Sino-US relations - from strategic patience to strategic competition (2019)

Sino-US relations are poised to shift towards ‘strategic competition’ - for good. Congress and parts of the US business community have begun to take a more reserved, even adversarial stance towards China. So has the US administration, and not just as far as economic relations are concerned. US defence officials are by nature always concerned about states whose military capabilities are expanding and are acquiring significant asymmetric capabilities. Former Assistant Secretary of State for East Asian Affairs and long-time Asia hand Kurt Campbell & Jake Sullivan have pointed out the limited practical usefulness of many catchphrases containing the term ‘strategic’ in terms of providing guidance to actual policies. ‘Strategic ambiguity’, for example, just reflects uncertainty about what to do, while ‘strategic patience’ – US policy towards China under President Obama – reflects uncertainty about what to signal. Campbell & Sullivan also point out that ‘strategic competition’ – the doctrine adopted by the present US administration (National Security Strategy 2018) – is problematic in that it fails to answer what the competition is about and what it means to win. Others have proposed concepts such as ‘strategic reassurance’ (James Steinberg & Michael O'Hanlon (2014)) that are not significantly more useful from a practical point of view.

US strategy towards China used to agonise over whether to compete with China or whether to cooperate with it and seek to turn it into a ‘responsible stakeholder’ (Robert Zoellick). The stakeholder concept assumed that China would recognise the benefits it derived from the existing international order, while hoping that economic development would lead to the emergence of a domestically and internationally liberal China embracing, broadly speaking, existing international structures and norms. Ironically, it is the US that is now riding roughshod over international economic regime at least as much if not more than China. China may not be living up to the spirit of, for example, WTO rules, but it rarely violates the letter of the rules.

Washington looks like it is abandoning its policy of ‘strategic patience’ in favour of a gradual shift towards ‘strategic competition’. Our best theories about how international politics works point towards increasing competition (Gilpin 1981, Kennedy [1987] 2010, Mearsheimer [2001] 2003, Mearsheimer 2001, Organski 1958, Waltz [1979] 2010). Hegemonic states are, only with rare exceptions, challenged by ascending powers. Thucydides perhaps put it most memorably: “It was the rise of Athens and the fear it inspired in Sparta that made war inevitable”. While great power war has become obsolete given the existence of nuclear weapons, competition and conflict will play out in different ways. While traditional International Relations Realists (Morgenthau) focus on human nature as the source of international conflict, neo-realists emphasise the anarchic state system as inducing competition (Waltz). Neo-realism is a systemic-level theory that offers predictions about how states behave by suggesting how systemic pressures affect state policies (unit behavior). First, the potential for competition and conflict arises from the security dilemma. A rising power’s increasing influence international affairs will lead to challenge the status quo, thereby diminishing the security and relative position of hitherto dominant power. The status quo power becomes more fearful and the rising power, knowing that it is being watched by the status quo power, becomes more concerned about actual or potential attempts by the dominant power to hold it down. Second, the rising power has increasingly broader interests. This will increase the potential for conflict with the status quo power. It also makes the rising power feel more vulnerable given its dependence on, for example, global trade. A reduction of the rising power’s vulnerability will typically translate into an increase in the dominant power’s vulnerability. This is called the security dilemma or zero-sum game. Third, in light of actual or potential competition, hawks on each side are likely to carry the day. They will urge a move away from cooperative policies. More hawkish policies will then lead to more hawkish policies on the other end. Doves simply have a harder time prevailing domestically – and especially once a shift towards international competition is underway. The dominant state and its challenger end up in a prisoner’s dilemma situation. In order to gain support for and to justify more adversarial policies, hawks then often invoke ideological differences, nationalism and chauvinism, making it harder for more moderate voices to gain a fair hearing.

