Analysis & Opinions - The National Interest

The U.S.-China Relationship is at a Crossroads

| Jan. 15, 2020

Some decoupling of interdependence is likely, particularly in areas related to technology that directly affect national security. But will Washington and Beijing go too far?

President Trump has declared a temporary truce in his trade war with China. Economists point out that both countries gain from trade, but strategists complain that in terms of relative power, China gained more. Vice President Mike Pence recently pointed out that over the past 17 years, China's GDP has grown more than nine-fold, and we should regard China as a strategic rival. Gone are earlier administrations' rhetoric about engagement, and while Pence disavowed it, many observers believe that decoupling has already begun.

Former Australian Prime Minister Kevin Rudd recently summarized the many strands of U.S.-China economic interdependence. In trade, the U.S. accepts 19% of China’s exports while China takes only 8% of U.S. total exports, but despite this two to one asymmetry, America does not have all the cards in this game and China knows it. On foreign direct investment, the total stock of US FDI in China is $269 billion while Chinese FDI in the U.S. reached $145 billion, but annual flow rates have been decreasing as both sides tighten policy constraints. In capital markets, the overall financial relationship totals over $5 trillion including nearly two trillion in Chinese listings on US stock exchanges and $l.3 trillion in Chinese official holdings of U.S. government bonds. Rudd argues that despite strategic difficulties the two governments will not decouple these arrangements....

For more information on this publication: Belfer Communications Office
For Academic Citation: Nye, Joseph S. Jr.“The U.S.-China Relationship is at a Crossroads.” The National Interest, January 15, 2020.