The Current State of China – US Relations

One might say that Richard Nixon’s 1972 China visit represented the first brick in a China – US international relations dynamic that expanded dramatically as of Deng Xiaoping’s term. For the most part, it can be considered a success story due to its combination between competition and cooperation.

However… things are most definitely trickier in the 21st century, especially with the trade frictions that are perhaps the most widely-debated dimension on the global economic scene at this point, with pressing questions such as:

1. Is US intellectual property being properly respected and protected in China?
2. Should US companies cease the transfer of technology to China so as to protect domestic interests?
3. Do foreign (in our case US) companies have reasonable access to Chinese markets?
4. Are the two nations on the same page when it comes to climate change and sustainable economic growth in light of the US withdrawal from the Paris Agreement?
5. How can disruptions in fields such as Artificial Intelligence or Robotics, with their many challenges, be tackled?
6. What about currency stability, with countries being more than willing to engage in strategic devaluation approaches
7. What can be done to avoid a tariff-oriented, large-scale trade war?

It is blatantly obvious that finding common denominators when it comes to strikingly different economic models is a Herculean task. It is just as obvious that today’s China is in a totally different geo-political position than the China Deng Xiaoping started reforming… so different, in fact, that China is considered the #1 economic threat to the United States.

However, the two economies are so interconnected that while one of them can do quite a bit of damage to the other, it cannot achieve this without putting its own economy at risk. For example, the US can indeed impose debilitating tariffs on China’s many exports but what if China chooses to retaliate by flooding the market with its over 3 trillion US Dollar reserves?

In the end, both countries would be crippled by an escalation of today’s trade tensions. China’s export sector would undoubtedly suffer, whereas the very stability of the US currency might be at risk after a coordinated liquidation of China’s US Dollar reserve.

Making matters even more complicated, it’s not just that economies of the US and China are deeply interconnected, we need to also understand that both economies are just as interwoven with most of the other global economies. An equation so complicated that a large-scale US-China trade world would inevitably drag every other country in, leading not just to damage when it comes to the two large economies but to a catastrophe of global proportions.

The elephant in the room is ultimately a very simple question: what would happen in the event of a US-China trade war?

It is imperative that the two nations come to terms amicably because the answer to the previously-mentioned question is just as simple: everyone would lose, not just the two economies.