It is this logic that underpins China’s greater international assertiveness. China’s impressive economic rise has allowed it to take a more assertive stance on several territorial issues (South and East China Sea) and to expand its military capabilities, including those focused on the ‘near seas’ (e.g. asymmetric capabilities, aircraft carriers). Greater diplomatic assertiveness backed by increased military capabilities are a reflection of China’s expanding international economic, financial and political interests. China is keen to enhance its ability to defend these interests and equally keen to mitigate the vulnerability that arises from its increased integration into the global economy (e.g. energy imports). China has various options to mitigate this vulnerability, including through diversifying its overseas trade and lessening its dependence on maritime trade by building connectivity in continental Asia. China is also seeking to more directly enhance its ability to protect its sea lines of communication by expanding its military capabilities. This in turn challenges the US’s relative position, and not just security-wise. China’s economic rise is also beginning to challenge US technological and economic leadership. From the US perspective, renminbi internationalization, Belt Road Initiative and China 2025 have become synonymous with China’s strategic challenge, while from China’s point of view these initiatives are just ways to mitigate its own increased vulnerability. 

Source: Economist

Having been the dominant power in Asia-Pacific since the end of WWII, the US feels its relative military advantage is eroding just as China is seeking to modify the status quo (e.g. maritime claims and freedom of navigation). As Thucydides would have recognised, hegemonic powers feel anxious about rising, dynamic, status quo challenging powers. A shift or drift towards US-China competition therefore looks difficult to avoid. This does not necessarily mean that economic cooperation will break down completely. After all, the European state system prior to WWI managed to preserve a relatively open and cooperative international economic regime. But the multilateral economic order that emerged from the ruins of WWII in the so-called West and that was extended globally after the end of the Cold War is bound to feel increasing strains. And this is not least due to recent US policies that have sought to ‘weaponise’ or leverage, if you will, economic interdependence. Not only do such policies weaken the relatively rule-based, multilateral economic order, but it will also make other countries, including China, more distrustful and look for ways to mitigate its vulnerability. 

Reliance on trade to foster economic growth and development is only one aspect of China’s vulnerability under conditions of complex interdependence. Should Washington’s goal be to isolate China more broadly, not just in terms of trade, but also in terms of investment and technology, China will make a concerted effort to wean itself off its dependence on the US as quickly as possible and double down on its efforts to develop key technologies indigenously (e.g. semi-conductors). Regardless, China is very unlikely to abandon its quest to enhance its ability to secure its foreign trade and access to strategic commodities. True, China’s relative vulnerability will decline as the share of trade in GDP declines and the Chinese economy shifts from investment and exports to domestic consumption as the main source of demand. This will reduce it somewhat and, but it won’t eliminate the risk of potentially being cut off from critical overseas markets and imports (e.g. energy). 

Source: US Department of Defense

Recent US attempts to pressure China economically will do little to make Beijing want to intensify its relations with and dependence on the United States. China regards US actions as an attempt at coercion and will be reluctant to agree to anything that would further increase China’s vulnerability in the event of a future breakdown in bilateral relations. It is likely that the formation of a multilateral coalition of advanced economies to pressure China into making economic changes would have been more promising than relying on US bilateral pressure only. But being forced into making concessions by whomever will do little to make China embrace multilateralism and liberal (non-statist) economics more enthusiastically. This does of course not mean that China will abandon international economic cooperation altogether; but it will be focused on mitigating the concomitant political and economic risks. In the security realm, the US has taken a more multilateral approach including its East and South-East Asian allies. While this makes it more costly for China to change the status quo in the region, such a multilateral security policy will not make China feel more secure, either. With China’s rise continuing and other states adjusting to it, strategic security competition will be difficult to avoid.

