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The trajectory of conflict escalation between the world’s two great powers is unmistakably ominous: in the past six years, the USA and China have become embroiled in a trade war, a tech war, and now a new Cold War. I argue in a new book, Accidental Conflict, that this perilous path could have been avoided had it not been for a confluence of false narratives that both nations have embraced toward each other.

The hows and whys of these dueling false narratives are an outgrowth of a now dysfunctional relationship. Two seemingly strong nations are, in fact, surprisingly vulnerable. The once unstoppable Chinese growth model is today in serious need of repair. Meanwhile, the USA not only faces its own economic struggles but is also beset by political and social instability.

It has become politically expedient for both nations to blame their vulnerability mistakenly on each other. China views America’s efforts to contain its rise as nothing short of an existential threat to Xi Jinping’s aspirational vision of rejuvenation and goals of great power status. Yet its failed efforts at economic rebalancing reflect shortcomings of its own making. For the USA, China is seen as the existential threat to its economy, its dominance as the world’s leading innovator, and ultimately its national security. Yet an outsized trade deficit with China has become America’s foil for a chronic shortfall of domestic saving that undermines US innovation potential far more than any Chinese threat.

This combination of vulnerability and political expediency has spawned the dueling false narratives of accidental conflict—the high-octane fuel of escalating confrontation that could be ignited by the slightest spark. And there are plenty of potential sparks to worry about: from America’s perspective, think Taiwan, human rights allegations over China’s treatment of ethnic Uyghurs in Xinjiang Province, and China’s new unlimited partnership with Russia and from China’s perspective, think about Nancy Pelosi’s provocative visit to Taipei in 2022, the Biden Administration’s full-throttle sanctions on Chinese technology, and a US national security strategy that singles out China’s in terms of both intent and power as the greatest long-term threat to world peace.

Both nations should take their relationship risks far more seriously than they are doing so. The USA smugly presumes that its victory in the first Cold War against the former Soviet Union is a template for success in a second Cold War against China. Yet the most decisive feature of that earlier conflict—the economic supremacy of a then vibrant US economy relative to much smaller and progressively weakening Soviet economy—is not applicable in a second Cold War against a large and still strong Chinese economy. Similarly, China is convinced in the superiority of its state-directed blend of socialism and capitalism, especially as compared to its perception of a declining America. Both nations are overly confident, in the grips of a worrisome denial.

This complacent reaction is both surprising and dangerous. A dysfunctional Sino-American relationship is in desperate need of repair—before it is too late to prevent the accidental conflict of false narratives from erupting into a full-blown clash of great powers. This is, first and foremost, an urgent relationship problem that needs a relationship solution. Just as human pathology tells us that relationship conflicts cannot be resolved with one side imposing its system and its values, on the other, the same is true of nations. Both the USA and China need to imagine a new approach to mutual engagement. In that spirit, I offer up a three-part plan of Sino-American conflict resolution that breaks from the dysfunctional approach of the past.

From Distrust to Trust

There is, at present, little in the way of trust between the USA and China. An era of constructive engagement has given way to blame, scapegoating, and distrust. Once lost, it is hard to recreate trust. Yet there is a rich agenda of trust-building options available to the USA and China. The trick is first to pick the low-hanging fruit and then gradually start to move to the higher branches of the tree.

As with individuals, the resolution of conflict between nations can only start with the restoration of trust, a long and arduous process under the best of circumstances. The trust problem does not exist at the person-to-person level in either the USA or China. Even though US public opinion polls report the most unfavorable view of China on record, Americans’ negative perceptions are largely focused on the Chinese government. The target of Chinese distrust is similar, focused on US government actions aimed at punishing China or containing its rise.

Distrust has been brewing between the USA and China for a long time. It almost seemed as if Chinese leaders knew trouble was coming in the months before Xi Jinping assumed office, in November 2012. Earlier that year, as vice president and heir apparent, he had embarked on a five-day “getting to know you” tour of the USA. On the eve of the visit, then Vice Foreign Minister Cui Tiankai said, “There is certainly a trust deficit between China and the United States.” Cui, who later became China’s longest-serving ambassador to the USA, had a deep understanding of America, but even he may not have suspected the full range of trust problems that were to come.

