The recent escalation of diplomatic and trade disputes between South Korea and Japan has alarmed numerous observers and is rather confusing to many around the world to whom the two countries seem to have much to lose and little to gain by the deterioration of the bilateral relationship. What underlying forces are driving the conflict? Are these new forces, or the same historical forces coming to a head? How much are factors from the international environment, such as the behavior of the United States, influencing the current escalation?

These were some of the questions that took center stage at a recent conference, “Japan and South Korea on the Brink: Escalating Friction Amidst an Uncertain World,” convened jointly by APARC’s Japan Program and Korea Program. The conference brought together experts in the international affairs and trade relations of South Korea, Japan, and the United States to shed light into the current conflict between the two U.S. allies. 

In his welcome remarks, APARC Director and Korea Program Director Gi-Wook Shin reminded the audience that Japan and South Korea have experienced tensions over colonial and wartime history and hence, in that sense, the recent conflict is nothing new. In the past, however, the tensions were mostly kept under control because the two countries well understood that it was in their mutual interest to maintain a cooperative relationship and keep history issues separate from other important economic and security issues. Over the past year, however, tensions over history have permeated economic and security issues amid rising nationalism in both countries.

A Problem of Alliance Management

The conference opened with a panel on diplomacy and international relations. Kak-Soo Shin, former Korean ambassador to Japan, situated the current crisis in the context of the regional strategy environment, noting that the Northern triangle – composed of North Korea, China, and Russia – has been gaining influence, while the Southern triangle – composed of South Korea, Japan, and the United States – has weakened. “The souring Japan-Korea relationship is a big blow to the maintenance of the Southern triangle and its ability to cope with the volatile security environment in Northeast Asia,” Shin cautioned.

Hitoshi Tanaka, chairman of the Institute for International Strategy at the Japan Research Institute, ltd., offered an overview of the reasons underlying the escalation in the bilateral relationship between Japan and South Korea, foremost of which, he said, is the declining mutual importance of the two nations to each other vis-à-vis China’s emergence as their largest trade partner. “Unless we feel that the future relationship is essential to both nations there is no way to address the conflict,” he said.

Joseph Yun, former deputy assistant secretary of state for Korea and Japan and former special representative on North Korea, emphasized that Tokyo and Seoul are “eroding the trilateral security arrangement that the United States has led in Northeast Asia since the end of the Second World War” – an arrangement that has been responsible for prosperity throughout Northeast Asia. The root problem, he argued, is alliance management, from which the United States “has been conspicuously absent.”

Watch the panel:

A Conflict in an Age of Changing Global Trade Order

The second panel turned eyes to the trade issues involved in the conflict between Japan and South Korea. Professor Yukiko Fukagawa of the School of Political Science and Economics at Waseda University, an expert in Korean economic development, observed that the friction between the two countries has escalated since 2000, when Korean global businesses like Hyundai and Samsung rose to fame. Since then, she argued, what has happened in Korea is a process of economic nationalism and “Korea seems to find it or interpret it as a kind of transitional justice against Japan.”

Seokyoung Choi, former Korean ambassador to the WTO and UN and former deputy minister for trade, explained the background for the Japan-Korea trade row and each side’s arguments. As a way forward, he said, both countries must consider several important imperatives, including the needs to cooperate in an era of tectonic changes to the global trade order, to address expanding fault lines in East Asia given the spillover effects of the U.S.-China trade war, and to complement for deficits of leadership and trust in Northeast Asia. 

Aiko Lane, executive director of the U.S.-Japan Business Council, discussed the main concerns the Japan-Korea friction poses for U.S. businesses, including regulatory uncertainty, supply chain disruptions, and delays in shipment. Further escalation in the relationship, she argued, could potentially inflict long-term damage to the regional ICT and manufacturing industries. Potential impacts include driving costs up for consumers and making it more lucrative for other countries to supply semiconductor materials to Korea.

Watch the panel:

The U.S.-China relationship is in a dangerous downward spiral. The crisis in the relationship has spread virtually to every arena, from the intensifying trade war between the two largest economies to their escalating technology rivalry that is rippling into a U.S. government crackdown on foreign influence on research, and from security concerns over China’s growing military power in the Asia-Pacific region to mounting tensions over the antigovernment protests in Hong Kong and over longstanding frictions with respect to Taiwan.