Conceptually, US-China economic relations over the past 20-30 years raise an interesting question. From a Realist perspective, it looks puzzling that the dominant power would offer the rising power access to its markets, capital and, if less so, technology, as this facilitates the rise of a potential challenger. The opening of China in the early 1970s was both rational and strategic in the context of the US-USSR superpower competition. Economic cooperation throughout the 1980s and maybe even 1990s was mutually beneficial and did not seem to pose a direct challenge to US supremacy. However, China’s subsequent dramatic economic rise, IR Realism suggests, should have led the US to seek to slow down China’s rise rather than help accelerate it (e.g. Chinese WTO membership 2001). Conceptually and empirically, this is where the distinction between absolute gains and relative gains is useful. Absent strategic (security) competition, the US derived absolute economic benefits from cooperation with China. Once the relationship shifts towards security competition and becomes a zero-sum game, relative gains become more important. In this sense, it may be argued that the US failed to pursue a long-term forward-looking policy towards China, as its pursuit of absolute economic gains over the past three decades created the very conditions that have led to relative US decline. From a Realist, as opposed to a liberal-institutionalist perspective, the US pursued absolute gains for too long.

Another interesting question is how Asian states will respond to the continued rise of China and intensifying US-Chinese rivalry. Will they fold in the face of overwhelming Chinese economic and military power? Or will they seek to counter-balance China with US support? Most states in the region hope to be able to avoid such a binary choice. After all, most Asian states are increasingly more dependent on China in economic terms than the US. (This dependence is what TTP was supposed to mitigate.) Understandably, East Asian countries don’t want to become dependent on China in security terms, too, as this would make them excessively vulnerable to potential Chinese pressure. China’s more assertive stance in various territorial disputes has not helped calm such concerns. Neither does China’s occasional resort to economic sanctions to penalise countries in the context of diplomatic disputes help (e.g. Korea/ THAAD). States in East and South-East Asia may be forced to make difficult choices if US-China competition intensifies. Until then, it may even be tempting to play one side against the other (e.g. Philippines), but it is rational to maintain cooperative relations with both China and the US. It is clear, however, that the US remains a crucial player in the region. East and South-East Asian state are less fearful of US power given that Washington has no territorial claims, guarantees freedom of navigation and access to its markets, while playing the role of an offshore balancer. Economically most states in the region are increasingly pulled into China’s orbit, but this makes them keener for the US to ultimately underwrite their security. Most of the countries in the region will seek to reap the economic benefits from their trade and investment relationship with China, while intensifying, if necessary, its security cooperation with the US as long as Washington remains credibly committed to a strong military presence in the region.

Source; New York Times

China’s geographic and geopolitical position is less than enviable and it is not difficult to see how ‘fear of encirclement’ is of much greater concern to the China than the US. As suggested, China also feels vulnerable given its increasing reliance international trade, including commodity and energy imports. A powerful US navy has the ability to cut China off international trade. Such concerns are all the greater in China’s case given its post-WWII policy of economic self-reliance and quasi-autarky. Security concerns are at least as intense in countries that are equally dependent on foreign, such as Japan. Creating a sustainable regional security architecture, even with US involvement, will prove difficult. China 'feels'a sense of strategic vulnerability. After all, China fought several wars in the 20th century, not just with Vietnam and in Korea, but also with India and the USSR, not to mention Japan. Going back further in history, it was repeatedly invaded by peoples from Asian steppes. Last but not least, external security threats may look even more challenging given the potential brittleness of China’s political regime. The regime derives its legitimacy from continuously increasing economic prosperity and, arguably, intensifying nationalism. This further contributes to China’s sense of vulnerability. For all these reasons, inter- and intra-regional security competition in East and South-East will be difficult to avoid and the relationship between soft (economic) and hard (military) power will be fascinating to study in the process.

