The following are excerpts from our sister website’s original interview with Mr Bergsten. Find the full text below.
On the concept of functional decoupling. “We must recognise that significant differences will remain [between China and the West] on security and humanitarian issues: Taiwan, the South China Sea, Hong Kong, the Uyghurs. We will continue to disagree and maybe even confront China on some of those security and political issues, but at the same time, work cooperatively with them on global economic issues, global public goods; issues like climate change, where no progress will be made unless China is involved.”
On the IRA and EU-US industrial cooperation. “We must – and I include Italy – create similar and coordinated programmes that do not discriminate between companies operating on this or that side of the Atlantic and go as far as pooling our resources. Avoid any confrontation between us as we face the main challenge, which is China. The example is support for Ukraine and the way the Biden administration has managed to engage European allies.”
On EU-US cooperation over China. They must “adopt a consistent strategy that would deny China the opportunity to divide and conquer, and, more positively, put pressure on the Chinese to conform to the international rules-based system. We need a more nuanced view, and in this case, the Europeans can help defuse the tension with the US. It can also aid with Beijing, which has every interest in maintaining an open and stable global economy. We Americans will have to soften certain positions, you Europeans will have to harden them, but this process has already begun.”
On China’s stance over Ukraine and Russia. “China has shown political and rhetorical support to Russia for its invasion, but has done very little or nothing in tangible economic terms. The Chinese and their business counterparts have cooperated with export bans on advanced technology to Russia. They know that if their companies violate these sanctions, they, in turn, will be hit, and China’s role in the global economy shattered. This is a good example of functional decoupling, a pragmatic approach that can also be adopted in our relationship with China.”
On the Taiwan issue. “The Chinese have never shown themselves to be hugely adventuresome, risk-taking in their foreign policy or national security posture. They will try to gain ground around the margins, like when they fortify these reefs in the South China Sea. But that’s very different from invading Taiwan. And it’s unlikely that they will.”
Fred Bergsten is Senior Fellow at the Peterson Institute for International Economics, which he directed from its foundation in 1981 until 2012. He was Deputy Secretary of the Treasury, worked with Henry Kissinger and advised several US presidents.
Last year, he published The United States vs China, a book about the duel for economic leadership, in which he asks: is the conflict between the hegemonic power and the upstart inevitable? His answer is conditional competitive cooperation – consisting of competition and clear rules, which China has often not respected (although the West, as in the WTO case, is not exempt from criticism).
Since the book came out, Russia has invaded Ukraine; Xi Jinping has won a third term, and Joe Biden has brought home the Inflation Reduction Act and a better-than-expected result in the midterm elections. Yet the issues you raise in the book remain relevant: there is a Cold War climate between the US and China. Is Beijing ready to act as a “responsible actor” on the international stage? Between the handling of Covid and the ‘limitless friendship’ with Vladimir Putin, it would seem not.
China certainly has the capability to act as a responsible stakeholder. It did so during the 2008-09 financial crisis, coordinating with the other G20 powers. On other occasions, especially in trade, it has broken the rules. My point is that we have to find a way to convince it to cooperate with the liberal international system, from which it has benefited enormously so far. China is too big, dynamic and interconnected to be “contained” like the post-war Soviet Union. Thus, what I call for is functional decoupling. We must recognise that significant differences will remain on security and humanitarian issues: Taiwan, the South China Sea, Hong Kong, and the Uyghurs. We will continue to disagree and maybe even confront China on some of those security and political issues, but at the same time, work cooperatively with them on global economic issues, global public goods; issues like climate change, where no progress will be made unless China is involved.
With the new National Security Strategy, US President Joe Biden has hardened his approach to China, especially in the technology sector, with export bans on semiconductors and critical technologies such as quantum computers, artificial intelligence, biotechnology, and generally anything that can be used (also) for nefarious purposes.
