Economic Statecraft and U.S.-China Strategy (Marcellus Policy Analysis)

By Margarita Valkovskaya, Spring 2021 Marcellus Policy Fellow

In the last ten years, a hawkish view on China among U.S. foreign policymakers has replaced the counter-terrorism national security paradigm, with a renewed focus on great power competition in the emerging and critical technology space. A prior view positioned China as a developing economy whose inclusion in the U.S.-led international global order by means of trade and institutional participation would lead to eventual democratization. However, China’s rapid development and ongoing commitment to its Leninist-authoritarian political model has displaced this approach to one greatly skeptical of Chinese evolution away from the political status quo. China is now viewed as a fully emerged “tiger economy” accused of a range of malign actions intended to undermine the leading position of the United States and its allies, including forced technology transfers, unfair trade practices, theft of intellectual property (IP), cyberattacks, and coercive and retaliatory market behaviors. U.S. reactions to the Chinese threat have included ever-expanding trade, financial, and supply chain actions designed to control risks to U.S. national security in emerging technologies critical to the global power projection of the future.

Despite China’s increasing threat, it remains one of the U.S.’s most significant trading partners, complicating U.S. national security objectives used to balance China’s growing global influence. Complicating the paradigm are structural issues in the Chinese economy, including an aging population, rising debt levels, and an opaque business environment relying on state support. As a result, the “New Cold War” foreign affairs paradigm presents a dangerous slippery slope by initiating unpredictable retaliatory actions and risking a permanent cooling of cooperation on a range of strategic issues instrumental to a secure global future, such as climate change and global pandemics. In fact, “success” in great power competition defined by weakening Chinese economic vitality would impact the trajectory of the entire interconnected global economy, including that of the United States. China has simply become “too big to fail.”

To advance U.S. national security interests using tools of economic tradecraft thus requires a careful balancing act that tempers Chinese great power competitive advantage in key areas of concern, without undermining Chinese economic balance. U.S. foreign policymakers should refrain from losing sight of China as a crucial strategic partner in a range of areas of cooperation while using control actions to ameliorate strategic threats to U.S. national security in areas such as critical supply chains, protection of intellectual property, and cybersecurity. Additionally, a major part of the China strategy should focus on re-invest in the U.S. emerging technology industrial ecosystem by supporting technological innovation and research-to-market development and a robust educational system drawing global talent. Equally important is the ongoing active engagement with allies and global partners to define and disseminate technology standards based on liberal international values promoting democracy, freedom, and an open and well-regulated market.