US-China trade tensions – US policymakers should have read Keohane/ Nye and Katzenstein (2019)

As the US-China trade conflict is about to enter its third year, Washington has little to show for it. A lasting settlement does not look within imminent reach. Washington’s ‘asks’ are known and include the reduction of the bilateral trade deficit, greater access to Chinese markets for US exporters and investors, greater protection of intellectual property rights as well as restrictions on the activities of Chinese state-owned enterprises, including their role in government-sponsored industrial policies. What is less clear is what Washington’s ultimate objective is. Is it the reduction of the bilateral trade deficit? Is it the opening up of China’s economy? Is it to prevent China from achieving technological supremacy? While these objectives are not necessarily mutually incompatible, they are not necessarily compatible, either. Would the US accept Chinese technological dominance if it emerged in the context of a more open Chinese economy and less interventionist Chinese economic policies? Would the US accept continued large bilateral trade deficits even if China reduced trade barriers to US levels? It is far from clear that the modification of Chinese behavior or institutional changes to bilateral economic relations would lead to the outcomes sought by the US, whether they are to do with trade imbalances or technological leadership.

As long as there is a lack of clarity about US strategic objectives, it is not entirely clear which US policy measures vis-à-vis China will prove permanent and which will prove temporary. Tariffs and the threat of further tariffs may be a tactical measure to force China to the bargaining table or they may be regarded as more permanent measures to reduce the US trade deficit. (Whether tariffs will help achieve is doubtful from an economic perspective.) Or tariffs might be a more permanent feature of US policy towards China in an attempt to disrupt China-centred supply chains. Similarly, tighter US investment regulations and a revamped export control regime may be meant to help the US gain bargaining leverage. Or these measures may prove permanent in view of slowing Chinese technological progress. (In practice, these measures are bound to prove more permanent, not least because legislation puts certain limits on executive action, even if in practice the government does have some wiggle room. 

Washington has sought to use China’s dependence on foreign trade as a pressure point to extract trade and other economic concessions from Beijing. China is more dependent on trade with the United States than vice versa. Moreover, the Chinese government depends more on economic growth as far as political stability is concerned than the US. This is not to suggest that US presidents faced with recurrent elections do not have a similar interest in economic growth. But for the Chinese leadership, the stakes are higher. A US president may be voted out of office. The Chinese government may be overthrown. The legitimacy of China’s political system, long based on communist ideology, today largely rests on a combination of generating economic progress and, increasingly, patriotism and nationalism. It is therefore imperative for Beijing to maintain support of the prospering middle and upper-middle class. If Beijing is looking for a reminder, how brittle regime stability is, it need look no further than Hong Kong.

Source; IMF

While China is economically and – over the longer term – politically more susceptible to a disruption of foreign trade and its economic consequences, its ability to offset external economic pressure through domestic policy is greater than that of the US. Put differently, China is more sensitive to trade disruption than the US on account of its greater dependence on exports, but it also better positioned to deal with the economic headwinds from trade tensions than the US. Washington may (or may not) have correctly assessed China’s (economic) sensitivity. But it seems to have overestimated its (economic) vulnerability. It is beginning to look as if the present US administration has overplayed its hand. 

China is more sensitive than the US in terms of foreign trade, but it is less sensitive than export figures suggest. First, while China’s gross goods exports – whether measured in terms of dollars, share of total exports or as a share of GDP – to the US are significantly larger than respective US exports to China, they overestimate China’s dependence on the US. The more relevant measure in terms of economic sensitivity is value-added exports. Given the large share of imported content embedded in Chinese exports, value-added exports to the US are significantly smaller than gross exports. Second, if services exports are added into the mix, China’s relative greater dependence looks even smaller. US services exports to China are considerable and the US runs a sizeable services surplus, compared to a large goods deficit. This makes the US relatively more sensitive than China (e.g. tourism). Third, and this is more significant from a political than an economic point of view, the sales of US subsidiaries in China are sizeable. If they were added to the bilateral trade in goods and services, the bilateral ‘trade balance’ would be almost balanced. Leaving aside the economics, the reliance of US companies on the Chinese market makes them sensitive to Chinese retaliatory measures (e.g. regulatory changes, tax inspections). This helps rebalance somewhat China’s greater political-economic susceptibility arising from China’s greater export dependence. Given the much smaller sales of Chinese subsidiaries in the US, this gives China greater opportunity to retaliate against the US economic interest than vice versa. (It is worth noting that if Washington’s ultimate objective is to get US companies to leave China altogether and/ or to disrupt global supply chains running through China, Beijing’s more hostile policy towards US companies in China would be playing right into Washington’s hands.) The long and short of it is that China is less vulnerable to US pressure than the focus on bilateral goods trade suggests, even if in the end China does remain economically and politically more sensitive than the US in case of a trade war.

