US-China Economic Statecraft: Turning Cold War into Negotiation

The trajectory of US economic strength relative to China has driven a reassessment of the US’ rules of engagement on trade and investment. China is turning more authoritarian, more focused on self-sufficiency, challenging US dominance in international institutions, global markets, and critical technologies. It selectively honors the market-based rules of the international trade order. Structural features of the Chinese economy and its management blunt the effectiveness of international rules-based trade policy tools. The US, in response, is becoming more aggressive, with protective trade measures and proactive industrial policy. A new cold war is emerging, confounding the broad foundation of collaborative interdependence that vastly accelerating world economic growth for the past 35 years. This paper examines the nature of these shifts and the need for and scope of more constructive economic statecraft by both the US and China in order to build a workable, new rules-based framework for managing international competition and trade that is acceptable to both countries. It contributes a path toward more constructive long-term negotiation as an alternative to an economic cold war.