Chapter 3: Trump and the U.S.-China Economy Relations
3.1 Impacts of the PRC’s Economic Rise on American Unipolarity
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3.1 Impacts of the PRC’s Economic Rise on American Unipolarity
When the Communist Party of China had emerged triumphant from the Chinese Civil War in 1949 and took control of Mainland China, the country was in a state of disarray and the CCP sought to revitalize the stagnant economy by installing the socialist market system.
The Soviet-style economic program aimed to foster the productivity of heavy industry based on the centrally-planned policy of the communist party. Starting with the First Five-Year Plan (1953-1957), private industries in China were gradually converted to state-owned enterprises.
In the agricultural sector, the CCP attempted to boost production output by enforcing a rigid and comprehensive control over resources and manpower. Farming households were broken up and reorganized into “producer’s cooperatives”—a collectivization through which the government was able to monitor agricultural production. The PRC’s First Five-Year Plan was successful in terms of industrialization goals and installing the socialist system.
Emboldened by the success of the First Five-Year Plan, a faction of the CCP leadership headed by Mao Zedong, who had placed greater emphasis on China’s socialist transformation over economic developments, disrupted the Second Five-Year Plan (1958-1962) to embark on the Great Leap Forward with the hope of accelerating the process of ideological alteration.
During the sociopolitical movement, the CCP diverted a considerable sum of the agricultural workforce into industrial manufacturing in an attempt to boost productivity to an unrealistic level. At the same time, the Party sought to mobilize the domestic masses and generate the will to overcome material and technological deficiencies by inciting nationalistic zealotry with propagandized goals of surpassing the U.K. and the U.S. in steel production. However, the Great Leap Forward ultimately triggered a severe famine and stagnant economy.
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During the early two decades of the PRC’s reign, the socialist state was largely cut off from the U.S.-led liberal world due to the political, ideological, and military disagreements.
Politically, the U.S. remained supportive of the PRC’s rival during the Chinese Civil War—Chiang Kai-shek and the Nationalist Party—even after they suffered defeat and retreated to Taiwan. The PRC’s communist ideology and U.S. liberal democracy were also irreconcilable and such differences added fuel to their military confrontations during the Korea War and the Vietnam War. Since the communist takeover, U.S. had unilaterally imposed a trade embargo on the PRC that lasted into the 1970s and the two sides had little or none trade interactions until then. Yet America’s embargo had limited results since China maintained trade with the Soviet bloc; Japan and the European countries that had joined the U.S. and embargoed China began to relax the restrictions following the Korean armistice in 1953 and had resumed trade with China by 1959.8 Despite the failure of the U.S. trade embargo and having the economic support of the Soviet Union, Chinese economy suffered severe setback during the 1950s and 1960s due to the Great Leap Forward and the Cultural Revolution.
China’s economic growth only began to recover and gain momentum after Mao’s death in 1976. In December 1978, Deng Xiaoping repudiated Mao’s centrally-planned economic policy on the 3rd Plenary Session of the 11th Central Committee of the Communist Party of China and set forth new plans for economic reform grounded on the concept of “socialism with Chinese characteristics.” Deng’s “reform and opening-up” policy was carried out in two steps. First, Deng launched a series of measures termed the “Four Modernizations” aimed to decollectivize and modernize China’s agricultural, industrial, military, and technological
8 Xin-zhu J. Chen, “China and the U.S. Trade Embargo, 1950-1972,” American Journal of Chinese Study, vol.
13, No. 2, October 2006, 169-186.
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sectors. In agriculture, Deng introduced the “household-responsibility system” which broke up the collective lands and redistributed them to peasants as private plots. Peasants were given control of their lands so long as they sold a contracted portion of the products to the government; this policy drove agricultural turnout up by fifty percent between 1978 and 1984.9 A limited privatization was also granted to the industrial sector and private businesses were allowed to operate along with the predominant state-owned enterprises for the first time since the CCP takeover.
The second stage of Deng’s economic reform focused on furthering the privatization of state-owned industry and bringing in more foreign capital based on the “open-door” policy.
