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Opinion

Year of the Rat starts with shaky US-China trade deal

Strategic conflict has much bigger issues at stake than manufacturing

As the weaker party, China will pay a much higher price.   ? Reuters

When Chinese leaders celebrate the arrival of the Year of the Rat on January 25, they will most likely add a toast to the interim trade deal China signed with the U.S. on January 15.

Despite criticism of the "phase one" deal, it serves the short-term needs of Presidents Xi Jinping and Donald Trump. For Xi, the concessions he had to make will buy valuable time for improving his economic record ahead of his effort to seek a third term in 2022 as the Communist Party's general secretary. As for Trump, the cease-fire in the grinding trade war may also help boost his own reelection odds.

As with most international agreements sealed with short-term political imperatives, the trade truce could fall apart because of its flaws, such as unrealistic targets for additional Chinese purchases of American goods; vague language; and politicized mechanisms of dispute resolution.

The truce may have bought China some breathing room, but it has not altered the underlying adverse dynamics that triggered the trade war in the first place. As long as the U.S. and China remain locked in a lose-lose open-ended strategic conflict, it will be nearly impossible to maintain a normal commercial relationship.

To understand why a cease-fire will not stop the U.S.-China decoupling, look at what has not changed. In the U.S., the assessment that China is the most serious threat to American power and interests is now embraced by both Republicans and Democrats. A broad-based anti-China coalition encompassing national security hawks, human rights promoters and trade protectionists remains intact.

Plans to escalate the tech war by further restricting the flow of U.S. technology to China are afoot. Indeed, given the mounting U.S. curbs on selling technology to China, one has to wonder how China can buy $77.7 billion in U.S.-made manufactured goods in the next two years, per the deal, without running into these obstacles.

Chinese leaders in Beijing -- as well as the Chinese public -- are convinced that the U.S. is now intent on thwarting their economic development. Aware of its vulnerabilities, China will only accelerate steps to make itself more self-sufficient in technology and more capable of contesting with the U.S. militarily in East Asia.

When fear trumps greed, both sides will take economically costly measures to protect themselves. Since each policy triggers a response, this dynamic produces a vicious cycle that will drive U.S.-China economic decoupling and make their relationship more adversarial, if not outright hostile. The U.S. and China must work together to mitigate these dangerous dynamics.

The uncertainty over the future of U.S.-China relations will continue to motivate businesses to move their supply chains out of China while Beijing will double down on reducing its reliance on the American market.

Crucially, decoupling in technology will accelerate because both sides see the tech war as key in determining the broader U.S.-China strategic competition.

The severing of financial ties is a scenario investors have so far dismissed as too drastic and destructive to be contemplated, but must be treated seriously. China hawks in the U.S. are formulating various plans to cut off the flow of American capital to China while their counterparts in Beijing will redouble their efforts to make China less dependent on the dollar-based international financial system, which has been weaponized by Washington.

But it is not too late to avert this bleak and dangerous future of great power conflict.

As the weaker party, China will pay a much higher price in this fight. Should China lose the conflict, which is more likely than not, the rule of the Chinese Communist Party could be in jeopardy. So the smartest thing for Xi to do now is to take advantage of the truce in the trade war to seek a strategic detente with the U.S.

The smartest thing for Xi to do now is to take advantage of the truce to seek a strategic detente with the U.S.   © Reuters

Following the signing of the phase one agreement, Washington and Beijing announced the resumption of a bilateral dialogue on economic issues. While this is a step in the right direction, a dialogue focused solely on commerce has a poor chance of success if China and the U.S. continue to see each other as an existential security threat.

What is really needed is an honest and wide-ranging bilateral security dialogue, followed by specific negotiations over arms control, territorial disputes, cyber security and security in East Asia.

China can signal its willingness to de-escalate the security competition with the U.S. by toning down anti-American nationalist propaganda, suspending the militarization of its artificial islands in the South China Sea and scaling back activities intent on intimidating Taiwan, such as military exercises and patrols.

To be sure, election-year politics in general, and Trump's transactional approach to foreign policy in particular, will complicate Beijing's efforts. But given the high stakes, Xi will do well to start the Year of the Rat with a fresh approach to stabilize Sino-American relations.

Minxin Pei is professor of government at Claremont McKenna College and a nonresident senior fellow of the German Marshall Fund of the United States.

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