In my view, the export control issue illustrates very dramatically the need to distinguish between security issues and purely economic issues. I think it’s correct to put limits or even embargoes on technology transfer where US technology in semiconductors or elsewhere can substantially contribute to Chinese military capability. On the other hand, where the technology is purely economic, it does not have security implications. Admittedly, it’s sometimes difficult to draw a clear line between the two. Still, at the moment, the US administration is moving toward comprehensive controls: I think that does go too far. Though I believe that, with European input, we may find a balance.
In recent days, the US has convinced the Netherlands and Japan to join the restrictions on semiconductor exports. How do you read the transatlantic moves regarding China?
The only way we can maintain our technological advantage over China is to improve our performance, beefing up innovation. We may be able to slow down the Chinese race, but we cannot stop it. The only sustainable way to remain competitive is to spend more on research and development and support advanced industries. The US, albeit belatedly, has done this with the Chips Act. But that, together with the Inflation Reduction Act, creates some tension with the Europeans. We must – and I include Italy – create similar and coordinated programmes that do not discriminate between companies operating on this or that side of the Atlantic and go as far as pooling our resources. Avoid any confrontation between us as we face the main challenge, which is China. An example is support for Ukraine and the way the Biden administration has managed to engage European allies.
What will happen to Taiwan? Trade ties with the US are increasingly strong, as witnessed by the $40 billion TSMC factory in Arizona, inaugurated by President Biden, Morris Chang and Tim Cook. Is this a way of creating a kind of nuclear deterrence with Beijing? The first one that intervenes on the island risks blowing up the global economy, with 80% of the big container ships passing through that strait.
President Biden maintains what is called strategic ambiguity on Taiwan, oscillating between a commitment to defend it militarily and recognising it’s not fully independent from Beijing. The rhetoric has been escalating lately to make it clear to the Chinese that an attempt to take the island by force would be sternly met by the US. This deterrence has worked for 50 years. The question now is whether President Xi feels more aggressive and confident enough to think he can get away with an invasion. But that would be a terrible risk for the Chinese people, their economy and the world economy. The leader is obviously testing that, and threatening Taiwan, which is why interest in unification with mainland China is waning over there. Hopefully, he will understand that his game is not working and that it’s very risky to go further. And thus, the status quo, though a bit uneasily, may prevail: I think that is the most likely prospect. The Chinese have never shown themselves to be hugely adventuresome or risk-taking in their foreign policy or national security posture. They will try to gain ground around the margins, like when they fortify these reefs in the South China Sea. But that’s very different from invading Taiwan. And it’s unlikely that they will.
President Xi left the country for the first time, after a thousand days of Covid, to attend the Shanghai Cooperation Conference and the Indonesian G20, during which he held several bilateral meetings, including one with Italian PM Giorgia Meloni. Is the divide-and-rule strategy back – different approaches for different European countries, so as to weaken the Union’s resolve both internally and in the alliance with the US?
Divide-and-conquer is certainly one of Beijing’s favourite tools. China feels pretty confident it can stand up to the US bilaterally – they showed that during [former President Donald] Trump’s trade war. But it really does not want to be isolated internationally. When faced with a multilateral coalition arrayed against it, whether it’s on trade issues at the WTO or more broadly at the UN, like with the Ukrainian case, it has no intention of standing alone. This is why Europe and the US should get their act together and adopt a consistent strategy that would deny China the opportunity to divide and conquer and, more positively, put pressure on the Chinese to conform to the international rules-based system. We need a more nuanced view, and in this case, the Europeans can help defuse the tension with the US. It can also aid with Beijing, which has every interest in maintaining an open and stable global economy. We Americans will have to soften certain positions, and you Europeans will have to harden them, but this process has already begun. May I just add one last point?
Please.
I think the war in Ukraine demonstrates the validity of this argument: China has shown political and rhetorical support to Russia for its invasion but has done very little or nothing in tangible economic terms. The Chinese and their business counterparts have cooperated with bans on the export of advanced technology to Russia. They know that if their companies violate these sanctions, they, in turn, will be hit, and China’s role in the global economy will be shattered. This is a good example of functional decoupling, a pragmatic approach that can also be adopted in our relationship with China.
