In the long, arduous process of trying to negotiate a new trade deal with China, the U.S. is learning something profound about the country across the table: The basic assumption Americans held about China for most of the last half-century may no longer hold.
Since the great opening to China in the 1970s, successive U.S. administrations have operated under the belief that China wanted to update its economy and then become a full, card-carrying member of the international economic system of the First World. The question was simply what that transition would look like, and what rules China would follow along the way.
But conversations with China-watchers during visits to Europe and Asia in the last two weeks suggest that’s no longer the case. As China’s economy has grown, and its global reach has expanded, it no longer feels the need to adapt simply to be accepted into a Western-led financial and trade system.
Instead, it has developed an alternative to that system—its own kind of authoritarian capitalism—that it believes is at least at viable, and perhaps the better model for others to follow.
“China sees itself less as slotting into an existing system and more as a creator and shaper of a new system,” says Keyu Jin, a professor at the London School of Economics and an expert on the Chinese economy. “It finds the so-called Western financial wisdom and the liberal democratic model unappealing and unconvincing, and in the process of breaking down.”
China’s Belt and Road Initiative, a massive infrastructure development project undertaken with Chinese financing in countries stretching from Southeast Asia across the Indian Ocean and into East Africa, eventually may create an entirely new economic bloc under Chinese influence—and perhaps in debt to China, literally and figuratively.
“Soon enough,” says Ms. Jin, China and the countries it is linked to in Belt and Road “will be larger than the rest of the world. The question then is: Who is integrating into whom? Is China integrating into the rest of the world, or is part of the world going to integrate into a new system led by China?”
Among other things, this new reality explains why it is proving so difficult for the Trump administration to close a big new American-Chinese trade deal that will both reduce the big U.S. trade deficit with China and end what Washington considers a wide range of unfair and predatory Chinese trade practices.
American negotiators are trying to force the Chinese to make systemic changes in their system, particularly in the dominance of state-owned businesses and the ability of the government to extract technology and intellectual property from the business sector.
But such components of the Chinese system no longer appear to be simply temporary structures as China matures, but rather pieces of the new model. Chinese officials are more interested in making temporary changes to their buying and selling patterns to satisfy the U.S. than they are in changing a system they now consider the wave of the future.
That doesn’t mean there won’t be compromises and a trade deal between the U.S. and China in the short run. Talks have reached an impasse precisely over the U.S. insistence on systemic changes, but Michael Pillsbury, a China expert and informal adviser to the Trump White House, describes the pause in negotiations as “a cooling-off period.”
Both sides in the talks are afraid of the consequences of a complete failure, for their economies and the world economy more broadly. The Chinese hierarchy includes a contingent of reformers who favor liberalizing the Chinese economy—though they favor doing so more because they believe some market reforms will strengthen China in the long run.
Still, their voices can help produce some compromises to get to a deal. “We believe there is a strong contingent of reformers in China that want change,” Clete Willems, who recently left his position as a top White House adviser on trade, told The Wall Street Journal’s CEO Council conference in Tokyo.
Yet even a trade deal in coming months will represent only a pause in what appears to be an inevitable, and lengthy, period of competition between the U.S. and China.
To be sure, China has plenty of work to do. Millions of Chinese peasants still aren’t sharing in the country’s prosperity, and China has to show that its Belt and Road projects can actually advance other nations without weighing them down with debt.
Meanwhile, though, Chinese officials have had a change of attitude, experts say. They see a Western financial system that led the world to the brink of depression with the 2008 financial crisis, and Western democracies trapped in debilitating paralysis, and aren’t sure that is the model for them.
Since the great opening to China in the 1970s, successive U.S. administrations have operated under the belief that China wanted to update its economy and then become a full, card-carrying member of the international economic system of the First World. The question was simply what that transition would look like, and what rules China would follow along the way.
But conversations with China-watchers during visits to Europe and Asia in the last two weeks suggest that’s no longer the case. As China’s economy has grown, and its global reach has expanded, it no longer feels the need to adapt simply to be accepted into a Western-led financial and trade system.
Instead, it has developed an alternative to that system—its own kind of authoritarian capitalism—that it believes is at least at viable, and perhaps the better model for others to follow.
“China sees itself less as slotting into an existing system and more as a creator and shaper of a new system,” says Keyu Jin, a professor at the London School of Economics and an expert on the Chinese economy. “It finds the so-called Western financial wisdom and the liberal democratic model unappealing and unconvincing, and in the process of breaking down.”
China’s Belt and Road Initiative, a massive infrastructure development project undertaken with Chinese financing in countries stretching from Southeast Asia across the Indian Ocean and into East Africa, eventually may create an entirely new economic bloc under Chinese influence—and perhaps in debt to China, literally and figuratively.
“Soon enough,” says Ms. Jin, China and the countries it is linked to in Belt and Road “will be larger than the rest of the world. The question then is: Who is integrating into whom? Is China integrating into the rest of the world, or is part of the world going to integrate into a new system led by China?”
Among other things, this new reality explains why it is proving so difficult for the Trump administration to close a big new American-Chinese trade deal that will both reduce the big U.S. trade deficit with China and end what Washington considers a wide range of unfair and predatory Chinese trade practices.
American negotiators are trying to force the Chinese to make systemic changes in their system, particularly in the dominance of state-owned businesses and the ability of the government to extract technology and intellectual property from the business sector.
But such components of the Chinese system no longer appear to be simply temporary structures as China matures, but rather pieces of the new model. Chinese officials are more interested in making temporary changes to their buying and selling patterns to satisfy the U.S. than they are in changing a system they now consider the wave of the future.
That doesn’t mean there won’t be compromises and a trade deal between the U.S. and China in the short run. Talks have reached an impasse precisely over the U.S. insistence on systemic changes, but Michael Pillsbury, a China expert and informal adviser to the Trump White House, describes the pause in negotiations as “a cooling-off period.”
Both sides in the talks are afraid of the consequences of a complete failure, for their economies and the world economy more broadly. The Chinese hierarchy includes a contingent of reformers who favor liberalizing the Chinese economy—though they favor doing so more because they believe some market reforms will strengthen China in the long run.
Still, their voices can help produce some compromises to get to a deal. “We believe there is a strong contingent of reformers in China that want change,” Clete Willems, who recently left his position as a top White House adviser on trade, told The Wall Street Journal’s CEO Council conference in Tokyo.
Yet even a trade deal in coming months will represent only a pause in what appears to be an inevitable, and lengthy, period of competition between the U.S. and China.
To be sure, China has plenty of work to do. Millions of Chinese peasants still aren’t sharing in the country’s prosperity, and China has to show that its Belt and Road projects can actually advance other nations without weighing them down with debt.
Meanwhile, though, Chinese officials have had a change of attitude, experts say. They see a Western financial system that led the world to the brink of depression with the 2008 financial crisis, and Western democracies trapped in debilitating paralysis, and aren’t sure that is the model for them.
