There are many opportunities and possibilities for the United States and China to come together and talk to Fred Bergsten

On September 30, 2022, CCG held an online dialogue event at which CCG Chairman C. Wang Huiyao, founder of the Peterson Institute for International Economics (PIIE), one of the most prominent think tanks in the United States and the author of the book "America and China: In Search of Global Economic Leadership". Fred Bergsten) started a conversation. The two sides conducted in-depth discussions and analysis on the challenges and opportunities of Sino-US "conditional competition and cooperation" in the context of China's rise, and the following is an excerpt from the dialogue:

Fred Bergsten: As we all know, China-US relations are facing many difficulties, and according to some people, they are now even heading towards a new Cold War and confrontation, which is very dangerous for global security and political relations, and we must avoid the threat it may pose to the world economic system, and this puts the primary responsibility on China and the United States. What I'm proposing in my book is a new system that I call functional decoupling. We know that China and the United States disagree on many issues of politics, security, and values. At least for a while, which is unfortunate but probably unavoidable. I suggest, then, that, despite our differences on many issues, we recognize that cooperation is essential to develop, support and play a stable and prosperous world economy and to contribute to a peaceful world in the broader sense.

People talk about the Thucydides Trap, believing that tensions between the two countries risk escalating into real conflict. In my book, I argue that there is an economic Thucydides trap that a rising China does challenge the current power in the United States, and as you mentioned the trade war still exists. The Biden administration replaced Trump but did not resolve the trade war. So I think our two countries need to work together to resolve our trade conflict, cooperate on economic issues, provide a kind of shared leadership, and keep the economy moving in the right direction. This will require a new vision, new cooperation, and new policy initiatives between China and the United States.

Wang Huiyao: Thank you for your excellent summary. There are significant anti-globalization trends in the world today, including the Thucydides Trap and the Kindleberger Trap, but over time, the differences will remain and they will begin to try to accept each other. There are too many crises stacked up at the moment: three years of Covid have devastated the world economy, the Russia-Ukraine conflict is still escalating, and we seem to be on the verge of another world war and facing a new Bretton Woods moment. So what do we need to strengthen next to maintain global economic leadership and resolve the crisis?

Fred Bergsten: As you said, there are many opportunities and possibilities for the United States and China to come together and play a leadership role in the global economy. The withdrawal of the United States from the original TPP was a huge mistake. In fact, we can negotiate other bilateral economic differences in a regional context, which I think could be a less politically difficult approach. As mentioned above, China's economy is roughly on par with the United States, and even surpasses the United States in some indicators, and China has provided very constructive and very effective leadership in some aspects of international finance. Frankly, U.S. political support for globalization has declined over the past 20-odd years. This trend must be reversed if the United States is to recover its share of global economic leadership.

Wang Huiyao: I think you have been thinking about global issues, especially the reform of the global system. In fact, some time ago, I had an exchange with Harvard President Larry Summers on the field of the role of development banks, Larry Summers used to work at the World Bank, and China also launched the AIIB, so what are your views on the development bank area?

We've seen a trend lately where people are doing their own things in different areas without really collaborating. China launched its Belt and Road Initiative nearly a decade ago, and recently we saw President Biden launch Build Back Better (B3W), the G7 talks about infrastructure plans, and the European Union launch Global Gateway. All governments are aware of the growing problem of climate change and the growing importance of infrastructure. I also talked to former World Bank President Julik and we wondered if we could work together on global infrastructure. So, what do you think is the possibility, for example, that the AIIB is led by China, that the World Bank is led by the United States, that the Asian Development Bank is led by Japan, can these development banks really work together, or upgrade the AIIB to a global infrastructure investment bank, can the United States, China, the European Union and many other countries do something to rebuild the world? In addition, we can rebuild Ukraine after the Ukrainian crisis.