Renowned Chinese politics expert David M. Lampton has been busy discussing these developing issues with academics and policymakers in China, Hong Kong, and Washington, D.C., and researching his book project about Chinese power and rail connectivity in Southeast Asia. In a conversation with APARC’s Associate Director of Communications and External Relations Noa Ronkin, the Oksenberg-Rohlen Fellow at the Freeman Spogli Institute and Shorenstein APARC analyzes the escalating U.S.-China conflict, one that will affect not only bilateral ties, but the regional and world systems beyond.

Q: What risks in the conflict are you most concerned about?

There are a number of problems on the agenda. Certainly trade is top of mind for people in Beijing and Washington. But I think the situation in Hong Kong has great potential to do tremendous harm to the U.S.-China relationship. The predicate is being laid for the possible use of force in Hong Kong. I don't think a decision has been made to do so, and I believe Beijing would prefer not to do so. However, remembering 1989 in Tiananmen, we shouldn't underestimate the willingness of China’s central government to use force to protect its power. You see the increasing spread of demonstrations within Hong Kong, which are very worrisome to the PRC government, and indicators are accumulating that to me signal a significant possibility that the Special Administrative Region and/or Beijing will use tough means to bring demonstrators under control. Such an outcome will, of course, feed into the policy and security anxieties in Washington, not to mention be a tragedy for Hong Kong itself. So, I think Hong Kong is a top concern.

Q: Can you expand on the politics and the context of the U.S.-China trade war?

We're in a situation in which each side thinks it can and will benefit by outwaiting the other. I think Beijing sees at least a significant possibility that Mr. Trump would not be reelected and fervently hopes that's the case. They're in no hurry, thinking that the U.S.-China trade dispute undermines Trump with his natural constituencies and makes his economic story harder to tell to the American people. Beijing believes that, by virtue of the United States’ being a democracy, China has a higher threshold for pain than we do, and so simply inflicting pain on key American constituencies and industries will turn up the political heat on the administration so that compromise would look increasingly attractive to Washington.

The Trump administration, on the other hand, looks at the high percentage of China's GDP that's involved in exports, particularly exports to the United States, which is over three percent. If you subtract the value added of all the components China imports in order to assemble these exports, then still approximately two percent of China's GDP is directly involved in trade with the United States, and the Trump administration believes that China has a lot to lose. The United States is not nearly as dependent on China's exports—that's one of our complaints, that we don't export enough. Therefore Mr. Trump sees Mr. Xi as facing many domestic problems and thinks he can outwait Mr. Xi.

We have then two leaders who are locked into the view that the other is going to blink first. I believe both sides benefit from an economic relationship, but both have the capacity to do without the other if they're forced to. And so I think the trade war can go on for a protracted period.

Q: The trade war, big as it is, is part of a more encompassing rivalry between China and the United States. How do you see this competition between the world’s two superpowers and its consequences?

What has fundamentally happened here—even more important than the economic and cultural dimensions of the U.S.-China dispute—is a deterioration of the security dimension in the relationship. For the first three decades of engagement since the Nixon era, our security relationship with China was generally positive, based first on an anti-Soviet rationale, then counter-terrorism, and finally jointly tackling global issues such as climate change. Up through the Obama administration we had a security rationale for positive relations. Most countries and people prioritize their security, and hence as long as Americans and Chinese could feel the relationship had value for their security, they downplayed thorny issues such as human rights or economic frictions, even though they were unhappy with each other in those other domains.

But as China's military and economic capabilities have increased, so has its assertiveness abroad and its efforts to resolve longstanding disputes in its favor: in the South China Sea, in cross-Strait relations with Taiwan, against Japan, even against South Korea. From its more capable position today, China is pushing the perimeter of U.S. influence back away from the Chinese coast as far as possible, while the United States resists. And so we have a severe security competition that, in turn, has infected the economic relationship, because what makes a competitive military today is largely technological capability, which China is forging ahead with and using to develop new weapons systems. The United States thinks much of this capability is coming through the illicit acquisition of intellectual property and proprietary technology, and through university collaborations and exchanges. So the security competition is ramifying through the economic relationship and the cultural/educational relationship.