Source; WTO

China is more sensitive than the US in terms of foreign trade, but its vulnerability (as opposed to sensitivity) is more limited due to its significant ability to offset some of the negative economic consequences due to US policies. This where Keohane & Nye (1977). Sensitivity can be defined as how quickly changes in one country bring costly changes in another. Or less awkwardly: sensitivity captures the costs incurred by a state due to another state’s actions. Vulnerability captures the capacity of a state to counter and offset such costs by taking the appropriate measures. While China is more sensitive than the US in terms of trade tensions, its vulnerability is much more limited on account of its greater ability to offset the economic costs of US trade policies (and other economic measures). The US is relatively more vulnerable in the sense that its ability to counteract any costs through economic policies is much more limited. Taken together, this makes the ‘asymmetric interdependence’ between the US and China less asymmetric. 

China has at its disposal important tools to mitigate the direct economic growth effects of hostile US trade policies. This is where Katzenstein (1977) comes in handy, conceptually. China has a ‘strong’, centralised state that faces a ‘weak’ society. Moreover, China has important policy tools at its disposal to intervene in the economy. First, China has greater control over its financial system given the significant share of state-owned banks and/ or banks where the government remains an important shareholder. A combination of government ownership and regulatory influence (e.g. window guidance) allows a ‘strong’ Chinese state to pursue a counter-cyclical credit policy. Second, even though China has liberalised interest rates in recent years, the PBoC is not independent. Combined with window guidance, this allows the authorities to more directly influence domestic monetary and credit conditions. The PBoC is less likely to ‘push on a string’. Third, the Chinese authorities have significant control over fiscal policy, including quasi-fiscal policy. After all, the government does not rely on the approval of a politically independent legislative body to conduct fiscal policy. And while there is justifiable concern over Chinese contingent liabilities, especially at the provincial level, the central government can simply instruct other levels of government to crank up investment in order to stimulate the economy. Fourth, China also has far greater control over its exchange rate in spite of having move to a more market regime in the past few years. Restricted current account convertibility and significant influence over domestic banks give China greater influence over the value of its currency. (The Trump administration has of course noticed this leading it to designate China a currency manipulator.) Fifth, even though the Chinese regime is politically more sensitive to economic stability, it benefits from greater short-term political flexibility. The government (or regime) does need to run for (re) election and this gives it more leeway in terms of negotiating with the US, even it China’s structural political vulnerability is greater than that of US. In short, a higher degree of centralization, a statist political economy and the availability of important economic tools lessen China’s relative vulnerability as opposed to its sensitivity. As it happens, and US rhetoric notwithstanding, Chinese economic growth has suffered relatively little so far (Lardy 2019).

