Assessing the deterioration in China–U.S. relations: U.S. governmental perspectives on the economic-security nexus

This article argues that the nexus between economic and security issues is a crucial cause of the deterioration in the U.S.–China relationship, which commenced around the mid-2010s. It outlines two strands of that nexus as enacted in the policies of the Obama and Trump administrations: (1) China’s advances in acquiring and developing new technologies that have significant commercial and military value; and (2) the economic and legal instruments and policies the United States has adopted in the wake of China’s commercial challenge to prosecute its wider strategic competition. The article traces the emergence and solidification of the economic-security nexus in U.S. policy towards China, before comparing the Obama and Trump administrations’ responses to the technological challenge posed by China. We argue that while the Obama administration was slow to recognize the extent of the challenge, it had begun to pursue a strategy that might have resulted in the reduction of competitive zero-sum dynamics in this policy area. By contrast, the Trump administration has focused more directly on the significance of recent technological innovation by China, but has not found it possible to develop a coordinated approach to dealing with it.


Introduction
Much of the literature on China-U.S. relations accepts that the relationship began to deteriorate in the second decade of the twenty-first century, and that the Trump administration has accelerated the deterioration. Explanations for this decline in relations have ranged over a large number of factors, all of which have played some role. Some relate to changes in official personnel in both the United States and China, others to the shifts in relative power between the two countries after the global financial crisis of [2007][2008], and yet others to China's greater determination to reform global governance institutions and to play more of a global leadership role.
In what follows, we focus on what we regard as a crucial cause, though not the sole cause, of the deepening stresses in this bilateral relationship: the nexus between economic and security concerns. We define two aspects of that nexus as they have unfolded in the perceptions and policies of the Obama and Trump administrations. The first part of our definition focuses on developments in technologies that have both high commercial and military value. These developments have led to a growing perception in the United States that China's significant advances in acquiring and developing new technologies may allow it to set global standards in these areas as well as constrain U.S. strategic choices. Inevitably, such concerns heighten competitive dynamics associated with the early acquisition of new technologies, the mastery of which is assumed to determine a country's global positioning. The second strand is defined by the policies that have been enacted in the wake of China's commercial challenge to the United States that has wider geostrategic consequences. Over time, Washington has made increased use of economic and legal instruments to prosecute this wider strategic competition, as in the application of trade tariffs, growing restrictions on China's outward investment policies, and the targeting of Chinese IT companies such as ZTE and Huawei.
Next, we undertake a brief comparison of the policies of the Obama and Trump administrations, to illustrate how each president has approached these heightened challenges in the relationship. We also suggest that the Obama administration, while slow to recognize the depth of the challenge, had begun to outline a strategy that might have resulted in the reduction of the competitive zero-sum dynamics in this critical policy area. By comparison, the Trump administration has focused more directly on the significance of recent Chinese technological innovations, but it has not developed a coordinated approach to deal with them. At one end of the spectrum, it has been both more demanding in the structural changes it requires China to make to its policies, while at the other end, it has often appeared satisfied were a deal to be reached in which China would simply buy more American goods.

The emergence of the economic-security nexus
There has always been something of a nexus between economic and security issues in U.S. thinking about China, though that nexus has pulled in different directions during different eras. During the early Cold War period, for example, economic sanctions were a key tool in the U.S. containment strategy against China, and were used as a way to limit Beijing's economic and military modernization by denying it access to critical industrial and military-related goods and technologies (Zhang 2001). Following the normalization of relations in 1979, the United States relaxed many of its economic sanctions on China, and provided some military technology assistance since it perceived the former Soviet Union as a strategic threat to both countries. However, it continued to exercise export controls on high-end "dual-use technologies" such as satellite technology, high-performance computers, and telecommunications equipment to simultaneously slow China's military development and preserve the United States' military advantage in everything from code-breaking to missile early-warning systems (Meijer 2016, 4-5).
