The world’s most important bilateral economic relationship is at a critical juncture. Notwithstanding America’s leadership transition from Donald Trump to Joe Biden, after three years of a trade war, the United States and China now appear to be in the early stages of a Cold War. This conflict is very different in one key respect from that which occurred between the United States and the former Soviet Union from 1947 to 1991: The rising power (China) is operating from a position of gathering economic strength whereas the incumbent leading power (US) has a considerably weaker economy than was the case during the first Cold War. Moreover, unlike America’s limited connection with the former Soviet Union, the US and China have long relied on each other as sources of economic growth; it will be exceedingly difficult to decouple from today’s deep-rooted co-dependency without exacting a toll on both economies.
The challenge for both nations is to recapture common ground and rebuild trust. Three potential avenues of resolution: First, picking the low hanging fruits on areas of mutual interest — especially climate change and global health. Second, an immediate ceasefire in the trade war — in particular, scaling back the costly and destructive tariffs that have imposed new costs on both nations. Third, tackling the tough structural issues that have arisen between the two nations —innovation policy, forced technology transfer, intellectual property rights protection, cyber security — by restarting negotiations on a US-China Bilateral Investment Treaty.
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