Q: If the competition between the two superpowers is here to stay, what steps, at home and abroad, are essential to achieve stable coexistence with China?

We have assumed that a huge, complex authoritarian society such as China has many disadvantages, which it does, but we're in danger of not realizing what it can achieve nonetheless. I'm worried about the competition with China because I don't think we are taking the right steps to put ourselves in the best possible competitive position, and I don’t mean just militarily.

If you consider the space race against the Soviet Union, there was a galvanizing vision of a serious competitor, yet there nonetheless was an abiding belief that we could prevail if we properly organized ourselves with discipline, commitment, and allocation of resources. We need the same sort of galvanizing spirit, not grounded in seeing China as an enemy, but in the realization that we Americans make up but four percent of the world's people and that if we're going to keep a strong position economically, intellectually, and socially, then we have to perform better than others, because we're just too small a percentage of the world's people. And I don't think anybody believes we're performing at our peak today.

Competition in general is a good thing. We surely recognize this in our own domestic lives, and free trade theories in international economics recognize that competition is an engine for positive forward motion. So I don't think we should be afraid of competing with China. Our society has been designed for competition from the ground up. And China has tremendous problems: demographic problems, educational quality problems, and debt problems. But what we must avoid is a destructive competition in which we're hurting our own ability to innovate by attempting to keep China from advancing. For instance, targeting foreign students in American research institutions and labs is a major problem.

Q: You have been studying China’s Belt and Road Initiative (BRI) and its implications across the Asia-Pacific. What are some of the takeaways from your research so far?

The Chinese learned a lesson from U.S. policy in the post-WWII era, namely, that you build your own greatness by integrating other countries into your economy and by building their strength. The Chinese are now looking at their underdeveloped periphery and think, "How can we build the new connectivity in the 21st century that will make China central to all countries along its enormous periphery and beyond?" BRI is therefore a big umbrella concept, based on the notion that you create economic growth through building infrastructure, and particularly transportation and communications, in an attempt to increase China's comprehensive national power and centrality in the emerging global system. It could be described as an “all roads lead to Rome concept.”

Some argue that BRI is a strategy, a master plan. And here's where I think we get it wrong. It isn't really a plan. China has created this umbrella policy concept, has said it will devote resources to it, but local provinces, state enterprises, private enterprises, foreign governments all are in effect lobbying Beijing to approve their pet projects that are shoved under this umbrella. So, you see a big vision painted by Beijing, but an extremely entrepreneurial system below Beijing is trying to grab as much of this money and opportunity, and build their locality into this vision. It's a combination of spontaneous combustion at the middle and lower levels and a grand general idea at the top.

Right now what we're seeing is the implementation of numerous projects—some are unmitigated fiascos, some are successful to a limited degree, and some are likely to become quite successful. There will be a sorting out process. In fact, Beijing, for its own welfare, is already starting to constrain the system and apply more economic analysis to differentiate between good and bad projects. But because BRI is so entrepreneurial and so many people at the bottom are trying to grab a piece of this policy, it's very difficult for Beijing to get its arms around all that's going on.

I think that one of the policy implications of BRI is that we—the United States, the West, American allies—must realize that BRI isn't necessarily a bad idea. This is how development occurs: big infrastructure projects create urbanization, pathways for production chains, and so forth. And if we were to sit back and say, "This is destined to fail," or "The Chinese are biting off more than they can chew," or essentially decide that we have a "no” policy, then we will essentially abandon what I believe is largely a sound concept. The U.S. government is, I think, beginning to understand that it has to respond with something, not nothing. The United States needs to use its creativity, capital, and capacity to get others to cooperate and be more active in showing our private sector where it can get involved.

