Don't Panic: U.S.-Chinese Economic Cooperation Isn't About to Break Down

Think the last month looked bad for bilateral trade? Some reasons to look on the bright side.


Barges float amid foggy conditions at Hong Kong's Victoria Harbour. (Bobby Yip/Reuters)

Skim the economic headlines of the past few weeks, and it would be easy to mistake the media frenzy over China for a sign that its economic partnership with the United States has about reached its limits.

First the Obama administration blocks a Chinese-owned company from investing in four wind-farm projects in Oregon. Days later comes a House report blasting the telecommunications firms Huawei and ZTE over cyberespionage concerns -- a paper that coincides with an aggressive 60 Minutes segment on precisely the same subject. Then the White House slaps tariffs totaling as high as 40 percent against solar panels exported by dozens of Chinese companies -- an attempt to counter the "dumping" of Chinese silicon products into the American market.

If that weren't enough, Mitt Romney and Barack Obama have wasted no opportunity to criticize Beijing on currency manipulation and outsourcing as the U.S. presidential campaigns enters their final weeks.

The pace and pitch of the reports sound more like a 19th-century case study in protectionism than a series of unhappy coincidences taking place in the 21st. But if there's any pattern to be found here, it's that these incidents merely represent the next chapter in a long and complex history.

It's not hard to understand where the anxiety comes from. If economic interdependence is a contributor to bilateral peace, then rebuffing Chinese attempts to invest in America risks creating opportunities for conflict. Beyond the frustration that that engenders on either side of the Pacific, Chinese firms that perceive the United States as a hostile place to do business might be inclined to invest elsewhere and hasten the rise of other would-be foreign rivals. Is U.S. national security worth the price of these opportunity costs? Caution might imply that it is. But that doesn't mean we've crossed an economic Rubicon.

It's best not to read too much into the hype. The specifics of these recent cases should help explain why. In the wind-farm example, Obama ordered the Chinese-owned Ralls Corp. to divest its funds after a nine-agency federal task force concluded the national security risks associated with the deal had no effective remedy. (Several of the planned wind turbines would have been in or near U.S. Navy-restricted airspace.) It's rare for the federal committee, CFIUS, to recommend nixing a deal -- it hasn't happened for more than two decades. But the last time it occurred, guess what: It involved a transaction by another Chinese company, China National Aero-Technology and Export Corp. We've been here before, and the U.S.-China relationship emerged no worse for wear.

Special circumstances mark the case of Huawei, too. The world of cybersecurity is still new and loosely defined. Washington knows relatively little about how it's vulnerable, electronically; even less about the right tools it needs to defend those weaknesses; and still less what cyberweapons foreign governments have in their arsenals. Under these conditions, fearful rhetoric about what might happen can easily trump tempered analyses about what's most likely to happen. It doesn't help matters that Huawei, the company in the hotseat, was founded by a former Chinese army officer -- a matter that only heightens suspicion against the firm. It's only natural that U.S. policymakers would get skittish about something like this. If the two countries' positions were reversed, Chinese leaders might well react the same way.

Which brings us to the question of perception. How well does Beijing really understand where Americans are coming from? Can they see themselves in President Obama's shoes? Probably. Here's what China's presumptive new president, Xi Jinping, had to say during his February visit to the United States:

"This year marks the election year of the United States. I believe no one of insight from the U.S. side would like to see that the election factors would have a regrettable impact on the development of ties between the two countries," Xi said during a meeting with several former senior U.S. officials.

Xi is clearly issuing something of a warning -- Hey, America: don't say or do something you'll regret later! -- but what's important is that he acknowledges domestic politics puts pressure on politicians to behave in ways that create unintended problems at the international level. As long as Beijing remains aware of that, and it's hard to think it won't, given how much of China's own governance strategy revolves around maintaining domestic stability, we can probably expect some amount of understanding from the Chinese regime that what looks like a snub is sometimes just part of doing business.

And what a business it is: 34 U.S. states were engaged in some kind of business relationship with China last year. The number of Chinese deals with U.S. companies is growing annually at a rate of 130 percent. In 2011, Air China opened a $5 million ticket-booking facility in Los Angeles that's staffed by 30 American employees. Even if some attempts at Chinese investment are being blocked by the White House, there's still a lot of other activity going on that's greasing the U.S.-China relationship.

It's also worth keeping in mind that governments expecting to have repeated interactions are generally likely to moderate their behavior toward one another. China and the United States have been engaged in a dance over trade for nearly 35 years, ever since the beginning of opening up and reform. And even when Washington and Beijing disagree over some issues, that doesn't rule out their getting along on others.

We can look at it this way: The contemporary U.S.-China relationship is only 10 years away from being as old as the Cold War was long. And although it may be an imperfect analogy in that one state eventually collapsed -- there's nothing to suggest that'll happen to either Beijing or Washington -- it's also true that the United States found ways to work with the Soviet Union in spite of shocks that might have torn apart less robust bilateral relationships. You don't come through experience like that without learning a thing or two about each other.