The United States and China are deeply interdependent, with trade in goods between the two countries reaching a whopping $366 billion in 2009. But a growing number of influential people on both sides find that reality deeply alarming, albeit for different reasons.
In the United States, campaign ads this election season routinely blame trade with China for U.S. job losses. And in China, rising stars like Wang Yang, the Communist Party boss who governs China's booming southern province of Guangdong, fret that China's "traditional model is excessively dependent on international demand." In just the latest sign of this growing tension, the U.S. House of Representatives last month passed legislation seeking to raise the cost to China for its currency policies. All signs at the moment point toward increased trade and financial tension between the world's two economic giants.
A full-fledged trade war between the United States and China would be disastrous; thankfully, it's far from likely. Decision makers on both sides appear to have concluded that their trade disputes can be managed without undermining the entire U.S.-China relationship. Trade conflict is here to stay, but it is fast becoming a "new normal" in relations between Washington and Beijing.
What is fueling this growing tension on trade issues? Unemployment and flat growth in the United States are one part of the story. But four underlying factors are dramatically changing the U.S.-China economic relationship and will ensure that conflicts persist into the future.
First, U.S. and Chinese firms increasingly compete head-to-head because China is moving up the value chain far more quickly and across a
wider array of sectors -- from electric
vehicles to solar
energy to high-speed
rail -- than many in the United States once expected. As China seeks both
to "indigenize" technology -- not simply rely on technology transfers
-- and to compete globally, it is forcing U.S. firms to confront a
fast-changing and vastly more competitive landscape.
Chinese firms already offer cutting-edge technology in high-speed rail and are in the hunt for contracts in developed markets such as Australia and California. And U.S. companies that once assumed a grand bargain -- providing U.S. technology in exchange for market access in China -- must now fight Chinese competitors for the same market share.