By comparison, the US appears relatively more vulnerable. The US government has far fewer tools at its disposal to deal with the negative economic consequences (of its own trade policies). The US political system of government is more decentralized. Societal influence tends to have a greater influence on US economic policies, the political system is more fragmented ad the executive has fewer tools and controls fewer policy tools that would allow it to intervene in the economy. The US is less sensitive than China, but its ability to offset costs is more limited. First, the US government cannot simply decree credit growth. Second, unlike the PBoC, the Fed is independent and cannot be instructed to ease policies. The independence of the Fed reduces US bargaining power (and the president, correctly, seems to understand this). Third, the US government has much less flexibility in terms of switching on or off the fiscal taps, let alone conduct a quasi-fiscal policy. US states cannot be instructed by the federal government to increase fiscal spending or public investment, not to mention that they are generally constrained by balanced budget rules. And the federal government is arguably more constrained – both economically and politically – in terms of fiscal space and flexibility. Congress needs to sign off on major changes to fiscal policy. Fourth, the US has little influence over the value of the dollar given that exchange rate policy is legally vested in the Treasury, but the Fed is responsible for monetary policy. In the presence of an open capital account, this, for all practical purposes, circumscribes the ability of US policymakers to determine the value of the dollar. They can of course seek to influence it indirectly, but this is typically not very effective. Fifth, while the US is arguably less dependent on economic growth as far as political instability is concerned, US governments/ presidents are held to account every four years and, one might argue, every two years in the mid-term elections, whose outcomes matters greatly to the president’s political standing. Economic conditions are typically a very important factor in determining US elections. Short-termist political concern limit the willingness of the US government to incur economic costs in view of longer-term economics gains. In other words, the incentives to escalate US-China tensions to the point where it slows the US growth – whether due to the direct impact of tariffs or the indirect impact of tariffs on market confidence – not only limits the flexibility of US policies, it also makes threats to escalate further somewhat less credible.

Differences in terms of state strength may also help explain why US policy towards China appears somewhat less consistent than China’s policy towards the US. US policy may be more subject to short-term tactical concerns (see presidential tweets) rather than the outcome of a long-term strategy. China, by comparison, should be able to take a longer-term view given the lesser degree of short-term accountability. China is often said to take a long-term view of things. This is often attributed to China’s strategic culture or national character. The most famous anecdote has China’s foreign minister, Zhou Enlai, respond, when asked in the 1971 what he thought about the French revolution: it is too early to tell. (It has recently been suggested that Zhou Enlai believed that the question referred to the 1968 student protests in France rather than the French Revolution in 1789. Lesson: never let facts stand in the way of a good story. Be that as it may, the inclination to adopt a longer-term view may or may not be rooted in culture, but the ability to do so is almost certainty attributable to a domestic political structure that is fairly centralized and can afford a certain degree of lack of short-term responsiveness to societal demands. This provides a distinct advantage to China in its present negotiations with the US.

China in spite of its relatively greater economic sensitivity looks much less vulnerable to US economic pressure once state strength is factored into analysis – at least in the short- to medium-term. How about the longer term? The US political regime less likely to experience severe instability or a breakdown, while China’s political regime looks comparatively fragile. After all, if China goes the way of other East Asian countries in terms of economic development, social modernization and democratization, the Chinese regime must feel vulnerable. In the short term, China has a significant capacity to offset foreign economic pressure, while the US government is much more constrained. In the longer term, the Chinese political system looks distinctly less well-positioned in terms stability than the US if it fails to safeguard economic prosperity. (Of course, continued economic progress is likely set to increase the pressure on China’s political system in terms of political liberalisation. But that’s another story.

Fundamentally, China’s political regime is characterized by ‘fragility’, while the US, in spite of its present domestic constitutional and political challenges, exhibits – arguably – robustness,if not necessarily anti-fragility. If you are looking for a good read about what might go wrong in the US and why my prediction may turn out to be wrong, I recommend Ziblatt & Levitsky's How Democracies Die (2018). Many years ago, a chance acquaintance of mine, who had studied at Cambridge in the 1930s, told me that back then his professor had compared Britain’s democracy to a raft: it may be occasionally dip under water in stormy seas, but it will stay afloat. By contrast, the fascist and communist regimes of the day were more like huge ocean liners, massive and powerful and indestructible (looking). However, if they hit an iceberg, they will sink, while the raft will remain afloat. The analogy turned out to be apt. This is not meant to suggest that China’s political regime is fascist, let alone communist in the sense resembling the regimes of the 1930s. But it is to suggest that China’s more monolithic and centralized political regime is ultimately more fragile that US democracy. It may look solid, but when sufficiently shocked, it may break quickly break. In metaphysics, fragility is a dispositional term. 