For the past 3 decades until relatively recently, however, that nexus has pulled the United States in the direction of greater economic openness toward China. Since Bill Clinton's presidency, all U.S. administrations have broadly struck the same bargain in their respective China strategies: economic engagement could be used as a way to build Chinese support for the existing U.S.-led international order, liberalize China's domestic economic and political systems, and create opportunities for the U.S. economy (Boustany Jr. and Friedberg 2019, 4). This bargain created weighty expectations for U.S. policy, resting as it did on China's willingness to change its domestic and foreign policies. Nevertheless, policymakers also considered the bargain to be in the interests of U.S. companies, which benefited from increased access to the Chinese market, as well as American consumers, who benefited from cheaper goods imported from China.
Of course, Washington pursued this strategy knowing that there would be some costs to U.S. firms and individuals as cheap Chinese goods and manufacturing pushed down U.S. wages and shifted jobs to China, and as Chinese companies seized valuable intellectual property from U.S. companies. In 2005, former U.S. deputy secretary of state Robert Zoellick described China's theft of American firms' intellectual property as "the number one item on our agenda" with China (quoted in Kennedy and Lim 2018, 567). Yet the U.S. thought these costs would be offset by the benefits enjoyed in other sectors of the economy, where the success of American high technology firms, for example, increasingly depended on Chinese supply chains producing component parts, and on Chinese graduate students and skilled workers living in the U.S. and working in the sciences and engineering. As a result, the U.S. high tech sector was an important domestic interest group arguing that U.S. commercial competitiveness and leadership in innovation depended on greater economic engagement with China (Kennedy 2018).
Moreover, the business community was not alone in thinking that economic engagement with China would confer advantages on the United States. Under the 1 3 Clinton administration, Washington began to relax its export controls on dual-use technologies that were critically important to advanced U.S. weapons systems, even as China came to be seen as a growing military threat. As Meijer (2016) has shown, this seemingly counterintuitive policy decision was motivated by new thinking from key officials within the Pentagon and National Security Council on the nexus between economics and national security in the U.S.-China relationship. These officials, together with their counterparts in the Department of Commerce and high tech sector, began acknowledging that in an increasingly globalized world, it was becoming harder to prevent China from accessing advanced technologies such as supercomputers and semiconductors. China's indigenous technology capabilities were improving, and even if Washington placed unilateral export controls on Beijing, China would still have been able to access similar technologies from Europe and Japan.
Even more importantly, the Pentagon's own industrial base had become increasingly commercialized after the mid-1980s, as the private sector, rather than government-backed military research, drove technological advancements. As a result, the Pentagon now had a strong interest in ensuring that the U.S. commercial sector remained profitable and at the leading edge of global competition. Limiting exports of advanced technologies to China placed U.S. high tech firms at a commercial disadvantage compared with their European and Japanese counterparts and cut off U.S. firms from the growing Chinese market, the profits from which could be invested in further research and development in the United States. Thus, rather than focusing on preventing China from "catching up" through applying strict export controls, the United States began concentrating on "running faster" than China in developing new technologies. At the heart of this thinking were two key assumptions: the first was that the United States could stay "two generations" ahead of China in the development of advanced technologies; the second was that it would be possible to place a "fence" around technologies that were particularly important to U.S. military superiority and prevent China from accessing them (Meijer 2016, 151-157, 267).
Until approximately the mid-2010s, the economic-security nexus favored greater rather than lesser economic interdependence between the two countries. U.S. policy was based on the view that it could remain considerably ahead of China, both militarily and economically; that U.S. businesses and society more generally could benefit from trade with China; and that economic interdependence would eventually lead China to liberalize politically and economically, thereby dampening China's incentives to challenge U.S. primacy or the U.S.-led international order. As we will see below, almost every dimension of this view came under challenge during the Obama and Trump administrations.

