As the Chinese economy has grown, it has become increasingly clear that the United States and China are engaged in an increasingly competitive relationship, especially in the economic sphere. But a closer look at the competitive aspects of the US China relationship suggests that the issue is not just whether they are engaged in competition, but what kind of competition it is. First, the arenas in which it occurs. Secondly, the degree to which it is effectively governed by rules that both countries accept and honor. And third, whether the competition produces outcomes that both of them regard as reasonable. The worrying feature of the US China relationship is not only that it has become increasingly competitive, although it has, but that it is occurring in arenas where the competition is risky, the rules governing the competition are incomplete or unreliable, and the outcomes are regarded as unfair. This is also producing suspicion and mistrust and can eventually give rise to an even more contentious relationship. Let's examine each of these dimensions in turn. To begin with, competition is more beneficial in some arenas than in others. In economics as most of you know, fair and open competition in a well functioning market, whether between countries or among firms, improves the quality, increases the availability and lowers the prices of the goods and services on offer. Therefore, most advanced economies have policies in place that promote competition, and prevent the emergence of monopolies, and other commercial practices, that restrict it. Similarly, in a globalized economy, the competitive benefits of trade and cross-border investment are also increasingly recognized, and are promoted through various bilateral and multilateral agreements. In the economic arena in short, competition is to be welcomed, not avoided, even though some actors may benefit more from that competition than others. Competition is also regarded, at least by most Americans, as a necessary and beneficial feature of democratic political systems, where political candidates engage in competitive elections for public office, political parties compete for membership and financial contributions, and policies and ideologies compete for support from both political leaders and ordinary citizen. In fact, the concept of the so-called marketplace of ideas draws an implicit analogy between the benefits of competition for an economy and the benefits of ideological or political competition for a society. Conversely, in other areas competition may be a much less positive phenomenon. In the security sphere, competition can lead to costly arms races and can foster the so-called security dilemma in which one country's attempts to enhance its own security lead to reactive measures by other parties that feel threatened, ultimately making all sides feel less secure, and even worse, prone to engage in preemptive action or to escalate a confrontation once it has begun, whether by accident or by design. A second dimension along which competitive relationships vary in addition to the arenas in which they occur, is the extent to which they're governed by rules that limit the negative consequences of competition, promote more beneficial outcomes, and are accepted and honored by participants. In the economic arena, such rules have been embodied in bilateral and multilateral free trade agreements, and in the various rounds of the WTO, or World Trade Organization evolution, now with a dispute res, resolution mechanism established within the WTO to adjudicate disagreements over the application of those rules. Domestic political campaigns may be governed by laws intended to promote fair competition, the development of the laws of war, the creation of arms control regimes, and the development of confidence building measures can also be seen as efforts to reduce some of the costs and risks of competitive international security relationships. Finally, a third dimension in assessing competitive relationships, is the outcomes that they generate. All competitions, by definition, produce winners and losers, but they can differ, often significantly, with regard to the relative gains and losses, how much the winners win, how much the losers lose, and whether the outcomes are zero sum, negative, or positive sum. They can also differ with regard to whether the competing parties regard those outcomes as reasonable or unreasonable, just or unjust. Now when viewed in these ways, it's clear to me that some of the arenas in which the United States and China are competing are more costly and risky than others, that the mechanisms regulating their competitive relationship are only partially effective, and that some observers in both countries have come to regard the outcomes of that competition as imbalanced and unfair. So the competition between the two countries, while normal and even beneficial in some ways, is unhealthy and destabilizing in others. Let's begin with the economic competition between the two countries. In the late 1970s and early 1980s, the American and Chinese economies were commonly described as the world's largest developing economy and the world's largest developed economy, and thus it was assumed that they would be highly complimentary. But over time, their economic relationship has become far less complementary, and far more competitive. With this rapid modernization, China has moved into far more advanced areas of economic activity, including not just clothing and consumer electronics, but also automobiles, supercomputers, solar panels, and military aircraft. The two countries vie for contracts to extract and export raw materials and energy resources, and I forecast increasing competition in the realm of higher education, with China devoting considerable financial resources to building research universities that can compete with those in the United States and Europe in the international rankings. Now to some degree this competition has had the beneficial consequences that neoclassical economists would expect. The