Despite ongoing tensions, the summer of 2023 has been a season of engagement between the U.S. and China. From climate change to trade policy, cabinet members and senior U.S. officials have shifted their rhetoric towards workable solutions, keeping China at the negotiating table.
Treasury Secretary Janet Yellen said last month after she visited Beijing she was “eager” to work with China on areas of mutual interest. Climate envoy John Kerry, also visiting Beijing, stated it was “imperative that China and the United States make real progress on climate change.” And as Commerce Secretary Gina Raimondo told me during our talk last week at the Wilson Center, “We need to do business with China, wherever we can, promote where we can, and protect where we must.”
The centerpiece of these negotiations is the rapid U.S. shift toward an industrial policy that has destabilized U.S.-China relations and has helped put the U.S. on solid footing — which might yet serve as a basis for cooperation. The Department of Commerce is at the intersection of the different components as it relates to China.
Over the past two years, the Biden administration and Congress have enacted three generational multi-trillion-dollar pieces of legislation — the Infrastructure Investment and Jobs Act (more commonly known as the “Infrastructure Bill”), the Inflation Reduction Act and the CHIPS and Science Act. These three initiatives have several goals — most obviously, to commit billions to infrastructure and climate projects and to support the U.S. economy.
But you do not need to look far afield to see global intentions. Either explicitly (in the case of the CHIPS and Science Act, which seeks to onshore semiconductor manufacturing) or by implication, the additional purpose of these investments is to establish secure supply chains, restore U.S. competitiveness and enhance U.S. strategic competitive advantage globally.
The critical question for the U.S. and China is what form this competition will take. The U.S. and the world are currently engaged in a complex economic and geopolitical dance with China, one that touches the lives of billions. The relationship is at a pivot point — it can go in any one of several directions. As China looks to carve out its route to prosperity and claim economic dominance, some factions within its leadership seek aggressive action. Similarly, in the U.S., one camp rejects any prospect of engagement with China and has turned against not only China trade but any kind of global economic engagement.
The path of confrontation threatens to be disastrous. We have only to look to history — to the experience of the 1920s and 1930s when U.S. isolationism preceded a massively destructive global war.
What is the alternative? A policy of selective aggressive competition where needed and of engagement where possible. A confident America must step forward, together with allied nations, to lead in part through nuanced economic statecraft and in part through mutually beneficial trade agreements and strategic investments.
The cornerstone of this policy is Raimondo’s efforts to push forward the Indo-Pacific Economic Framework (IPEF) that since May, has been accelerating at an impressive pace. In addition, the need to aggressively increase spending in research and development combined with a full-court press to defend our intellectual property is essential. We must cooperate whenever possible with everyone — including China — but compete vigorously where we must.
There is no shortage of examples of how to proceed. New controls on China’s chip manufacturing capabilities, imposed by the U.S., Japan and the Netherlands, set limits on China’s ability to dominate an industry that is critical to U.S. national security as well as regional and global stability. The action comes as the U.S. and private industry invest in U.S. semiconductor manufacturing facilities and is consistent with the goals of the CHIPS and Science Act — to onshore semiconductor capacity, create new U.S. jobs and reduce U.S. and global dependence on a China-centric supply chain.
But economic competition is only one pillar of an effective China strategy. Cooperation is also possible. A case in point: the agreement between Ford, PT Vale Indonesia, and China’s Zhejiang Huayou Cobalt to build a $4.5 billion plant in Indonesia to process nickel — a critical raw material in the manufacture of EV batteries, which accounts for 40 percent of the vehicle’s sticker price. The agreement is based on allied commercial interests in an arena that is removed from regional security concerns.
It is a potential win-win of the kind that creates interdependence, the kind we should pursue wherever possible. Finding safe avenues with minimal national security risks, such as health, entertainment, coffee and beauty products, will create jobs in the U.S. and is a pragmatic approach that Raimondo is helping promote.
During her talk at the Wilson Center, the secretary succinctly conveyed the key pillar to our success, in her words: “The most important thing we can do in our strategic competition with China is to invest in America, bet on us.”
And then there is the urgent matter of climate, where China struggles and where the U.S., thanks to the administration’s initiatives, has the potential to lead on the global stage. Xi Jinping announced last month that China would effectively go it alone on climate — that its efforts “should and must be” conducted without outside interference.
Nevertheless, there are grounds for cooperation on climate between the U.S. and China — Kerry, in his opening remarks, echoed this sentiment when he stated that he hopes the countries “can begin taking some big steps” to show the world “the serious purpose of China and the United States” to confront climate change. The U.S. can export its climate capacity just as it exported its infrastructure capacity in the postwar years. This can be a cooperative undertaking.
Taken together, all these paths represent the best way forward. As U.S. Treasury officials traveled to Beijing earlier this year, a Treasury spokeswoman framed the approach: “We still believe it is important to keep the lines of communication open, now more than ever.”
Or, as Secretary of State Antony Blinken put it more succinctly in framing U.S. policy on China: “Invest, align, compete.”
An expert on global infrastructure investment, Sadek Wahba is a member of the President’s National Infrastructure Advisory Council and chair of the Wahba Institute for Strategic Competition at the Wilson Center. He is also chairman of I Squared Capital. The views expressed here do not necessarily reflect the views of those organizations.