The nexus solidifies
As the second decade of the twenty-first century progressed, there was a qualitative change in U.S. thinking about the economic-security nexus in its relationship with China. Whereas previous administrations viewed economic interdependence with China as, on balance, favorable to the United States as well as China, many now believed that China was getting ahead at America's expense. This view was partly underpinned by the growing realization that China's accession to the World Trade Organization in 2001 had had a larger and longer term negative impact on U.S. wages and employment levels than economic theory had predicted. American workers in industries most exposed to competition from Chinese imports did not typically find jobs in new sectors or labor markets and suffered lower incomes over their lifetimes and higher levels of unemployment (Autor et al. 2016). The weak U.S. social safety net, and the fact that the workers most disproportionately affected were poorer, whiter, less educated, and older than the rest of the population, meant that the economic impact of U.S. trade with China became an increasingly salient issue for both Democratic and Republican candidates.
Beyond trade, Washington perceived Beijing as getting ahead economically through illicit or discriminatory means. Chief among the concerns of U.S. firms was China's presumed systematic practice of industrial and cyber espionage to obtain critical economic information, designs, blueprints, and technological knowhow on an unprecedented scale (Hannas et al. 2013). As U.S. firms became increasingly strident in their complaints, in 2018 the United States Trade Representative (2018, 38-46) placed China atop its "priority watch list" of countries that had failed to protect U.S. intellectual property rights. Here, the Chinese government's requirements for technology to be transferred from foreign firms investing in China to their local joint venture counterparts, its failure to prevent widespread counterfeiting and piracy, and the lack of legal mechanisms to enforce intellectual property laws were widely seen as unfair and state-sponsored measures that allowed China to acquire valuable U.S. intellectual property and technology.
However, issues such as IP theft and China's impact on U.S. jobs and wages have long concerned U.S. experts. The fact that they gained particular traction during the Obama and Trump administrations has perhaps as much to do with the issues themselves as it does with two separate developments that took place simultaneously.
The first development was Xi Jinping's assumption of the CCP leadership in late 2012 and a growing sense that the strategy underpinning 3 decades of U.S. policy toward China might be outmatched by Xi's ambitious agenda. U.S. political and economic elites widely perceived President Xi to have disrupted trends toward greater market reforms in China, and instead to have pushed for a greater role for the Party-State in the economy. His government has strengthened the role of stateowned enterprises in strategic sectors; has pursued "Made in China 2025," an industrial policy designed to enhance China's capacity to independently produce critical advanced technologies and achieve global leadership in high-end manufacturing; and has championed a global, state-backed aid and investment program, the Belt and Road Initiative. Coupled with a tightening of political controls domestically within China, and a much more expansive vision of the role that China might play in global affairs, Xi's economic policies are designed to preserve CCP authority and obtain the "great rejuvenation" of the Chinese nation (Xi 2017). Acknowledging the limitations of U.S. policy to nudge China in the direction of greater market reforms and political liberalization, several former U.S. officials, academics, and analysts now categorize Xi's economic policies as "mercantilist" and think they are designed to "maintain and enhance the party's power in relation to all other actors in Chinese society, while increasing the power of the Chinese nation in relation to all others in the international system and especially the current global hegemon, the United States" (Schell and Shirk 2019, 9;quoted in Boustany and Friedberg 2019, 7-8).