We're in a transition stage. I think that one of the big problems right now is that it's hard to induce our allies to cooperate when we’re badgering them about defense expenditures and so forth. We need a remake of our foreign policy process before we'll be able to consistently pursue a vision for development. On some projects we might even choose to cooperate with the Chinese. In fact, we're already cooperating through the World Bank, the Asian Development Bank, and even indirectly through the Asian Infrastructure Investment Bank, which has gotten almost all U.S. allies involved with it. So we shouldn't absolutely oppose China on all fronts, but evaluate the alternatives and tradeoffs in each particular case.

Q: Your current book project focuses on China’s development of high-speed rail between southern China and Singapore. What have you found in researching this project?

My core interest has always been Chinese politics, and particularly what I call the "implementation problem." That is, the realization that what Beijing says isn't necessarily implemented faithfully down the hierarchy in localities, despite the assumption that, because China is authoritarian, there ought to be a high correlation between what the top says and what the bottom actually does. The idea to build connectivity between China and the seven continental Southeast Asian nations south of it makes for a fascinating implementation case study. The underlying question for my book is: “Does China have the capacity to pull off such a gigantic initiative?”

In the case of this particular railway connectivity vision linking China and seven Southeast Asian neighbors, the idea was not Chinese, but rather, a vision of Southeast Asians themselves. In the past, China didn't have the technology, capital, or frankly the inclination to build somebody else's rail system. Around 2012, however, China decided to step out and build infrastructure beyond its borders, and essentially adopted the Southeast Asian idea of rail connectivity. What interests me is the implementation question: if it's difficult to get things done within China itself, how do you create an interconnected system that transits seven more countries, from Thailand, Malaysia, and Singapore, through Myanmar, Laos, Vietnam, and Cambodia? It's a fantastically complicated project, with financing, environmental, and displaced population problems, among many others.

The results so far are mixed, but you would be surprised at the progress that China has made. I believe that within a few years, certainly before 2030, there will be a high-speed and conventional-speed rail system that connects south China to at least Bangkok and another link that connects Singapore to Kuala Lumpur, with the major uncertainty being the stretch from Kuala Lumpur to Bangkok. It’s less clear whether it will also eventually go through Myanmar and Vietnam. But the Chinese are well on the way to finishing the Laos railroad and began construction on some railroad in Thailand, so I think that probably by 2025 you'll see a railroad to Bangkok, which would be a major change in the economic geography of the region. What bothers me is seeing the United States mired in our own preoccupation with ourselves and not reacting in a way that is most productive for our future given what China is doing and how other countries are moving forward.

Forty years after the establishment of diplomatic relations between the United States and China, the two superpowers are competing and contesting every arena, from trade to AI research and from space exploration to maritime rights. Instead of what Americans referred to as engagement and Chinese called reform and opening, many experts and analysts now characterize the relations between the two countries as dangerously brittle. Some see a new kind of Cold War in the making. Such assertions, however, argues Shorenstein APARC Fellow Thomas Fingar, “both ignore history and impute a level of fragility that has not existed for many years.”

Fingar reflects on the U.S.-China bilateral relationship in a new article, “Forty years of formal—but not yet normal—relations,” published in the China International Strategy Review. He claims that the relationship is resilient and not destined for conflict, albeit it is beset by a host of aspirational, perceptual, and structural differences.

A political scientist and China specialist who served over two decades in senior government positions, Fingar urges readers to remember that assertions of fragility of the U.S.-China relationship undervalue the strength, scope, and significance of interdependence, shared interests, and constituencies in both countries. These, he says, have a substantial stake in the maintenance of at least minimally cooperative relations.

U.S.-China relations are indeed highly asymmetrical: Chinese citizens and organizations have far greater access to the United States than Americans do to China, notes Fingar. He also recognizes that the troubles that have soured the relationship are more intricate and often more sensitive than those of the past. Decades ago, most of the issues that arose were handled at the governmental level. But now “the number and variety of players with stakes in the relationship and disputes with counterpart actors are much greater.” Furthermore, explains Fingar, the U.S. business community is expressing a stronger voice for government action to change Chinese behavior and is not as consistent an advocate of stability in U.S. policy toward China as it used to be. “This is an extremely important development,” he says, “because it reverses a key dynamic in the U.S.-China relationship.”