In June 1984, in the speech “Building Socialism with Specific Chinese Characteristics,”
Deng stressed the necessity for the PRC to adhere to “a socialism that is tailored to Chinese conditions and has a specifically Chinese character.”10 This concept buttressed Deng’s policy to adopt market economy within the PRC while preserving the CCP’s communist ideology and monopoly of political power. A series of pro-growth policies were launched during this time, including the industrial-responsibility system and the creation of the special economic zones (SEZs) in coastal provinces.
Deng Xiaoping’s reform revitalized the Chinese economy and unleashed a wave of explosive growth. According to the Worlds Bank, China’s GDP rose from 178.281 billion USD in 1979 to 360.858 billion USD in 1990; GDP per capita also increased from 183.983
9 Michael E. Marti, China and the Legacy of Deng Xiaoping: From Communist Revolution to Capitalist Evolution (Washington D.C.: Potomac Books Inc.).
10 Deng Xiaoping, “Building Socialism with Specific Chinese Characteristics,” The People’s Daily, June 30, 1984, accessed on http://sports1.people.com.cn/GB/channel1/10/20000529/80783.html. (The translated text was extracted from New Learning at
http://newlearningonline.com/new-learning/chapter-4/deng-xiaoping-socialism-with-chinese-characteristics.)
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USD to 317.885 USD during the same period.11 An IMF study showed that China’s share of the world’s GDP based on purchasing power parity (PPP) had grown from 2.32 percent in 1980 to 6.56 percent in 1997.12 In the face of temporary conservative backlash from within the communist party after the 1989 Tiananmen Square Incident, Deng stood firm in defense of his reform policy during a southern tour to Guangzhou, Shenzhen, and Zhuhai in 1992.13 Deng insisted that socialism and market economy are mutually-inclusive concepts and that the PRC should encourage the development of the “three types of foreign-funded enterprises”
(Sino-foreign equity joint venture, Sino-foreign contractual joint venture, and wholly foreign-owned enterprise).14 Deng’s southern tour won back the support of the Party leadership for further liberalization and the CCP had largely kept to this line of economic development over the coming decades.
After Deng Xiaoping stepped down as the paramount leader of China, economic reform continued under his handpicked successors—President Jiang Zemin and Premier Zhu Rongji.
Jiang and Zhu spurred a large-scale privatization in which state enterprises, with the except of a few monopolized industries like banking and petroleum, were liquidated and sold to private investors.15 The private sector had since increased contribution to the Chinese economy and first exceeded 50 percent of total GDP in 2005. In foreign trade, Jiang and Zhu had kept to an internationalist policy and oversaw the reduction of tariffs and trade barriers, reformed the
11 “GDP (current US$): China,” The World Bank, accessed May 2, 2019,
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=1997&locations=CN&start=1978.
12 International Monetary Fund, “GDP Based on PPP, Share of World,” International Monetary Fund, accessed May 1, 2019, https://www.imf.org/external/datamapper/PPPSH@WEO/OEMDC/ADVEC/WEOWORLD/CHN.
13 Barry Naughton, “China: Economic Transformation Before and After 1989,” (paper presented at the 1989:
Twenty Years After, University of California, Irvine, November 6-7, 2009), 24.
14 “1992 Deng Xiaoping Talks on Southern Tours [1992 Nian Deng Xiaoping Nanxun Jianghua, 1992 年邓小 平南巡讲话], Xunmeng Xinwen 寻梦新闻, September 11, 2018, accessed November 29, 2018,
https://ek21.com/news/1/71072/.
15 Teresa Poole, “China Ready for World’s Ultimate Privatisation,” The Independent, September 12, 1997, accessed November 20, 2018,
https://www.independent.co.uk/news/world/china-ready-for-worlds-ultimate-privatisation-1238697.html.