What might break the ice, shift the pendulum from distrust to trust? There are, in fact, several easy options. These include the reopening of closed consulates in both nations—Chengdu in in China and Houston in the USA. Other examples include restarting once popular and highly successful student foreign exchange programs and a relaxation of now tough visa requirements for travelers between the two nations. Reducing new constraints on non-governmental organizations (NGOs) is a longer reach higher up the tree. But it is critical to rebuild civil society relationships at all levels—cultural and professional, alike.

Finally, there are big reaches in the upper branches of the Sino-American trust-building tree—climate change, world health, and cybersecurity. The first two pose grave threats to humanity, and the third issue, cybersecurity, jeopardizes global platforms of commerce as well as to the delicate equilibria of social, political, and military stability in each nation. These three issues stand out as urgent challenges facing both the USA and China. And they pass the litmus test of urgency by underscoring the consequences of failure—climatic disaster, recurring pandemics, and commercial and state-sponsored cyberwarfare.

To be sure, it is an uphill battle on all three of these big issues. The imminent threats of climate change are hard to deny. The August 2021 report of the Intergovernmental Panel on Climate Change dispelled any doubt of the devastating impact of human actions in boosting greenhouse gas emissions. And the extreme weather events of 2021–24—an unprecedented confluence of storms, fires, and floods—tell us that climate change is already here and demands urgent global action. For the USA and China, leadership moments like this rarely occur with such clarity.

The lingering after shocks of the Covid-19 pandemic are also ripe for mutual action. Even in the USA, where scientific breakthroughs have led to miraculously quick development and distribution of vaccines, the mutation of new variants has collided with political backlash against widely accepted public health practices. In today’s interconnected world, it is virtually impossible to arrest pandemics without a global cure. Approaching the problem narrowly as a national threat is a recipe for failure—especially with the high likelihood of a steady stream of variants, to say nothing of the distinct possibility of another pandemic at some point in the not-so-distant future. Again, this is a clear opportunity for the USA and China to share leadership on a global issue of historic importance.

Finally, the unprecedented global outbreak of ransomware—hackers holding institutions and individuals hostage over cyber access—leaves little doubt that of the corrosive threat to cybersecurity. Business activity already has been crippled in key segments of the US economy, including energy, food supply, travel services, higher education, Internet services, and water. Similar incidents have been reported in the UK, in Continental Europe, and throughout Asia. Even China, with its supposedly airtight control over the Internet, has seen several instances of reported ransomware in areas such as shipping and online services platforms. China has been accused as a perpetrator and identified as a victim in the outbreak of criminal ransomware activity. Ransomware is only one aspect of the many issues that could compromise cyber connectivity around the world—including allegations of stolen trade secrets, intellectual property theft, piracy, and destabilizing social and political turmoil amplified through social networks. An urgent global solution is needed to address these threats, and US-China leadership could be decisive in leading the way.

There is an important lesson in these crosscurrents of action and inaction: US-China joint commitments on climate change, while tentative at best, show that similar collaborative efforts are also possible on pandemics and cybersecurity. Action often tends to be event driven. Such was the case on climate after a profusion of weather-related natural disasters in 2021. While it is extremely disappointing that the worst pandemic in a century has not sparked comparable collaborative action on global health, there is growing recognition that some form of collective response will be required to prevent the inevitable next pandemic. It will probably take a major cross-border cyber failure to bring the USA and China to the table to address risks to the digitized world’s precarious infrastructure.

But there is an important risk to this reactive approach. With climate change, global health, and cybersecurity, waiting for facts may be too late. China and the USA have a joint opportunity for a rare demonstration of global leadership. Trust building between two conflicted nations, to say nothing of the fate of the world, may hang in the balance.