growing productivity of the Chinese manufacturing sector has limited inflationary pressures around the world, as well as contributing significantly to China's economic growth. It's created new markets for foreign companies producing the equipment, materials and components needed by China's manufacturing firms. China is increasingly importing luxury consumer goods, and Chinese travelers are playing an ever greater role in international tourism. The competition in research and higher education, as it develops further, can produce new discoveries and educational opportunities that can benefit everyone. But both American and Chinese observers complain that the economic competition between the two countries is both unfair and disadvantageous. Beijing believes that Chinese investment projects in the US are being discouraged or blocked by the US government, if they involve access to advanced technology or ownership of critical infrastructure. Beijing complains about continued American controls on the export of advanced technologies to China, and complains that Chinese imports are the target of protectionist restrictions by the United States. Conversely, many American observers believe that the Chinese government has adopted policies that discourage the purchase of foreign products and restrict foreign ownership in strategic sectors of the Chinese economy. Chinese firms are alleged to benefit from a deliberately undervalued Chinese currency, preferential access to low interest loans, and artificially low wages to gain advantage on international markets. They're also accused of pirating software and other proprietary technology and engaging in various forms of industrial espionage. All of these allegedly unfair practices benefit China and harm the United States. Now fortunately, the two countries have sought to utilize or develop mechanisms that can alleviate the concerns, that can regulate the competition. In order to join the WTO, China had to agree to a variety of market opening measures, and then subject trade disputes to the WTO's dispute resolution mechanism. Beijing and Washington have engaged in a variety of additional negotiations and dialogues to address their trade and investment issues. But China is also perceived as failing to honor many of its WTO agreements to increase market access, and to protect inter, intellectual property rights. And this alleged failure to honor the rules regarding economic competition further contributes to mistrust, and corrodes the overall China-US relationship. A second, and much more dangerous realm of competition between China and the US is in the strategic arena. Indeed, one of the biggest risks to the US China relationship is that the United States and China increasingly regard themselves not only as economic competitors, but as strategic competitors. The two country's militaries are deploying Weapons systems and devising tactics to counter the other, especially with an eye to contingencies involving Taiwan. China is seeking to develop the capacity both to apply military pressure to the island, and to deter or, or defend against any American intervention in support of Taiwan. Moreover, the Chinese military is developing strategies to deny the US unfettered access to the western Pacific, while the US is engaged in a parallel effort to maintain that access, in part through the so called pivot strategy, in which it assigns a greater share of its military deployments to the region. In addition, there is also the growing perception that the two countries' diplomatic and security initiatives in Asia reflect the competition between them. Beijing's criticism of American alliances and deployments in the region, as relics of the Cold War, are viewed some Americans as an attempt to undermine the hitherto dominant American position in Asia. In addition to its pivot strategy, American's exclusion of China from the Trans-Pacific Partnership free trade group and its development of diplomatic links with former pariah states like Myanmar have been perceived by many in Beijing as an attempt to encircle and contain China. This growing sense of strategic competition carries significant costs and risks. There have already been incidents in which American reconnaissance and patrol missions off the coast of China have had unfriendly encounters, or in one case, even a physical collision with loss of life with Chinese military ships and aircraft seeking to push them further away from Chinese territorial waters. There's a real risk that incidents like these could escalate into open conflict, especially during a period in, of high tension over other issues. And this is related to another major difference between the two countries, their differing interpretations of international law, whether China has the right to restrict or prohibit the passage of foreign military forces through its exclusive economic zones, a right that China asserts, but that the United States rejects. So this adds a territorial dimension to the issue, and territorial disputes as we've seen, are some of the most emotional in international politics. Now, in a ma, in an effort to manage this emerging strategic competition, the US and China have engaged in a variety of measures. Military to military exchanges to increase transparency and build trust, high-level strategic dialogues to gain better neutral understanding of each other's interests, and discussions of arms control measures that might limit the two countries' deployment of nuclear weapons and weapons in space. So far however, the results have been disappointing. There have been few concrete agreements. The Chinese have not exhibited high levels of transparency in the exchanges, and the military to military dialogue has been frequently interrupted, particularly by the Chinese as a way of expressing displeasure with other problems in the broader relationship. This failure to mitigate this strategic competition between the two countries increases the danger that the costs and risks of that of that competition will continue to mount.
