Unhealthy prospects for US–China competition

Yellen stressed that the United States does not perceive China through the lens of a great power struggle and emphasized that Washington wants to engage in a ‘healthy competition’ with Beijing.

Yellen is not the first government official to call for healthy competition. In 2021, Chinese policymakers and scholars seized the opportunity of former president Donald Trump’s departure from the White House to advocate for healthy competition in the hope of resetting China’s strained relations with the United States.

There will be technical difficulties for such a ‘healthy’ competition. Washington demands Beijing address the lopsided bilateral trade volume by purchasing more US imports and adopting market reforms to give US companies an equal footing in competing with domestic Chinese firms. The majority of US companies no longer perceive China as an attractive investment destination. One factor accounting for this trend is the increasingly unfair playing field for US firms in China.

China has reacted lethargically to these terms. Beijing has yet to establish credible commitments towards increasing the purchase of US imports after failing to honor the Phrase One Trade Deal. This is unsurprising given domestic demand for US goods has declined, partly due to the Chinese government’s patriotic education that fuels economic nationalism and anti-US sentiment.

It remains uncertain whether China can adequately address perceived unfair business practices, especially preferential treatment for state-owned enterprises (SOEs). SOEs are linked to the legitimacy of the government, and Beijing relies on state intervention to ensure foreign competition does not erode the competitiveness of SOEs. Considering China’s tied hands in fulfilling these demands, the odds for healthy competition are slim.

Gridlock arising from tit-for-tat accusations of ‘unhealthy competition’ is another limiting factor. China associates unhealthy competition with strategic containment aimed at suppressing its development. China regards the United States’ economic–technological sanctions, such as the microchips ban and export limits that deliberately restrict China’s modernization, as the hallmark of unhealthy competition.

But the United States views unhealthy competition through the framework of free market principles. State intervention in the economy is permitted only in dire situations. The United States perceives China’s state interventions during non-emergency situations to obtain advantages over US companies as a core trigger of unhealthy competition. It believes technological sanctions are purely defensive countermeasures to safeguard Washington’s interests abroad.

With both countries accusing the other of unhealthy competition, there are bound to be increasing suspicions. Each side is jostling to portray the other as the instigator of regional tensions. Given the unwillingness of the United States and China to each take a step back and the strong insistence that the other side must first remedy its ‘misguided policies’, it will be difficult to engage in healthy competition.

Obstacles to healthy competition transcend the economic sphere. It is essential to recall the events leading up to the United States’ rapprochement with China in 1972. Initiation and reciprocation of goodwill brought about the establishment of formal ties between Washington and Beijing. Success did not materialize from the mere exchanges of diplomatic pleasantries. US–China rapprochement showed that both countries must build confidence gradually and move towards a shared goal.

There is a current shared vision to engage in healthy competition. But neither the United States nor China have robustly engaged in confidence-building measures. The deteriorating relationship continues to be contaminated by deep political and ideological cleavages — China’s human rights issues and the United States’ indifference to Beijing’s ‘red lines’ in Taiwan, Hong Kong, Xinjiang and Tibet. These render confidence-building increasingly untenable — and diminish progress.

Healthy competition between the United States and China is commonly understood as the responsibility of both countries to ensure their competition will not compromise their cooperation on global issues, such as climate change. The Biden administration has made clear that it will simultaneously confront and compete with China, while seeking cooperation on areas of common interest.

China rejects this dual-track framework while making the case that Washington should not expect Beijing’s cooperation on issues like climate change while the United States continues to challenge China’s policies elsewhere.

China halted climate change negotiations with the United States when House Speaker Nancy Pelosi visited Taiwan on 2 August 2022. Despite resuming the suspended talks after a meeting between US President Joe Biden and Chinese President Xi Jinping on the sidelines of the G20 held in 2022, this instance shows that China has a tendency to weaponize cooperation for national security purposes, rendering healthy competition invalid.

The prospects for healthy competition between the United States and China remain murky. The absence of healthy competition is extremely worrying for the international community, as both the United States and China may sleepwalk into direct confrontation. The consequences will be too drastic for the international community to bear.