From a relationship perspective, the goals of trust building are simple: reengagement in proactive discussions, troubleshooting common problems, and relearning the art of familiarity that comes from working together. While simple in concept, the rebuilding of trust is complex in execution. Yet without trust, leaders are afraid and reluctant to take risks on conflict resolution. Trust gives them the courage to act. After years of deepening distrust, there can be little hope for the grand kumbaya moment of a spontaneous reversal. Picking the low-hanging fruit is the best place to start.

The Bilateral Investment Treaty

Trust building is necessary but not sufficient for conflict resolution. It only opens the door to the next and even tougher phase, which requires a fundamental rethinking of the perspective and framework of engagement.

For the USA and China, economics has long been the anchor of their engagement and cross-border trade is where the anchor gets most of its weight. Yet for far too long, the USA has been saddled with a misdirected approach to trade policy. Granted, foreign trade deficits are emblematic of a leakage of jobs and income to a nation’s trading partners. But rather than understand and tackle the forces giving rise to this condition—namely a shortfall of domestic saving—the USA has preferred instead to pin the blame on others. Japan was the scapegoat in the 1980s, and now it is China.

Yet facts and economic theory underscore the futility of this approach. Nations like the USA, with low domestic saving, must borrow surplus saving from abroad in order to invest and grow. To attract foreign capital, they run current account and multilateral trade deficits. America’s multilateral trade gap consisted of 106 bilateral deficits in 2023 and the measurement of many of those imbalances is seriously distorted by the impacts of multinational supply chains that are not captured in official country-specific trade statistics. Unless the USA raises domestic saving—exceedingly difficult to do in an era of chronic federal budget deficits—there can be no targeted bilateral strategy fix to America’s pervasive multilateral trade problem.

The US government—Congress and the White House—unfortunately has no desire to cut budget deficits and raise domestic saving. Instead, it would rather blame its largest trading partners for trade deficits—first Japan, now China—than get its own fiscal house in order. This “bilateral bluster” also resonates with a hard-strapped US middle class. America’s political economy of trade bashing has broad-based and deep appeal.

That was exactly the presumption of the so-called Phase I agreement, signed by America and China in January 2020, that was purported to be a big step toward solving the US trade problem. As the label of the approach suggests, additional phases were expected, presumably building on the bilateral effort that was adopted in early 2020.

Unsurprisingly, Phase I did not work. Not only did the overall US trade deficit get worse, but as economic theory would have predicted, without fixing its saving problem, the US trade was diverted from China to higher-cost foreign producers such as Mexico, Canada, Vietnam, Taiwan, Singapore, South Korea, India, and others. That, and the added costs arising from sharply increased tariffs on many Chinese imports, made for the functional equivalent of a tax hike on American consumers and businesses. Moreover, the Phase I deal did virtually nothing to address the deeper structural aspects of the US-China conflict embedded in two very different systems of governance. Yet, if Phase I is ever followed by second phase, we can expect more of the same.

This flawed logic can be corrected only when the mindset of a bilateral approach is abandoned. Thankfully, the deal expired at the end of 2021, but the bilateral thinking behind this approach unfortunately didn’t. Katherine Tai, US Trade Representative (USTR) for the Biden Administration, remains steadfast in her insistence of holding China accountable for compliance with the flawed Phase I agreement of the Trump Administration. The continuity of the anti-China policy of these two administrations is striking.

Phase I was a fig leaf that allowed both the USA and China to fixate on bilateral trade while ducking the tough issues that divide them, namely, saving imbalances—the US saves too little and China saves too much—and a wide range of disagreements over so-called structural issues, such as innovation policy, forced technology transfer, intellectual property protection, and alleged unfair subsidies for state-owned enterprises. It makes no sense to cling to a misdirected and analytically unsound bilateral trade deficit framework. The misdirected thinking behind this zero-sum approach must be abandoned.

But then what? This is where the relationship aspect of the US-China conflict needs to be addressed head on. The current battle over technology, innovation, and intellectual property is a prominent case in point. The Biden Administration has imposed comprehensive regulatory restraints on Chinese tech companies that take direct aim at one of the key pillars of Xi Jinping’s aspirations of China’s great rejuvenation—the indigenous innovation of a state-directed technology superpower. For the USA, technology leadership and sustained prosperity go hand in hand. For China and its tech-enabled great power aspirations, there is no room for compromise.