What does all of this suggest for the future of the China-US economic conflict? Regardless of Washington’s ultimate objectives, US diplomacy will probably need to reduce its ‘asks’ if it wants to reach an agreement with Beijing. To the extent that protectionist measures weigh on US economic growth and risk tipping the US into recession, a further escalation will lack credibility, not least because Beijing has important policy levers at its disposal to counteract the short-term negative consequences of more hostile US policies. This does not mean that China would not be prepared to sign up to an agreement around intellectual property rights safeguards, a reduction of the bilateral trade imbalance through increased Chinese purchases and a further opening of the Chinese economy in exchange for an end to US tariffs. But Beijing will be extremely reluctant to agree to a significant revamp of its domestic political economy, especially if such a reform were to decrease China’s future ability to deal with external pressure and exogenous shocks as well as its ability to catch up with US economically and technologically. Put differently, a fundamental reform of the political economy that might weaken government control of the economy, thereby leading to an increase in its vulnerability, is very unlikely. Such a reform would almost certainly weaken – or be seen to weaken by Chinese policymakers – China’s ability to catch up (and maybe overtake) the US in economic and technological terms. A failure to do so would prolong China’s sensitivity to US pressure in the context of a bilateral relationship that is bound to become more contentious over time, both economically and politically (e.g. security competition in East Asia). If this analysis is correct, the US will find it difficult to credibly threaten a broader escalation of trade and economic tensions and China will resist making changes to its domestic political economy that would prevent it from lessening its sensitivity and might even increase its vulnerability to US policies against the backdrop of an emerging strategic rivalry. True, US policy measures such as export controls and investment restrictions are bound to have a significant impact on China’s longer-term economic growth. 

China will not be prepared to dismantle its economic model in exchange for a (in practice) revocable US promise to reduce export controls and inward investment restrictions, either. As long as China believes that it can only compete with, or outcompete, the US with the help of interventionist economic policies and as long as China believes that the US is prepared to politicise bilateral economic relations, as it surely is, Beijing has next to no incentive to abandon the very development model, including industrial policies, that would help make it less dependent on the US over the longer term. In addition, Beijing’s recognition of the fragility of its political system will provide Beijing with a significant additional incentive to intensify its efforts to reduce its sensitivity to US actions, while retaining sufficient to keep its vulnerability to a minimum. Washington's ‘weaponisation’ of (asymmetric!) economic interdependence may lead Beijing to reach out to other large, advanced economies in an attempt to manage its continued dependence on the US – whether the dependence concerns trade, supply chains, dependence on US export markets, the dollar, critical technology etc. At the same times, Beijing will likely to intensify efforts to make itself less dependent on the US, economically and technologically, rather than increase its sensitivity and vulnerability in the wake of a 'deal' with the US. As long as Beijing believes that its domestic political economy is key to catching up with the US as well as crucial to mitigating present and future US pressure, it is not going to make any modifications to it that might increase its sensitivity and vulnerability. 

If Washington's strategic objective is to prevent China from becoming a technological leader rather than create a 'fairer' and more 'balanced' economic relationship with China, then demanding wide-ranging changes to China's political economy makes sense. Either Beijing gives up its support for SOEs and China 2025 or it will be forced into increasing isolation from the US economy in terms of trade, investment and technology. Moreover, US demands for fundamental changes to China's political economy regime may lead China itself to make the conscious decision to limit its susceptibility to US economic power by pursuing more inward-looking economic development policies. Washington might well prefer for China to abandon its state-interventionist policies. But if this cannot be achieved, then slowing China's economic and technological advance by disruption supply and limiting China's access to US markets and US technology, while giving Beijing incentives to further reduce its present sensitivity and vulnerability to disruptive US policies, would constitute a second-best outcome from Washington's perspective.