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Fellows of Salzburg Global's latest Pathways to Peace Initiative present findings on managing economic relations between China and the West
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Salzburg Global Seminar convened a program on "Crossing New Rivers by Feeling the Stones? Aspirations, Expectations, and China's Role in the 21st Century" from February 18 to 21, 2024, as part of its broader Pathways to Peace Initiative. During this program, Salzburg Global Fellows from 14 countries gathered to discuss the pressing issue of global interaction with China; they incorporated the perspectives of narrative frameworks, economic challenges, technology, and pathways for future engagement in light of rising geopolitical tensions.
Four working groups were tasked with addressing different aspects of this engagement. In the working group findings summarized below, Fellows consider the impacts on the global economy as Chinese state capitalism and Anglo-American style capitalism (and other variants in between) increasingly compete. Preliminary policy recommendations are offered as a basis for future conversation.
The US is not a stranger to state engagement in the economy. This can be seen through the examples of the development of the internet, the personal computer, and GPS in the Defense Advanced Research Project Agency (DARPA), as well as US mobilization and production for WWII.
DARPA was created by US President Eisenhower in direct response to the Soviet launch of Sputnik in the context of the Cold War. Given the current strategic competition with China, the US will likely experiment with some aspects of state capitalism, such as the Inflation Reduction Act, in the coming years. However, the US is not as adept, practiced, or disciplined as China is in this regard.
The US’s strength lies in innovation, in attracting some of the world’s most talented people, and in creating environments where entrepreneurs succeed. The US has many competitive advantages and a leading economy, necessitating it to regain confidence and invest in its strengths.
China still considers itself in many ways a developing nation seeking to achieve middle-income status. It will continue to use forms of state capitalism to further these and other aims, and it has built formidable systems, processes, infrastructure, and disciplines to support these efforts. Given China’s size and experience, these capabilities are unlikely to be matched by the US or many others. Moreover, China’s systems are not static. They continue to evolve, and China continues to experiment with what works best within the context of shifting domestic, global, and technological developments.
China’s efforts have significant implications beyond its borders. These include exporting internal overcapacity to the detriment of other countries’ industries, especially with products such as solar panels, wind turbines, and EVs; potentially achieving global pre-eminence in key technologies and industries of the future; and developing military capabilities, both for defense purposes and potentially for export.
In this context, the US, Europe and other nations have grown concerned that their industries, supply chains, consumer and industrial products, sources of innovation, economic wealth, and military capabilities will be undermined or reliant on China.
Acknowledge that tariffs have been largely counterproductive.
Encourage the US to utilize its comparative advantage in innovation and entrepreneurship.
Consider investing in pooled subsidization and locating critical industries and supply chains in the West. The US, EU, Japan, and other advanced industrialized countries should work more closely together, identify truly critical industries for export controls, and utilize supply chain onshoring and friendshoring to reduce reliance on China in these critical industries.
Identify non- or less-sensitive areas and continue to trade and invest as before.
Require China to invest in production capabilities in other countries under similar terms it has used for foreign production in China, rather than exporting overproduction. Saudi Arabia can be viewed as an example in this regard.
Revitalize key institutions such as the WTO to focus on these challenges and create a forum for resolving issues.
Develop and use mechanisms for building trust between the West and China, such as cooperation spirals which start from simple trust-building measures like peace game exercises.
Increase human exchanges and knowledge of each other in order to combat any rhetoric of war.
Exercise caution in implementing export bans, as these hinder trust-building.
Engage with China on knowledge production on specific issues.