That gets to the core of the relationship problem. Two nations, with two very different systems, are trying to tackle a hugely contentious shared issue in very different ways—a classic recipe for conflict. Yet both the USA and China each want fair and increased access to the other’s large and expanding markets in order to promote long-term economic growth and prosperity. Each nation believes in the merits of its own carefully crafted approach, and yet each doubts the integrity of the other’s approach. What authority or which framework might credibly adjudicate disputes over technology transfer and intellectual property rights protection arising from these two very different systems is left as a prominent loose string.

A bilateral investment treaty (BIT) is a time-tested approach that many nations have embraced as a means toward that end. Over the years, the USA has signed forty-seven BITs, of which thirty-nine are currently in force. China has 106 BITs in force, more than any other nation. My recommendation: the USA and China should do a “framework swap”, trading Phase I and its associated tariffs for a strong, high-standard BIT.

A BIT is a broad rules-based framework for cross-border investment between partner countries, whatever their economic structures may be. This flexibility is especially important to its potential as a mechanism to address the US-China structural agenda. BITs provide leeway in designating “negative lists” of industries that the partners agree will not be covered, as well as opportunity to focus on innumerable issue-specific side considerations (dubbed “non-conforming measures” in the US BIT model template) that receive considerable attention in drawn-out country-by-country negotiations.

These side issues have covered a wide range of special concerns. Side issues in US BITs include foreign exchange reserves (Egypt), exemptions for debt-to-equity conversions (Argentina), new developments in intellectual property investment (Poland), local content requirements (Turkey), government procurement practices (Uruguay), and minority affairs and social services (Rwanda). Such case-specific modifications provide the flexibility to create bespoke BITs tailored to the structural characteristics of each of America’s partnerships. That is the special attraction of the BIT as a template for structural arbitrage between the USA and China.

Of course, there is an obvious and important political aspect of a US-China BIT. Two-thirds of the US Senate is required for ratification of any treaty. In America’s current hyper-charged political climate, that spells trouble for a BIT, especially one with China. This has prompted some to suggest rebranding the effort as an “agreement” rather than push for politically impossible enactment of a treaty. A congressional-executive agreement, like those that framed both NAFTA and its successor, USMCA, would be a BIT in everything but name; but it would “only” require the approval of the president and a congressional majority, avoiding the unrealistic hurdle of two-thirds Senate approval.

Politics aside, a big caveat to be sure, the BIT approach to US-China structural arbitrage is far preferable to clinging to the mindset of the misdirected and unworkable Phase I bilateral trade framework. Shifting the focus from bilateral trade to a BIT-like adjudication of the structural aspects of the conflict gets to the crux of the growth challenges that both the USA and China face. Going back to the bargaining table and putting the finishing touches on BIT negotiations that were nearly completed in 2016 deserves the highest priority in a negotiated, relationship-focused strategy of conflict resolution.

A US-China Secretariat

In days past, at least the USA and China could rely on an architecture of engagement to try and sort out their differences and push the ball forward. Regular meetings of the Joint Commission on Commerce and Trade (dating back to 1983) and then the once- or twice yearly economic and strategic summits (starting in 2006) were the most notable attempts at bilateral Sino-American engagement. Both efforts were terminated by America’s Trump Administration when the trade war began in 2017–18.

What little remains of US-China engagement are sporadic leader-to-leader meetings (physically and virtually) and infrequent high-level meetings between national security, foreign policy, and trade officials. Unfortunately, these meetings are long on glitz and short on substance. They accomplished very little as the relationship deteriorated and ultimately became a platform for cold-war-like posturing.

Engagement has become all but an oxymoron for the two most powerful nations in the world. There is no constituency in the US Congress in favor of rebuilding America’s relationship with China. The US business community is afraid to speak out. Public opinion polling shows US sentiment toward China at record lows, irrespective of political party, demographic cohort, or educational background. There can be no mistaking the strident consensus of America’s anti-China mindset.