Ultimately, however, the two countries and our institutions and people are linked by myriad ties that bring mutual benefits as well as the constraints of interdependence. “I remain confident that we will continue to be able to manage the relationship,” concludes Fingar. He expresses disappointment, though, that normalization of U.S.-China relations remains a work in progress and cautions that merely managing the relationship to prevent it from deteriorating is an unsatisfactory goal that should be unacceptable to both sides. Not only does such a low bar limit what each counterpart can achieve, but it also inhibits the kind of cooperation required to address transnational challenges like climate change, infectious disease, and proliferation of dangerous technologies.

Karl Eikenberry, director of the U.S.-Asia Security Initiative, spoke with "Bloomberg Markets: Asia" about the ongoing trade disputes between the U.S. and China. Video of his interview—conducted on the sidelines of the Morgan Stanley China Summit in Beijing—is posted below.

Does the current trade-talk stalemate between the U.S. and China portend a larger confrontation? Oksenberg-Rohlen Fellow David Lampton says yes, and shared with VOA Asia reasons for why the two countries find themselves so much at odds. Listen below (first 8 minutes):

“We are now entering not just a post-American but post-Western era.  In many ways the contours of the emerging world order are unclear.  But one aspect of them is certain: China will play a larger and the U.S. a lesser role than before in global and regional governance.” -   Ambassador Freeman

On May 3, the China Program’s colloquia series “A New Cold War?: Sharp Power, Strategic Competition, and the Future of U.S.-China Relations” closed with a seminar by Ambassador Chas W. Freeman. Ambassador Freeman discussed how President Trump’s trade war has impacted Sino-American relations on multiple levels, and how—for better or ill—Washington appears poised to dismantle China’s interdependence with the American economy, limit its role in global governance, counter its investments, and block its technological advances.

Audio from the event, as well as copy of the ambassador’s prepared remarks, is now available:

Ambassador Chas W. Freeman, Jr. is a senior fellow at Brown University's Watson Institute for International and Public Affairs. He is the former assistant secretary of defense for international security affairs (1993–1994), ambassador to Saudi Arabia (1989–1992), principal deputy assistant secretary of state for African affairs (1986–1989), and chargé d'affaires at Bangkok (1984–1986) and Beijing (1981–1984). He served as vice chair of the Atlantic Council (1996-2008); co-chair of the United States China Policy Foundation (1996–2009); and president of the Middle East Policy Council (1997–2009). He was the principal American interpreter during President Nixon's path-breaking 1972 visit to Beijing, the editor of the Encyclopedia Britannica article on diplomacy, and the author of America’s Continuing Misadventures in the Middle East; Interesting Times: China, America, and the Shifting Balance of Prestige; America’s Misadventures in the Middle East; The Diplomat’s Dictionary; and Arts of Power: Statecraft and Diplomacy. A compendium of his speeches is available at chasfreeman.net. 

By 1978, after the “epic impoverishment” borne of Mao’s non-market, ideologically-driven economy, China was almost like “a hot air balloon [that had been held] ten feet underwater” and suddenly let go, described Daniel Rosen, founding partner of the Rhodium Group, before an audience at a recent colloquium organized by Shorenstein APARC’s China Program.

Rosen—who leads the Rhodium Group’s work in China, India, and Asia—drew on his 26 years of professional experience analyzing China’s economy, commercial sector, and external interactions, to share his insights on the implications of China’s recent divergence from liberal market norms even as the U.S. and China are trying to reach an agreement that could end a protracted trade war.

With its explosive rise, increasing U.S.-China economic tensions, argued Rosen, were inevitable. By reverting to non-market principles under Xi Jinping, however, China’s divergence from advanced economic norms has triggered a hostile reaction from the United States.  He acknowledged that China has “the sovereign right to choose the system it thinks best for itself,” including reverting to non-market principles.  But, he noted, “as an old adage goes, paraphrased, China’s freedom to swing its fists stops where other noses begin.”

China, with its thirteen trillion-dollar economy is now the world’s second largest economy.  China’s economic footprint, too—as trader, foreign investor, and lender, among others—is enormous around the world.  Thus, Rosen pointed out, now when “China sneezes, the rest of the world can catch a cold or pneumonia.”  By disavowing the primacy of market principles, furthermore, China’s decisions will now have spillover consequences for not only the way the rest of the global economy functions but also for economic prospects of the United States.