Fred Bergsten: You're absolutely right. Of course, China has become the world's largest lender of loans by a large margin, so development finance is an important area. China can play a leading role in coordinating the world's efforts to provide necessary assistance to developing countries and in this way promote global growth. Another big mistake of the United States was its refusal to join the AIIB, which was under Obama. I completely agree with Larry Summers that it is a huge mistake for the United States not to join the AIIB. It was an even bigger mistake for the United States to lobby its traditional allies not to join. But almost all allies rejected U.S. lobbying and joined the AIIB, working with the World Bank, the Asian Development Bank and other multilateral institutions with great success.

I say in the book that the U.S. should come back now and go to friends in Beijing and say, 'Well, we think about it again, we want to join the AIIB, be a non-regional member, just like we do in other development banks, and make an active contribution.'" I think so far, the AIIB has been impeccable in terms of compliance with international rules, international norms. It quickly scaled up to become a significant lender. It has maintained what I said before in trade and credit matters. Instead of having separate Chinese, American, and European roads, it is better to put them together. Competition is good in some senses, and the AIIB and the World Bank may do better with each other, both of which have seen the benefits of co-financing many projects. I think in the future, more projects related to the Belt and Road Initiative are needed.

There are some skeptical voices about this, as you know, that the Belt and Road Initiative, which is designed to promote some of China's moral security or political and foreign policy objectives, may also cause excessive adverse effects in some borrowing countries, some of which are starting to manifest themselves now. So I think it's time for both the Belt and Road Initiative itself, as well as the United States and other non-players, to come together and try to improve that outcome. In my book, I argue that China must play a leading role in managing the global economy, which requires some changes in China's preferences in terms of rules and norms. Some of them may be uncomfortable for the United States and other countries, and some may not be acceptable, but the key is to get together, talk about these changes, and try in a spirit of cooperation. I think that unless the United States foolishly thinks that it can really succeed in containing China, the only option is to seek a new model of cooperation, so I am urging my own country.

Before I stop talking, I would add the good news that the Biden administration does allow the kind of functional decoupling that I'm talking about, and I oppose national decoupling. A lot of people talk about the decoupling of the United States and China. In my opinion, decoupling in the overall sense would be a disaster, it could not succeed, and it should not even be attempted. Functional decoupling requires recognition of our security and political problems, but we must cooperate pragmatically on the economic front. As recent events have shown, we can do this, even if we disagree on issues in other areas, and I think that approach is what we need to pursue now. President Biden allowed this, even before he took office, published articles (making similar points), other high-ranking people in the administration wrote similar articles, and they said so after taking office. They believe that there are different "baskets" in Sino-US relations. Some of the problems in the basket generate confrontation, some generate competition, some generate conflict, and some generate cooperation. They point to bilateral responses to global warming and the coronavirus pandemic.

I will put economic issues in the basket of cooperation. I think that's the key point right now, and in addition to global warming, we need to reach an agreement at the top of the government to put economic issues in the basket of cooperation. I think functional decoupling has proven to be effective, and in other areas, it has worked through cooperation with other countries. I think it can play a role even in the Ukrainian crisis. And I believe that's the vision, and that's the path that our two countries must pursue, or we'll move in the negative direction of a new Cold War, and I'm afraid we're going to continue.

Wang Huiyao: Yes, you are right. I think we see a trend of rapid bilateral alienation. We need mechanisms for dialogue. I think because of geopolitical tensions and the trend toward deglobalization, we do see some changes in the Biden administration from the Trump administration, emphasizing investment, alliances, and cooperation. But if it's about building alliances, let's have more economic unions than security alliances. China is cooperating economically, such as the Belt and Road Initiative, the Regional Comprehensive Economic Partnership Agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and China-Africa cooperation. The United States, on the other hand, is committed to the U.S.-UK-Australia Trilateral Security Partnership (AUKUS), the Quadrilateral Security Dialogue (QUAD), and the Five Eyes Alliance. I agree with your idea of functional decoupling, you can decouple ideology, do not decouple economic cooperation.