The second, and perhaps more decisive, development that reshaped U.S. thinking about the economic-security nexus with regard to China is the nature of the technologies in which China is investing, and the implications of these technologies for U.S. security and commercial leadership, as well as for the wider global order. Of particular import here are dual-use technologies seen to be at the leading edge of future commercial and military innovation, including artificial intelligence (AI), robotics, augmented and virtual reality, and telecommunications equipment and software. Successive Chinese governments have made little secret of their desire to enhance China's indigenous capacity for science and technology innovation, but Xi's administration in particular has invested heavily in this domain, through strategies such as the above-mentioned "Made in China 2025" and the 2017 "New Generation AI Development Plan" that pledges resources to ensure that China becomes a major leader in AI technologies by 2030, and the 13th Five Year Plan (2016-2020), which outlines 75 "priority technologies" in which trillions of yuan have already been invested (Kennedy and Johnson 2016, 27;Hass and Balin 2019). In a report understood to have been particularly influential on the Trump administration, Brown and Singh (2018) argued that China's existing and planned advances in technology challenged two of the central assumptions that underpinned thinking about China's access to dual-use technologies under the Clinton, Bush, and Obama administrations. The so-called "DIUx Report" suggested that the U.S. was no longer sufficiently ahead of China in leading technologies, and that its open economic system made it difficult to reliably fence off these technologies from China. This shift, they argued, was the result of China's massive investment in critical technologies, and its overt and covert acquisitions of U.S. technologies via investments in leading U.S. technology firms and start-ups, cyber and industrial espionage, and recruitment of U.S.-trained Chinese graduate students and researchers. While more hawkish elements within the U.S. government have made similar arguments for decades to those outlined in the DIUx Report, the DIUx Report reflected a qualitative shift in U.S. thinking because this is the first time that the United States has failed to keep pace with China's innovations in a key emerging technology such as AI (Laskai and Sacks 2018).
Beyond the immediate security implications for the United States, the pace of China's innovations in these new technologies also poses broader challenges to the global order. China's advances in 5G telecommunication networks mean that it is Chinese companies, scientists, and government experts who are increasingly able to set global standards governing global telecommunications, potentially at the expense of the interests of the United States or other major powers (Kennedy and Lim 2018). Moreover, China's use of AI and facial recognition technology to carry out surveillance and what it terms "social management" of its domestic population raises ethical questions for the United States and other governments about doing business with Chinese companies that have been involved in developing some of these technology platforms (Chestnut Greitens 2019).
In sum, the combination of Xi's agenda and China's advances in new technologies resulted in a distinct hardening of U.S. perceptions of China under both the Obama and Trump administrations. Yet, the two presidents took quite different approaches in responding to these new perceived threats and in managing the wider U.S.-China relationship.

Comparing the Obama and Trump administrations' responses to the technological challenge
The full implications of these new technologies were not so apparent at the start of the first Obama administration. The economic relationship was not as securitized as it later came to be. The Obama administration's 2010 National Security Strategy (NSS), for example, concentrated not on these challenges but on more familiar global threats such as terrorist-related violence, the proliferation of nuclear weapons, and climate change. Where China was concerned, the emphasis was on building broad cooperation, even as the administration recognized that it would not agree with Beijing on every foreign policy issue and that China's military modernization needed to be monitored (NSS 2010). The focus on searching for areas of cooperation did not preclude efforts to hedge against increases in Chinese military power and economic and political influence, as shown in U.S. attempts to deepen ties with its allies in East Asia and establish other economic and security partnerships in the Asia-Pacific region. Obama also tried to stymie China's establishment of the Asian Infrastructure Investment Bank, a policy decision that was not without controversy inside the United States and that seemed to contradict his other policies toward China (Economy 2018, 198). Nevertheless, the Obama administration tried to sustain combinations of competition with cooperation, as well as engagement with deterrence. These policies pointed to the administration's determination to support freedom of navigation in the South China Sea in response, for example, to China's creation and militarization of artificial islands in that body of water. At the same time, however, the administration was determined to maintain levels of cooperation with China sufficient to sustain the region's prosperous and stable future (Russel 2015). Even with the 2011 introduction of the U.S. "Pivot to Asia" strategy, later termed the "rebalance", the U.S. continued to emphasize that it intended to deepen its working relationship with China. This included regular dialogues at the highest levels and the enhancement of military-to-military relations, with Chinese participation in RIMPAC in both 2014 and 2016 portrayed as a particularly welcome development.