This is a recipe for accidental conflict. The US Congress is falling over itself to craft new legislative initiatives that will only make matters worse by taking dead aim at China. The Biden Administration’s new proposal for a 14 nation Indo-Pacific Framework follows the approach of Obama’s TPP, forging an Asian alliance that excludes China. A new House Select Committee on China has been established that will only further inflame Sino-American tensions over Taiwan. China is responding in kind, deepening its commitment to a new unlimited partnership with Russia just when Russia is prosecuting an unthinkable war in Ukraine.

Now more than ever, the USA and China both have urgent and compelling reasons to rethink the way they exchange views, trouble-shoot seemingly intractable problems, and resolve differences. They need a new structure for their dialogue, a new architecture of engagement.

A US-China Secretariat could provide that structure. Like the multinational secretariats of organizations like the United Nations, the Organization for Economic Cooperation and Development, the World Trade Organization, and many others, a US-China secretariat would provide administrative and coordinating cohesion between the USA and China. It would be the first such effort involving just two nations.

Significantly, a US-China secretariat would shift the attention on relationship issues from part time to full time. The previous periodic dialogues, until they were canceled by the Trump administration, were more like event-planning exercises supported by massive temporary staffs drawn from numerous government ministries and agencies. They were exercises in political theater that accomplished little while conflict deepened.

The new US-China secretariat would be housed in a permanent office, located in a neutral jurisdiction, and staffed by equal complements of American and Chinese professionals for whom the relationship would be a full-time job. It would serve as a collaborative platform focused on all aspects of US-China relations—from trade and technology, to subsidies of state-sponsored activities, to human rights, climate change, global health, and cybersecurity. The new secretariat, organized functionally rather than as two stand-alone, siloed, country-specific efforts, would have four key responsibilities:

  • Relationship framing. The secretariat would play an important role in framing the US-China relationship, serving as an official evidence- and research-based platform recognized by both sides. Importantly, the research function would also oversee joint database development and management, that would include proprietary data gathering, quality scrubbing of dual-platform statistics maintained individually by the two countries, and broad coverage in all areas pertinent to the relationship. The secretariat would provide experts and decision-makers in both nations with a common set of shared, fact-based policy options. This function would feature a collaborative research program, with jointly authored policy background, or “white papers,” focused on mutual growth opportunities as well as on conflict resolution; joint policy recommendations would be channeled directly into designated congressional committee deliberations of both nations.

  • Convening. The secretariat should also serve as an important hub for convening and integrating networks of relationship expertise that already exist in both nations, including academics, think tanks, business, and trade associations. The intent would be to serve as a clearinghouse of expert talent that could be drawn on to address issues of mutual interest. The lack of collaborative efforts during the early stages of the Covid-19 pandemic is a good example of how the convening function of an effective secretariat might have made a real difference in crisis management.

  • Oversight and compliance. The secretariat would oversee the implementation and monitoring of agreements between the USA and China. The development and use of “dashboards” as a tracking device to assess detailed implementation and compliance requirements of joint agreements would be especially helpful with new agreements such as the Bilateral Investment Treaty stressed above.

    In today’s rapidly changing world, conflicts are bound to arise over contentious structural issues—especially intellectual property rights, technology transfer, state-supported industrial subsidies, and cybersecurity. The US-China secretariat, empowered with a transparent conflict resolution screening function, has the potential to play a leading role in conflict management. It could provide a first stop for the airing of grievances between the USA and China. If, for example, agreement on a BIT was ever reached, inevitable disputes could be screened, evaluated, and conceivably resolved by the secretariat prior to formal submission of complaints to the World Trade Organization or the World Bank’s International Centre for Settlement of Investment Disputes.

  • Outreach. The secretariat should also have an important outreach function. A transparent, open, uncensored, web-based communications platform is essential, complete with a public version of the US-China database, working papers of the secretariat’s staff researchers, and a coauthored quarterly review of US-China relationship issues. The secretariat should sponsor regular public conferences on key relationship issues.

