a bipolar system with China occupying the other pole.” But military conflict is not the only danger. Either protracted competition or a peaceful condominium between the two powers could be almost as damaging for the world.

The competition is already on. China’s nervous neighbors have welcomed Washington’s renewed focus on the region. Collectively the democratic Asian powers — in alliance with the United States — have more economic and military might than China (although their economies are utterly dependent on Beijing).

Professor Yan Xuetong thinks China should respond to Obama’s “pivot” to Asia by revisiting its strategy of “non-alignment.” It could forge a formal alliance with Russia, as well as offer security guarantees to other Asian states. Andrew Small, an insightful China watcher, warns that: “We could see a return of a lot of the negative dimensions of the Cold War where attempts to solve global problems, solve regional conflicts or build international institutions are instrumentalized in a contest to change the balance of power between the two poles.”

Fred Bergsten has long argued that — instead of competing — the two largest trading nations, on opposite ends of the world’s largest financial imbalance, should form a legal condominium to run the global economy. Zbigniew Brzezinski extended this to the political realm by suggesting an “informal G2″ that could find solutions to the global financial crisis <here>, climate change <here>, nuclear proliferation and regional conflicts.

This has been shot down by observers like Shi Yinhong, a Chinese academic, who argues that China and the U.S. bring out the worst in each other. “We lend too much money and the American government and people use this money to have an unhealthy mode of life,” Professor Shi said.”

Shi could go further and point to the way that China often makes American capitalists more rapacious, labor unions more protectionist, the military more hawkish and politicians more populist. The specter of American power and the attraction of American markets has a mirror effect in Beijing — fueling the most regressive aspects of the Chinese economic model and foreign policy. Thus, it is not hard to imagine the two worst polluters in the world — China and America — colluding to stop a solution to global warming or undermining multilateral institutions. The competition risks turning two great powers with a history of revolutionary universalism into nations obsessed with their own exceptionalism.

More important, the very idea of an international condominium dictating the global order runs against the spirit of a time when citizens and nations want to determine their own futures.

As Chimerica dissolves, each variant of the new Sino-U.S. relationship is unattractive. War would be catastrophic, strategic competition could paralyze global governance and a G2 format could bring out the worst attitudes of the two global powers. The only way of avoiding these dystopian futures is to encourage a multilateral order made up of more united regions — allowing China and America to have a normal relationship.

Other powers such as the EU or Japan will not be taken seriously by either China or the U.S. unless they solve their domestic woes and crank up their foreign policy capacity — moves they show no sign of making at present. Unless they do, they could find themselves trapped in a horrible custody battle between the two divorcing parties.

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/