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banking system, and eased inflation. Deng’s “open-door” policy and Jiang’s relaxation on trade barriers were powerful attractions to foreign investors and the foreign capital entering China increased dramatically over the years.16
Several critical breakthroughs in the Sino-U.S. relations during those decades had also contributed to China’s economic rise. In 1972, President Richard Nixon paid a monumental visit to the PRC and signed the Joint Communiqué of the United States of America and the People’s Republic of China—or the Shanghai Communiqué—that marked the rapprochement between the two countries. Normalization of diplomatic relations occurred later in 1979 when Jimmy Carter transferred formal recognition from Taipei to Beijing; the U.S. also granted the PRC the “most-favored-nation” (MFN) trade status and rendered it privileged conditions like lower tariff or high import quotas in the subsequent year. The PRC’s MFN status was made permanent when President Bill Clinton signed the U.S.-China Relations Act of 2000 which exempted China from the annual review required to extend its trade with the U.S. and paved the way for it to join the WTO in 2001.17
The improved Sino-U.S. relations not only facilitated bilateral trade and investment, but had also increased economic interdependence. For example, the total value of imported goods that entered the U.S. from China grew from 3,861.7 million to 196,682 million USD between 1985 to 2004, and U.S. exports to China rose from 3,855.7 million to 34,427.8 million USD in the same timeframe.18 Their economy are also closely linked in the monetary aspect, as the Chinese currency, renminbi (RMB), was pegged to U.S. dollar since the economic reform
16 U.S. Library of Congress, Congressional Research Service, China’s Trade with the United States and the World, by Thomas Lum and Dick K. Nanto, RL31403 (2007).
17 “Full Text of Clinton’s Speech on China Trade Bill,” The New York Times, March 9, 2000, accessed February 20, 2018,
https://www.iatp.org/sites/default/files/Full_Text_of_Clintons_Speech_on_China_Trade_Bi.htm.
18 “Timeline: U.S. Relations with China 1949-2019,” Council on Foreign Relations, accessed February 24, 2019, https://www.cfr.org/timeline/us-relations-china.
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in 1980s. The RMB is regarded as a policy currency, meaning that its value does not fluctuate along with the changes in the free market, but is determined by the People’s Bank of China (PBOC). Over the years, the PBOC has diligently bought U.S. Treasury to artificially devalue the yuan against the dollar, which gives Chinese exports high competitiveness. The growing trade deficit and the imbalanced exchange rate formed a vicious cycle that led to the U.S.’s mounting national debt to China.19 These issues represent the downside of the U.S.-China economic interdependence, but they are just a part of the bigger problem.
Many disputes that are under debate in the ongoing Sino-U.S. trade war led by President Trump and President Xi have roots in the economic policies formulated under President Jiang Zemin and President Hu Jintao. For example, the PRC had long invested in infrastructure developments abroad before President Xi Jinping launched the iconic “One Belt One Road Initiative.” geopolitical threats that the PRC poses for the African, Eurasian, and Asia-Pacific countries through joint The PRC poured billions of dollars into megaprojects in Africa, constructing airports, dams, railroads, etc.20
After forty years of economic reform, China has evolved into the world’s second-largest economy. According to the tenets of offensive realism, as the PRC’s economic power grows, it is bound to extend influences beyond its borders.21 In the next section, the author turned to look at the economic policies formulated under President Xi Jinping and the implications of his strategies on regional security and the Sino-U.S. trade war.
19 See Kimberly Amadeo, “U.S. Debt to China, How Much It Is, Reasons Why, and What if China Sells It,”
The Balance, February 13, 2019, accessed February 15, 2019,
https://www.thebalance.com/u-s-debt-to-china-how-much-does-it-own-3306355; Bryan Borzykowski, “China’s
$1.2 Trillion Weapon that Could be Used in A Trade War the US,” CNBC, April 5, 2018,
https://www.cnbc.com/2018/04/05/chinas-1-point-2-trillion-weapon-that-could-be-used-in-a-us-trade-war.html.
20 Mamta Badkar, “Map: Here are All of the Big Chines Investments in Africa Since 2010,” Business Insider, August 13, 2012, accessed May 3, 2019, https://worldview.stratfor.com/article/chinese-investments-africa.
21 John J. Mearsheimer, The Tragedy of Great Power Politics (New York: W.W. Norton & Company), 368.