OPINION | How to win friends and influence China in the post-Covid world

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IN his 2005 book “The World Is Flat,” Thomas Friedman laid out his now-famous “Dell Theory of Conflict Prevention,” which states that two nations that are both part of a major global supply chain — like that of Dell Technologies — won’t go to war with each other.

Fifteen years later, the world looks very different: Rather than being concerned with losing its place in global supply chains, China effectively is the supply chain now.

Amid the coronavirus pandemic and an increasingly assertive China, Western governments are waking up to this new reality and trying to decide how to react. How can the U.S. and its allies ensure their economic security without raising the risk of military conflict or seriously damaging their own growth? Is it even possible to effectively influence such a dominant trading power through economic statecraft?

Recent research — and the rollercoaster ride of 2018 and 2019 — hint at answers.

First, broad-based unilateral tariffs are relatively ineffective. China’s economy is simply too large and too well integrated into global trade networks. Chinese exports end up elsewhere, diluting tariffs’ impact.

Joint trade initiatives are more useful, and the U.S.’s alliance system gives it a natural advantage.

Beijing also is obsessed with achieving technological self-reliance. Until it gets there, that means technology export restrictions can be effective, if costly and risky, leverage.

Finally, too rapid or too complete decoupling could incur large economic costs and raise the risk of slipping into armed conflict.

China has a massive pool of savings to finance research and development. But its labor force is aging rapidly, and its share of global exports appears to have peaked in 2015. If it doesn’t reach the technological frontier in many high-tech industries soon, China will be stuck supporting legions of retirees and endlessly refinancing its massive debts rather than dominating the future — all at a much lower per capita income than in the U.S.

Two simulated future trade-war “games” conducted by the Center for Strategic and International Studies in early 2019 found that some of the most effective bargaining strategies with China involved threats to cut off technology exports — especially in concert with allies. CSIS also found that signaling U.S. resolve to absorb and offset the cost of a prolonged economic conflict was critical.

Big public investments in the foundations of U.S. technological superiority — for example research and development, and mathematics education — are one way to do this. Moves to diversify supply chains and strengthen ties with friendly nations by joining regional trade agreements that exclude China also were effective moves because they played on Beijing’s fear of economic and geopolitical isolation.

Other strategies might be riskier. Attempting to unilaterally dismantle, rather than diversify, China-based supply chains could undermine key U.S. companies like Apple — or boost the risk of military conflict.

A 2019 study from Ketian Zhang at George Mason University found that China tends to use force when economic costs are low, the need to demonstrate resolve over core security issues is high and the risk of adversaries enlisting help from other powers is low. One example is the seizure of Mischief Reef, also claimed by the Philippines, in 1995.

All those Chinese workers employed in the Apple supply chain thus represent an important check on an increasingly bellicose Beijing. Apple’s fortunes also give Washington politicians a good reason to think twice before escalating conflicts for transient political, rather than long-term strategic, gains.

That is important because China’s military is nearing the point that it could plausibly prevail in conflicts near its shores. A 2015 analysis of a theoretical Taiwan conflict by think tank Rand Corp. found that while the U.S. still holds the advantage, the balance of power has shifted rapidly. In the future, avoiding military conflict might rest as much on China still having a lot to lose economically — and on allies’ willingness to follow the U.S. lead on sanctions or other measures — as on American aircraft carriers.

Eventually, Beijing might well conclude again that its best hope for continued rapid growth is renewed openness and integration with the West. This could mean accepting level commercial — rather than mercantilist — trade relations and a less-abrasive foreign policy.

Meanwhile, securing both growth and economic security for the U.S. will depend on strong economic and security alliances, big investments and growth-boosting reforms at home, and a healthy recognition that too much separation might ultimately be just as dangerous as too little.

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