In some respects, the Obama administration's export control policy represents a useful illustration of this strategy designed to support U.S. interests at the same time that it sought to manage strategic change in the bilateral relationship. Building on policies first adopted by the Clinton and George W. Bush administrations, the Obama administration reformed the export controls targeting military end-use in China while facilitating some trade in high technology with civilian end-use, to help sustain a strong high tech sector in the United States itself. This policy came to be termed "high walls around fewer items," with the Obama administration concentrating primarily on restricting those technologies that "give our warfighters a military edge," while ensuring that it did not cut itself off from the benefits of economic and scientific cooperation with China (Meijer 2016, 323-329).
During Obama's second term, Washington's concerns about the uses of new technologies began to grow in its thinking about China. Nevertheless, this hardening did not overturn the administration's belief that cooperation with China would help tackle issues such as health pandemics, climate change, and nuclear proliferation. Instead, while retaining an interest in cooperation on global issues, Obama was determined to focus on specific irritants in the relationship that his administration deemed unacceptable. These included concerns about cyber-theft of trade secrets for commercial gain, as well as growing doubts within the U.S. business community that they would ever enjoy unfettered market access and IP protections (NSS 2015). National Security Adviser Susan Rice expanded on these points in a speech in September 2015, which is remarkable for its overall positive appraisal of the China-U.S. relationship: "When China's economic policies impede the free flow of commerce and worsen trade imbalances, it distorts the global economy. When China forces firms to hand over their technology as a condition for market access, it discourages innovation. When American businesses increasingly question whether the cost of doing business in China is worth it, that reduces trade and investment for everyone, and undercuts the support for the U.S.-China relationship here at home". She went on to focus on cyber security, noting that President Obama, in meetings with President Xi, had "repeatedly made plain that state-sponsored, cyber-enabled economic espionage must stop. This isn't a mild irritation. It is an economic and national security concern to the United States. It puts enormous strain on our bilateral relationship, and it is a critical factor in determining the future trajectory of U.S.-China ties" (Rice 2015).
To some degree, the expectation among Obama's officials was that the terms of the Trans-Pacific Partnership (TPP), which included policies to reduce non-tariff barriers and remove protections for state-owned enterprises, would set the terms of trade and investment for the dynamic Asia-Pacific region. The hope, too, was that the TPP could influence China to make further economic reforms and perhaps eventually join the TPP. With respect to cyber-theft of commercial secrets, the Obama administration began to identify miscreants more precisely. Thus, it increased pressure on China by charging five Chinese military officers with cyber-theft involving U.S. trade secrets. In April 2015, Obama signed an executive order threatening sanctions against individuals or entities involved in "malicious cyber-enabled activities". More importantly, in September 2015, the United States signed an agreement with China which pledged that "neither country's government will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information" to gain competitive commercial advantage (Kennedy and Lim 2018, 569-570). The November 2015 G20 meeting led all member states to sign onto this pledge.
Several references to this 2015 agreement in U.S. commentaries suggest that it did make a positive difference, at least for some time (e.g., Farley 2018). Even as the US National Counterintelligence and Security Center (NCSC) report of 2018 identified serious continuing threats of cyberespionage against US interests, it did still note that while "the Intelligence Community and private sector security experts continue to identify ongoing Chinese cyber activity," these attacks were "at lower volumes than existed before the bilateral September 2015 U.S.-China cyber commitments" (NCSC 2018, 7).
The broader import of this Obama administration strategy is that it attempted to manage the China-U.S. relationship during the development of new technologies that benefitted China commercially and strategically, but did not sever those ties where the U.S. itself gained at least commensurate benefits (Laskai and Sacks 2018). This global approach to the relationship, we suggest, contrasts markedly with the Trump administration's approach which has eschewed major policy statements that underline areas where the two sides have and can cooperate, and has jettisoned past cooperative agreements such as the Iran nuclear deal and an Obama-era bilateral agreement on climate change. The Trump administration has also failed to sustain the high levels of China-U.S. cooperation necessary for dealing with North Korea's nuclear weapons program. Finally, in its rejection of the TPP, the Trump administration gave up a potentially major multilateral instrument of dealing with key economic irritants in the relationship identified during the Obama era.
