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A New Phase in US-China Relations

July 31, 2017 The threat of war on the Korean Peninsula has shifted dynamics between the world’s two largest economies.

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By Jacob L. Shapiro

North Korea conducted another test of an intercontinental ballistic missile on July 28. This act was met with a number of threatening gestures from the United States over the weekend, including a test of the THAAD anti-ballistic missile system in Alaska and the flight of B-1 bombers over the Korean Peninsula. U.S. President Donald Trump harshly criticized China in a series of tweets, accusing Beijing of doing nothing to solve the ongoing North Korean threat and insisting that Beijing could solve the problem easily if it wanted to. The upshot of all this is that the relationship between the two largest economies in the world now depends on developments in Pyongyang. North Korea is shaping world events far outside its weight class.

The U.S.-China relationship had been cozier during the first half of 2017 than we expected in our annual forecast, in large part because Washington wanted China to help persuade North Korea to give up its weapons program. But that relationship is now beginning to deteriorate and fall more in line with our expectations. The notion that China could fix the North Korea problem was part cheap parlor trick and part wishful thinking. China’s influence in North Korea is far less potent than most suggest. China excels at appearing more powerful than it is on the world stage, which works well until the power that it had flaunted has to be exercised.


Chinese President Xi Jinping (L) and U.S. President Donald Trump attend a working session on the first day of the G-20 summit in Hamburg, northern Germany, on July 7, 2017. PATRIK STOLLARZ/AFP/Getty Images

Distinct Phases

Since Mao Zedong declared the founding of the People’s Republic of China in 1949, U.S.-China relations have moved through three distinct phases. The first phase lasted from 1949 to 1972. The main feature of the relationship was that the United States and China were on opposite sides of the Cold War. The second phase lasted from 1972 to 1991 and amounted to a complete reversal. China feared the Soviet Union, and the United States was reeling from the Vietnam War. The two countries solidified a more cooperative relationship grounded in a shared geopolitical interest in limiting Soviet power. The third phase began with the Soviet Union’s fall in 1991 and continued until very recently, when the fundamentals that defined the relationship began to change.

This third phase was defined by two key elements. The first was economic interdependence between both countries. China grew to become the second-largest economy in the world by relying on exports. Its substantial population enabled China to produce large amounts of goods at a lower cost than most countries. The result was that companies moved their production and assembly operations to China to drive down costs. This had many consequences, but three are of geopolitical importance. First, the United States became the largest destination for Chinese exports. Second, China became the largest source of U.S. imports. Third, millions of American workers lost their jobs because factories in the United States relocated their operations to China – but Americans also enjoyed access to cheaper goods as a result.


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The intertwining of the U.S. and Chinese economies created new constraints on both sides of the relationship. China must prolong export-led growth for as long as it can. It needs to preserve access to the U.S. market, which remains the largest market for Chinese goods in the world. In the United States, economic interdependence with China has also created constraints. American consumers are addicted to cheap imports from China and other countries. More than 20 percent of all U.S. imports come from China. Trump came to office touting protectionist policies, but some of those policies would disproportionately hurt the very voters who propelled Trump into office because introducing tariffs would raise costs for consumers. American production could not replace imports overnight, and once it did, the price of goods would increase.


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The second defining feature of the third phase of U.S.-China relations is the absence of a common enemy. The United States and China set aside their differences over Taiwan in 1972 because it was more important for both countries to cooperate when it came to the Soviet Union than it was to squabble over a comparatively minor issue. The collapse of the Soviet Union and the general weakness of its successor, the Russian Federation, eliminated one of the main strategic interests the United States and China shared.

It also changed the geopolitics of the situation on the Korean Peninsula. Both China and the Soviet Union had treaties with North Korea, but the fall of the Soviet Union meant North Korea had one less major power to balance off of. Here the United States and China also have divergent interests. Beijing wants to see a pro-China Korean Peninsula. That is beyond its grasp, so instead it seeks to maintain the status quo: a divided Korean Peninsula, with the North in Beijing’s sphere of influence. The United States wants to see a unified, pro-U.S. Korean Peninsula. But in the absence of that, Washington will accept a secure South Korea and a regime in Pyongyang without nuclear capabilities.

Thus, when it came to the Korean Peninsula, U.S.-China relations in the 1990s and 2000s were characterized by both friction and cooperation. But Kim Jong Un’s progress in the development of a deliverable nuclear weapon over the past two years has elevated the importance of North Korea in the U.S.-China bilateral relationship.


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Hope Isn’t Enough

The hope was that Beijing could rein in Pyongyang, but hope is not a solid basis for action. When Kim executes family members with anti-aircraft guns and seems to be making progress in developing a deliverable nuclear weapon, it raises doubts about China’s level of control and Pyongyang’s intentions. The question of how much power Beijing has over Pyongyang is now at the center of U.S.-China relations. Unless China has a rabbit to pull out of its hat, it appears that the question has been settled. Either China does not have enough power to convince North Korea to halt its weapons program, or it does not have the imperative to use it. We suspect the former, but either way the result is the same.

U.S.-China relations are now starting to enter a new phase. This was inevitable; politics among nations is not a stagnant affair, and China has seen extraordinary growth of its economic and its military capabilities, especially in the past decade. The U.S. and China were going to butt heads eventually. Their economies remain interdependent, but at the political level China and the U.S. have divergent interests, and the gap is widening. In the past, those differences were mitigated in large measure by the economic interdependence between the two countries, and by the low stakes of the areas where China and the U.S. disagreed, like man-made molehills in the South China Sea. But now North Korea is testing ICBMs and the U.S. cannot tolerate the threat. The U.S. will be focusing on the North Korea issue first, as it is more pressing, but what shouldn’t be lost in all of this is that U.S.-China relations are entering a new phase, and it promises to be a much bumpier ride than the past 26 years have been.


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