Fred Bergsten: Yes, as I say in my book, what I'm proposing is conditional and competitive cooperation. It consists of three parts: competition, cooperation and conditions. We have talked about competition and cooperation, but I also think that such competition and cooperation are conditional. Because now China is on par with the United States in overall power, as well as in most economic indicators. In doing so, the world needs to take into account China's new role, China's leadership potential and leadership responsibilities, as well as the responsibilities of the United States and its traditional allies in Europe and Canada. That's my basic point. Conversations with China will have to be conducted in a reciprocal manner, in a fair and balanced manner between two basically equal countries, two superpowers.

Wang Huiyao: Thank you, Fred. Allison, who spoke to me, mentioned that the bilateral relationship should be "Rivals within Reason," and Joseph Nye also mentioned that he wanted the Rivalry Partnership to work. As you said, China is rising. China's rise has its own logic, relying on five thousand years of history and uninterrupted civilization and great Confucian tradition. With the development of modern economic globalization, China has great development potential on the whole. This is a real benefit to global peace and prosperity.

But what we are most worried about is the Taiwan issue. Recently, the US Congress is studying the Taiwan Policy Act and proposes that the upgrade of the Taipei office to a "Taiwan office" be included in the bill as a mandatory requirement. Now that the cooling has cooled, this "escalation" may not be mandatory, but recommended, and the U.S. government may or may not accept it. They have also said they have proposed authorizing Congress to approve U.S. representatives in Taipei. But now there is also great resistance to it, and they may have abandoned it. So, what do you think we can really do to solve these problems? What is your solution? Or do you have any suggestions? How should China and the United States continue to get along in this complicated and tense situation?

Fred Bergsten: Taiwan best exemplifies the problem I am talking about. I fear that we may continue to have differences over Taiwan. I think we can do the following in terms of content. Through communication, I think we can avoid hostile conflict, but I feel that we have a certain degree of disagreement on this issue that will persist. We may continue to disagree on some other issues. That's why I'm calling on us to make functional decisions, to put aside those issues on which we do disagree, and to work together pragmatically on economic issues. I think that's quite possible. I think the United States will agree to do this, but I don't know if China will agree. Taiwan is clearly a core interest of China. However, according to my interpretation, an open world economic system is also China's core interest, and the potential factors that threaten the sustainable development of this open economic system are also very detrimental to China. Therefore, this is an important test.

I would like to respond to one of your previous points. You talked about the existence of a certain consensus on China in the United States, and you feared that this consensus would lead the United States and China towards confrontation and even a new Cold War. There is indeed a broad consensus in the United States that China is a real competitor to the United States, the first real rival in a hundred years. There is consensus on this point. However, there is no consensus in the United States on how to deal with China. Trump tried to contain China, and as I said, it failed. Biden has continued some of Trump's policies, but his tone is very different. He's looking to work with China, for example on climate change, the coronavirus response, and several of the economic issues I mentioned earlier, and has been quite successful. But I think it's too early to say how the Biden administration will change on these issues.

Wang Huiyao: Yes. This is indeed a good idea. We need to truly emphasize a global multilateralism, and global governance should be strengthened. China, the United States, and the European Union should really cooperate to truly sustain improvements in our global systems so that we can avoid geopolitical disruptions. I'm happy to talk to you. You have a lot of wisdom and a lot of experience. So this brings me to my final remarks. Fred, do you have anything to summarize before we wrap up?

Fred Bergsten: Just thank you very much Dr. Huiyao Wang for having a conversation with me. Like you, I hope this book can be translated into Chinese and published in China. I very much look forward to the reaction of the leadership in China and your Chinese colleagues, as you did in this dialogue, to tell me what they see and how it can be improved, how it can be implemented, and how we can move forward together. I'll just finish where I started, which means I wrote this book because I truly believe that finding a way for the United States and China, the only two economic superpowers, to work together effectively if the global economic system is to continue to be successful, prosperous, stable, and contribute to world peace and security. I think this is the biggest challenge that countries will face in the coming years and decades, and I just want to make a modest contribution to moving in that direction. I appreciate your appreciation and support for some of my ideas. Thank you so much!

Wang Huiyao: Thank you, Fred. I believe that China and the United States must lead together for the good of humanity and the world.

(This article is based on the translation of the recording of the dialogue speech, and has not been reviewed by me, please indicate the source of reprinting)