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Anxiety and Ambivalence in the Asia-Pacific region: The Dark Shadow of U.S.-China Strategic Competition

The following is a guest post by Minxin Pei, Library of Congress Chair in U.S.-China relations. Pei is the Tom and Margot Pritzker ’72 professor of government and the director of the Keck Center for International and Strategic Studies at Claremont McKenna College. He is also a non-resident senior fellow with the Asia program at the German Marshall Fund of the United States. Pei was formerly a senior associate with the Asia program at the Carnegie Endowment for International Peace. Listed as one of the top 100 public intellectuals by Foreign Policy (2008), Pei is the author of several books, including “From Reform to Revolution: The Demise of Communism in China and the Soviet Union,” “China’s Trapped Transition: The Limits of Developmental Autocracy,” and “China’s Crony Capitalism: The Dynamics of Regime Decay.”

On March 19, I participated in a one-day conference co-sponsored by the Keck Center for International and Strategic Studies at Claremont McKenna College (which I direct) and the New Zealand Asia Institute at the University of Auckland in Auckland, New Zealand. The theme of the conference was “Peace and Prosperity in Pacific Asia in the Age of U.S.-China Strategic Competition.” Scholars from the U.S., Japan, Australia, and New Zealand presented their research. While it is impossible to summarize the rich presentations, two themes – anxiety and ambivalence – dominated the conversations.

Anxiety
There was some skepticism about whether the U.S. and China are already in a long-term, Cold War-like strategic conflict, but most speakers agreed that U.S.-China strategic competition has begun. They viewed this development with enormous anxiety, if not alarm.

The reasons underlying such anxiety are easy to fathom. Since the end of the Cold War, nations in the Asia-Pacific region have enjoyed unprecedented peace and prosperity. The region has achieved tremendous economic growth and integration.

But the most important pillars that have sustained regional peace and prosperity – cooperation between the U.S. and China, and America’s role as the key provider of public goods, especially free trade – are weakening. Should the tensions between the U.S. and China continue to grow, the geopolitical and economic consequences will be profoundly negative.

Economically, almost all the nations in the Asia-Pacific region are closely tied to both the U.S. and China through trade and investment. Invariably, China and the U.S. are their top two trading partners. Since the American and Chinese economies are also intertwined, disruptive changes in U.S.-China commercial relations would produce collateral damage to the regional economies. A massive disruption seems increasingly likely.

The trade war between the U.S. and China has already dampened business confidence and precipitated some restructuring of the regional supply chain as companies hit by China-specific tariffs have started to move their manufacturing operations. Even if the two countries are able to reach a deal to end the trade war, the simmering geopolitical tensions would make long-term mutual economic cooperation difficult to sustain.

Disruption in existing trade patterns could reduce intra-regional trade overall. China imports commodities and intermediate goods from the rest of the world (a significant portion from the Asia-Pacific region) and exports finished manufactured goods. At present, China accounts for about a quarter of the world economy’s manufacturing value added.

China’s economies of scale, skilled labor force, and world-class infrastructure help make this system efficient. In the event of trade disruptions precipitated by Sino-American geopolitical rivalry, China would likely lose most of its access to the U.S. market and, as a result, import less from the rest of the Asia-Pacific region. Intra-regional trade would likely fall.

Only a small number of countries endowed with adequate infrastructure, sufficient low-cost labor, and capable management would benefit from China’s loss. The transition from a China-centered supply chain to a fragmented one would not only take time (probably at least a decade), but would also result in a less efficient production system overall.

What would happen to trade would also happen to technology and capital flows. Escalating strategic competition between the U.S. and China would likely create two technology-blocs, one led by the U.S. and the other by China. Movement of capital could also slow because of security restrictions placed on cross-border investments.

Ambivalence

In the event of a full-blown U.S.-China cold war, countries in the Asia-Pacific region would be forced to take sides, a choice few want to make. In the region, China is the top export destination for all countries except Vietnam (which exports more to the U.S. than to China). But at the same time, the U.S. is the most important security partner or protector for all countries in the region.

If they must choose between the U.S. and China, their economic and security interests will be in conflict. It is not hard to understand why these countries view the unfolding U.S.-China strategic competition with ambivalence.

The world that is disappearing in front of them – a world in which the U.S. and China engaged each other in an essentially cooperative and stable relationship – allowed countries in the Asia-Pacific region to enjoy the benefits of the security provided by the U.S. while also taking advantage of China’s rapid economic rise.

Unfortunately, the advent of U.S.-China strategic competition has upended this regional order. First, if countries in the region pick a side, they are certain to antagonize one of the dueling great powers. Second, no country is likely to be a net beneficiary regardless of the outcomes of this strategic competition.

Should China prevail, an unlikely scenario at the moment, nations in the Asia-Pacific region might gain economically in the long term but they would also have to live under the shadow of an autocratic hegemon that seldom hesitates to bully weaker neighbors.

In the event of an American triumph, the same countries in the Asia-Pacific region might enjoy long-term security, but their economic prospects would almost certainly dim since the region’s largest and most dynamic economy – China – would grow much more slowly and sustain lower demand for these countries’ exports. Another potential concern is that a China defeated in a geopolitical contest with the U.S. would likely become an unstable country that exports refugees and crime. The U.S. might be safely insulated from such consequences, but China’s immediate neighbors would not be.

Such ambivalence explains why most speakers hoped that cooler heads would prevail in Washington and Beijing and that, despite their fundamental disagreements over the regional order, political values, and security interests, the U.S. and China would exercise restraint in their strategic competition and limit the damage to peace and prosperity in the region.

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