Rosen highlighted, in particular, three aspects of China’s divergence from market norms:  its financial markets, competitive regimes; and IP protection rules.  China’s capital markets give preferential treatment to its domestic state firms and discriminates against not only foreign firms but also its private firms.  He also stressed China’s uneven competition policies—as most dramatically epitomized in its “Made in 2025” policy—that establish asymmetric market access for foreign firms in China versus Chinese firms abroad; China’s state and sub-state financial subsidies set up to advantage domestic firms; and China’s domestic control of intellectual property in large swathes of critical industries.  China’s “Made in 2025” policy thereby, for example, distorts the innovation ecosystem of the world and the United States.  As Rosen asserted, “We depend for our vitality on structural conditions that non-market policy choices by a systemically important national could disrupt.”

In Rosen’s assessment, President Xi Jinping had begun his tenure with a far-reaching set of economic reforms called the “60 Decisions” of the Third Plenum Resolution in 2013.  But these market-centered initiatives, many of which Xi’s administration did push initially, led to “mini” (and “many”) crises, he stated.  These reforms, therefore, have stalled.  “The shadow over U.S.-China economic engagement comes not because China refused to reform in the Xi Jinping years,” Rosen asserted, “but because lately it has stumbled in attempting to do so.”

NEW YORK, NY - MAY 6: Traders and financial professionals work at the opening bell on the floor of the New York Stock Exchange (NYSE), May 6, 2019 in New York City. The Dow Jones Industrial Average dropped over 360 points at the open on Monday morning after U.S. President Donald Trump said that the U.S. will raise tariffs on goods imported from China. China also threatened to skip upcoming trade talks following tariff threats from President Trump.

According to Rosen, hardening U.S. approach to Chinese trade policy and the current discussion of possible “disengagement” with China are the result of U.S. recognition that China had changed course away from convergence with the liberal international economic order.  It, in fact, stems from the U.S.’s valid need to protect its economic welfare and the welfare of other market economies from the deleterious effects of China’s illiberal policies.  In the same way, he claimed, that the U.S. is not as deeply engaged with Italy as it is with Germany, and that we are not as deeply engaged with Germany as we are with Great Britain, it is not “heresy” to say that nations that do not share the same basic economic framework cannot be as engaged together—or as interoperable—as nations that do.  

But, Rosen predicted, China’s own turn away from market principles is bound to fail.  Liberal market reforms delivered double-digit growth for China since Deng Xiaoping’s Opening and Reform.  And “[u]nless everything we think we know about the relative efficiency and dynamism of free markets over politically controlled economies is wrong, the present Chinese policy turn will be, in the end, a dead-end,” Rosen remarked.  According to his prediction, therefore, we will either see a weakened China that poses less of an economic and national security threat to the U.S. or a China that eventually returns to market norms (i.e., “a reversion back to what will work.”).

In the meantime, therefore, he suggested that the American response must be “provisional,” “partial,” and “peaceful.”  American policy must be adaptable and readily reversible such that our ability to reengage to the maximum with China is carefully protected.  Secondly, it must be “partial” rather than absolute.  And, lastly, it must be “peaceful.”  When Beijing’s non-market policies fail, as it will, Rosen averred, and China re-orients itself towards economic convergence with advanced economy norms once more, we must ensure a “foundation of good will” between the U.S. and China to which China can return.

Rosen also cautioned against the U.S. abandoning its own source of national strength—i.e., its openness.  Arguing that economic protectionism has too often been confused with national security, Rosen argued that primary threats to U.S. national security now stem more from new causes like climate change, pandemics, migration pressures and access to weapons of mass destruction.  “Economic protection will do little to nothing to address those risks,” Rosen pointed out.

Rosen spoke at Shorenstein APARC as part of the China Program’s Colloquia Series “A New Cold War?: Sharp Power, Strategic Competition, and the Future of U.S.-China Relations.”  The series continues on May 3 with Ambassador Chas W. Freeman, Jr.’s seminar “On Hostile Coexistence with China.”