What to do with China: Part II

In Part I of this report, we laid out the two narratives that the U.S. and China are using to frame relations between the two countries. This week, we will summarize the two positions and examine the potential for war using the historical examples of British policy toward the U.S. and Germany, offering our take on which analogy fits best. There will be a discussion of current American views on hegemony as well. As always, we will conclude with market ramifications.

The Views in Conflict

From the U.S. perspective, China’s historic economic expansion has come because it finally shunned Marxism and adopted capitalism. All that remains now for China to achieve its final leg of development is to become a multi-party democracy and give up the single-party rule of the CPC.

From the Chinese perspective, China’s rise was due to the unity created by the wise rule of the CPC. Calls for democracy are nothing more than foreigners trying to create divisions within Chinese society for them to exploit and use, like the British did, to constrain and contain China’s development.

Consequently, the general belief in the West that China was on the path to democracy was based on an ignorance of Chinese history. Although the CPC was generally giving more social freedom to Chinese citizens, the party was showing little evidence that it was willing to allow for multiple political parties. However, the relationship with China produced many benefits to American consumers and the ability to ignore data that doesn’t fit a narrative is almost impossible to overcome, so the West mostly ignored the lack of progress on democratization. In addition, Deng’s foreign policy was to avoid threatening the West and his successors also adopted this stance. Thus, China’s behavior was tolerated.

However, the 2008 Great Financial Crisis became something of a watershed moment. China tended to view this crisis as an indication that the U.S. is a fading superpower, offering an opening for the Middle Kingdom to expand. China intends to become a world leader and not on America’s terms.[1]

This shift was eventually recognized by the Obama administration. The “pivot to Asia” was designed to free up military and diplomatic resources from the Middle East to deploy in Asia. China wasn’t fooled—it saw the pivot as an attempt to contain China’s power projection. As we will discuss below, President Trump has continued and expanded this policy.