A major reason for these different strategies is Trump's fixation on the trade deficit with China, his belief in the benefits he can derive from establishing a positive personal relationship with President Xi, and his apparent lack of interest in focusing on the preferred end goals of any future relationship with China. Trump's preferred method for dealing with the trade deficit has been the imposition of tariffs, regular threats to increase the level of those tariffs, and the possible inducement of holding another high-level summit with Xi.
Elsewhere in the Trump administration, however, the concerns are far greater and represent what one U.S. commentator has described as a "'whole of society' revaluation of China" (Jones 2019). In focusing on the economic-security nexus, two key documents-the US NSS produced in December 2017, and the January 2018 Summary of the National Defense Strategy (NDS)-provide an assessment of the perceived dangers of Chinese technological advancements (Swaine 2018). These official documents, together with Vice President Mike Pence's October 2018 speech, paint China as having achieved an alarming capacity to use information as a central weapon in its geopolitical contest with the United States. The claim is that China's acquisition of U.S. technology has led to the closing of military and technological distance between the two countries, the implication being that those advances must be stopped. The Trump administration has identified the restriction of Chinese investments in U.S. high tech firms and Chinese graduate students in key scientific fields as first steps en route to a potential broader decoupling of America's economy from that of China's, as appropriate responses to the growing China challenge.
The end goals of the Trump administration's policies toward China are difficult to fathom, as evidenced by the policy documents referenced above. Key actors in the administration clearly have different ideas about what the overall objectives should be. An op-ed by Singaporean former diplomat Kishore Mahbubani describes the ambiguities in the U.S. policy stance succinctly: referencing the U.S. indictments against Huawei's Chief Financial Officer, Meng Wanzhou, and arguing the underlying U.S. concern is that the Chinese government is in a position to control Huawei's 5G switching systems, Mahbubani asks whether Washington's goal is to reform, improve, or destroy Huawei. He also asks how the ongoing fight with the company might fit with any U.S. strategy to manage what he sees as the inevitable rise of China (Mahbubani 2019). As others have also noted, it is difficult to discern U.S. priorities in the China-U.S. relationship, assess which tradeoffs it is willing to bear to manage the bilateral relationship, and understand Washington's view on how negotiated, as opposed to coerced, outcomes can be reached (Dollar et al. 2019).

Conclusion
The outlook for the U.S.-China relationship is bleak, particularly as the United States heads into another presidential election campaign where candidates, as well as the incumbent, are likely to continue to identify China as a major adversary and the central challenger to the "rules-based order". Where once economic interdependence was considered the main feature of the relationship, smoothing over tensions that arose in other policy areas, those same economic ties are now seen as the root of a problem that has major implications for U.S. national security. It is this transformation in the economic-security nexus that prompts us to highlight it as one major cause of the deterioration in China-U.S. ties, as a reading of the U.S. strategy documents pointedly indicates.
Whether the Trump administration will find a way to manage the world's most crucial bilateral relationship is hard to determine and difficult to predict. The Obama administration's overall strategy suggests it would have looked for some areas of cooperation in the technological fields on the assumption that the competition in this sector is not zero-sum across the whole range of technologies. By contrast, the Trump administration has failed to recognize that as Chinese technological advances continue to accelerate, U.S. commercial and military innovation will depend more than ever on collaboration with China, and it shows little appetite for meeting China even part-way. Instead, it has set out a large list of demands that China alone is expected to fulfill. Moreover, those demands clash with President Xi's strategy for China. That Trump is challenging Xi's personal goals complicates the burgeoning rivalry over technology, further endangering a successful resolution to U.S.-China tensions.