US-Sino Relations

US President Barack Obama had significant political cache at the beginning of his presidency, built upon a new spirit of international relations he had fostered during his election campaign - one that had even Chinese leaders slightly entranced. Obama could have capitalized on this goodwill by making China one of his initial state visits. Instead, he chose to visit 10 months later. Nevertheless, visits by Secretary of State Hilary Clinton, House Speaker Nancy Pelosi, Treasury Secretary Timothy F Geithner and the bilateral meeting of numerous senior-level officials in the run-up to the president's November visit, sustained a measure of diplomatic goodwill.

This made most of 2009, as several pundits put it, a external page"honeymoon"call_made period. The ambient climate helped external pagesooth tensions over the USNS Impeccable incidentcall_madeoff Hainan Island in March 2009, which escalated because of external pageaggressive maneuverings by the Chinese vesselscall_made involved. It also dampened US frustration about China's refusal to assist in breaking the Iranian nuclear impasse during the summer of that year.

'It's the economy, stupid'

In hindsight, some external pageobserverscall_made say that Obama's eventual visit to China was the last peak in bilateral relations, and perhaps as a public relations exercise it was. Yet other external pageobserverscall_made saw how statements by both Obama and Chinese President Hu Jintao instantly demonstrated the "yawning differences" between them on strengthening the global economy and redressing the US-China trade imbalance. Obama spoke of China's need to adopt a "market-oriented exchange rate" – code for appreciating the yuan. Hu spoke of the common need to "reject protectionism in all its forms" – code for China's concern that Democratic administrations have a penchant for raising trade barriers. Indeed, the Obama administration decided to impose external pageUS tariffs on Chinese tire importscall_made in September 2009.

To be sure, bilateral differences on trade and fiscal policies were already manifesting themselves through Washington and Beijing's divergent expectations at the outbreak of the global financial crisis in 2007. To recapitulate, the crisis that mainly originated in the US mortgage market, produced a follow-on effect on export-oriented economies such as China, and exposed several weak points in US-China economic relations.

As a key engine for global economic growth, China believes it is already executing its responsibility by stabilizing its domestic markets. In addition to adopting a series of fiscal adjustments and stimulus measures, China implemented a bold stimulus package of about $586 billion in November 2008 to boost domestic demand through this year. It led the International Monetary Fund to external pageassertcall_made that China was doing more than other economies, including the US, to stimulate demand.

Yet, US economists asserted that China was not doing enough. They continue to argue that an appreciation of the yuan would, among other things, raise domestic consumption of goods from the US, and hence, correct the bilateral trade imbalance. Chinese economists argue that appreciation will reduce the competitiveness of Chinese goods and destabilize the domestic economy. They add that China would also be less capable of purchasing US debt.

Ultimately, Beijing fears that it is the argument of power, and not the power of the argument, that is holding sway. external pageChinese economistscall_made largely attribute this month's rise of the yuan to the "political game between China and the US on the currency policy" and the "foreign political pressure" exacted chiefly by the Obama administration.

US persistence that China's currency be revaluated is now seen by Beijing as one of various attempts by Washington to stymie China's economic growth. This, in turn, quickly affirmed its extant fear that the Obama administration is pursuing a containment policy in broader strategic terms, betraying the cooperative tone of his election speeches. Instead, external pagepost-election statements by Jeffrey Badercall_made, Obama's senior director for Asian affairs on the National Security Council, about the 'brass tacks' of the administration's expected China policy have rung true: The president would be dealing with a rising China "on a different playing field" because "the US is not at the peak of the game".

Increasing diplomatic dissonance

The first sign of China's rearguard action vis-à-vis the Obama administration was its external pageobstinate behaviorcall_made at the Copenhagen Summit in December 2009 that concluded in its refusal to adopt a mandatory climate change agreement, which marked the beginning of a more prickly bilateral tenor. While it is too simplistic to reduce US behavior to a 'tit-for-tat' strategy, this year has seen an uninterrupted series of US decisions that offend China's sensibilities: the proposal of a external page$6.4 billion arms packagecall_made to Taiwan in January; external pageGoogle's announcement of withdrawal from the Chinese marketcall_made in the same month; external pageObama's meeting with Tibet's Dalai Lamacall_made at the White House; and the US approval of Taiwanese President external pageMa Ying-jeou's stopover in Californiacall_made on his way to Honduras, both in February.

To make matters worse, China was external pagerecalcitrantcall_made about siding against North Korea's sinking of the South Korean warship, the Cheonan in late March. Though it was a necessary signal to Pyongyang, Washington's external pageannouncement of joint naval exercisescall_made with South Korea in May (held in external pageJulycall_made) inflamed Beijing because it brought the US Navy closer to its doorstep.

Sino-US tensions spiked further in June when US Defense Secretary Robert Gates and a high-level Chinese military general external pagecame to a headcall_made over the issue of China's growing naval creep into the South China Sea during the external pageannual Shangri-La Dialoguecall_made (SLD). A showdown was already in the offing when Beijing denied Gates an invitation to visit China as he toured Asia in the run-up to the SLD. Having heard rumblings of possible US trade sanctions in response to China's continuing undervaluation of the yuan, Hu made yet another external pagecondemnation against protectionismcall_madeat the G20 Summit in Toronto during the same month. Just last month, Republican lawmakers went on to promote a bill that would allow the US to treat Chinese currency undervaluation as an illegal export subsidy when imposing emergency tariffs.

Today it seems that whatever political capital either side could spend in building mutual trust has been almost depleted. In August, an external pageeditorialcall_made in The Global Times – an international offshoot of the Chinese Communist Party's main newspaper, the People's Daily – commented: "It seems as if the US is good at playing games. US politicians are sweet-mouthed but then stab you in the back when you are not looking."

Impending US congressional elections, and the possible shift to a Republican Congress, are likely to kick off an even more acerbic diplomatic round. The Republicans are likely to push for further Chinese economic accountability than their Democratic counterparts. A Republic Congress may also compel the Obama administration to swing more to the right on strategic policy pertaining to China. Already, the Sino-US dispute over the South China Sea is escalating to the point where both sides are articulating the problem in terms of 'core national interests' – further raising the stakes and giving external pagegreater voicecall_madeto hawks already present in China's top political and military leadership.

Toward 2012

If current trends continue unabated, the year 2011 is likely to see Washington and Beijing return to the 'megaphone diplomacy' that they sought to avoid in 2009. Adoption of this approach tends to occur naturally when the nationalistic sentiments of both populaces become increasingly galvanized. It makes both governments less amenable to compromise and restricts flexibility.

However, this is likely to become critically dangerous over the course of 2012, as the US approaches yet another presidential election in November of that year. There would be nothing to stop bilateral relations from fossilizing into some variation of a cold war. By this time, any compromise on Obama's part will be perceived as weakness and could put his re-election at risk.

Fortunately, there is still time for Beijing and Washington to adjust their bilateral trajectory; they have until late 2011 to turn things around. Having grasped the nature of US presidential power shifts, Beijing tends to see the second and third years of a first-term presidency as 'windows of opportunity' to improve bilateral relations. Washington too must seek engagement; both parties have little choice but to constructively engage each other.