Xiaogu Xu | July 12, 2019
Responding To: The Future of U.S.-China Relations: Friend or Foe?
In the April issue of Foreign Affairs, editor Gideon Rose stated, “Two decades ago, the U.S.-sponsored liberal international order seemed to be going from strength to strength. Now, both order and sponsor are in crisis, and the future is up for grabs.” His emphatic declaration underscores a trending argument that American hegemony has come to an end. The United States is no longer the global powerhouse it used to be; political, domestic, and economic constraints are challenging Washington’s international dominance. China’s rise has forced the United States to recognize the rising power’s legitimacy. As China’s capabilities have grown closer to parity with the United States, Washington has started to view China as a strategic competitor. The perception of China as a political adversary has resulted in the adoption of punitive policies that have only exacerbated the dangerous power struggle that is unfolding. From the fight over 5G technology to the continued escalation of the trade war, U.S.-China relations are mired with friction and there seems to be little room for optimism. And although President Trump’s recent decision to raise tariffs on $200 billion worth of Chinese products deserves the widespread media attention it is receiving, there is another important issue that must be further discussed: the augmentation of the United States’ most sophisticated and formal mechanism for screening foreign investment, the Committee on Foreign Investment in the United States (CFIUS).
Established in 1975 under President Gerald Ford, CFIUS reviews the mergers and acquisitions of American companies by foreign-owned firms for national security purposes. The secretive body has come to the forefront of political discourse as additional legislation has enhanced the powers of this Committee by allowing it to impose conditional terms on major business deals and even terminate completed transactions. From 2005 to 2015, CFIUS reviewed 142 deals from Chinese investors, 130 deals from Canadian investors, 4 deals from Mexican investors and 85 from Japanese investors. CFIUS reviewed an almost equal amount of cases from China and Canada despite the fact that China only had a tenth of the amount of transactions that Canada had in the United States over this period. Additionally, since CFIUS’ conception in 1975, only five business transactions have been officially terminated by a U.S. President, four of which have involved a Chinese investor. The number of blocked cases involving a Chinese firm is not commensurate with the amount of FDI that has originated from China. Thus, the development of CFIUS, which critics argue has been utilized as an economic weapon, and its treatment of Chinese investment has led me to be both highly concerned and pessimistic about the future of U.S.-China relations, a relationship that rests on a strong economic partnership.
In addition to the sheer number of Chinese cases reviewed and blocked by CFIUS, the nature of CFIUS’ cases is also curious. For example, last month, CFIUS identified Grindr, the largest and most popular LGBTQ dating app, on the market as a risk to national security. Citing data privacy concerns related to the information of American government officials, CFIUS forced the Chinese company that owns the American firm to relinquish full control. The forced divestment will not only impact the 27 million users of Grindr and prevent the company from going public this year, but will also influence major business deals between Chinese and American firms. This case is important as it not only reflects the already deteriorating U.S.-China relationship, but also highlights the extent to which the United States will go to protect its “national security” interests.
As the architect of the Bretton Woods system and a leader in liberal economic policy, the United States is engaging in behavior that is antithetical to its core principles. Its decision to expand a Committee designed to restrict foreign direct investment, even investments that have not been traditionally viewed as a risk to national security (dating apps), and its discriminatory treatment of Chinese investors, illustrates the U.S.’ clear desire to challenge China’s technological and economic development. The United States is attempting to check China’s global rise. But this game of power politics is destructive to the economy and the future of bilateral relations.
Finally, although economics is not the only aspect influencing the realm of U.S.-China Relations, it is a large part. As Adam Tooze sagely noted in his acclaimed book Crashed: How A Decade of Financial Crises Changed the World, “The idea that the economy is a realm beyond politics or the play of international power has been exposed as a self-serving illusion.” Given the interconnected nature of economics and politics, the level of interdependency that exists between the United States and China has tightly linked the two states together. As such, the US’ domestic and foreign policy decisions undoubtedly effect its largest trading partner and political adversary. Since the end of World War II, the United States has served as the leader in global governance. Outlining the norms and strategies that dictate the rules of the game, the United States developed the institutions that underpin the current international system and set up the postwar world order. American hegemony has led to the diffusion of American ideals on a global scale, shaping the international environment into the one we see today. As a world leader, the United States and its skilled statecraft have had great influence over the foreign-policy decisions of other states. The United States’ treatment of Chinese foreign direct investment not only sets a precedent for other developed economies who consider themselves American allies, but also inspires imitation from states who are also grappling with China’s newfound power. While the establishment and expansion of a national security screening framework is by no means unreasonable in the age of artificial intelligence and block chain technology, it is critical to analyze such mechanisms with intense scrutiny and pessimistic caution.
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