The new secretariat should not be viewed as an autonomous policy authority but more as an apolitical bilateral think tank and consultative organization. Earlier joint efforts between the World Bank and China’s Development Research Center—the China 2030 project of 2013 and Urban China of 2014—are noteworthy precedents that underscore China’s potential to engage in collaborative policy-driven research. As such, the secretariat should be staffed by experts—call them technocrats, if you like—who possess the professional skillsets required of the complex tasks of Sino-American relationship management. That would include, but not be limited to trade experts, economists, lawyers, diplomats, scientists, and technologists.

Chinese and American co-heads of the secretariat, empowered as cabinet level policy advisors to their respective governments, would be responsible for talent selection. While the co-heads would oversee their respective staffs, they would be urged to integrate them into comingled US-China departments rather than operate as siloed, country-specific teams. Secretariat leadership should consult regularly with an actively engaged outside advisory board with equal representation from the USA and China but also including members from other key nations and regions.

The basic point of the secretariat is to elevate the bilateral US-China relationship to the importance it deserves in the governance of both nations. A US-China secretariat won’t immediately bestow a new spirit of mutually constructive engagement. But it would be an important step in that direction. The world’s most important bilateral relationship needs constant attention—not just now, at the height of conflict, but also during more normal times so as to avoid future conflicts. A new secretariat, in conjunction with a high-standard Bilateral Investment Treaty that addresses key areas of structural difference, would give Sino-American relationship building a much better chance than it has today.

The Clean Slate

Conflict resolution of a dysfunctional relationship between the USA and China requires urgent attention. But the resolution must be on terms that are mutually acceptable to both. This is especially challenging for two powerful yet very different nations, each with its own set of values, governance, and historical experience. The current approach to relationship management has failed. The USA mistakenly believed that a reformed China would conform to western liberal values. China mistakenly believed that the West would be tolerant of what the CPC has dubbed Chinese characteristics. The relationship dissonance that arises from this clash of two very different systems must be addressed head on. The approach I have presented above—trust building by picking the low-hanging fruit of common interest while creating a bespoke BIT and a companion US-China Secretariat—was imagined with that objective in mind.

A new and different strategy for conflict resolution must be carefully aligned with the character of the relationship and the sources of conflict that have arisen in that relationship. At a minimum, this requires a strong and enforceable agreement on key contentious issues that have fractured the US-China relationship. All that and more can come from a high-standard Bilateral Investment Treaty. A new secretariat has the added potential to make this treaty a living document that nurtures a dynamic, productive, and expanding interdependency. It would also offer the added bonus of a shared workspace to nurture a climate of interpersonal familiarity. Trust building often starts with small steps.

Most of all, this combination of formal agreement and new institutional support would allow China and the USA to directly address the tough and important structural issues that have divided them. Fear of the consequences of failure should be a palpable incentive for collective action. The ominous trajectory of conflict escalation has put the relationship in the danger zone. With the shocking outbreak of war in Europe, worrisome geostrategic tensions add an exclamation point to that warning.

Political accountability is another incentive. The political economy of expediency could well be the most insidious aspect of this accidental conflict. Both nations have been compromised by the globalization of a polarized interconnected world that has put considerable pressure on workers and their families. When they view their options as voters or as citizens, they tacitly condone the “easy” solutions of the nationalistic blame game that pits a rising China against the incumbent hegemon, the USA.

The dark forces of a troubled relationship are not easy to contain. There is nothing automatic in any agenda for resolution, including the approach I have suggested. But whatever the option, one thing is certain: focus on both sides needs to shift from finger-pointing to seizing the collective opportunities of mutual collaboration. Without trust, wisdom, and courage, leaders in both nations will be stymied, unable or unwilling to take that critical step.

For the USA, the strength to undertake that rethinking must come from within—not from strategies of adversarial containment. China has an equally urgent need to confront its internal imbalances and dispel fears of its global intentions, now supported by its increasingly muscular projection of power. For both nations, avoiding accidental conflict will require an end to the clash of dueling false narratives. It would be one of history’s great tragedies to squander that opportunity.