Four Scenarios for U.S.-China Relations and What They Mean for Japan

The U.S.-China trade conflict has stoked fears of “Cold War 2.0” – but this is only one of several possible scenarios Japan should plan for.

In the past decade, China’s reemergence to international prominence has translated into a more assertive foreign and security policy. This evolution has coincided with a more inward-looking United States, because Washington policymakers needed to cope with the quagmires in Iraq and Afghanistan as well as the most destructive financial crisis since the Great Depression.

China’s maximalist claims and militarization of small geographic features in the South China Sea – in open defiance of earlier pledges, and of the 2016 ruling by the International Tribunal for the Law of the Sea – are indicative of the above trends. In fact, Beijing’s assertiveness is indicative of the broader undercurrents of U.S.-China power transition. By the early 2010s Chinese policymakers likely came to see U.S. deterrence in the South China Sea as a paper tiger because the Obama administration prioritized domestic issues over the enforcement of potentially costly red lines in distant waters. China’s massive land-filling operations there aimed to create a new status quo that would render its smaller neighbors helpless vis-à-vis a soon-to-be hegemon if Beijing enforces these claims. Against the backdrop of rapid changes in the regional balance of power, China’s approach to the South China Sea has aptly symbolized the confidence of a risk-prone and assertive great power.

Dismay at China’s assertiveness, authoritarian regression, and at its relatively closed economic system has fed into a major U.S. rethink of its China policy. By early 2018, the U.S. government had unveiled a new set of international and domestic initiatives that underscored U.S.-China strategic competition. The pendulum has rapidly shifted away from a strategy of restraint to one of exaggerated pressure. In fact, while a shift in gears was already in the making thanks to a degree of bipartisan consensus, the Executive Branch-led pushback has been a maximalist one. Many voices even go as far as calling U.S.-China interaction a new kind of Cold War.

Many voices go so far as to call the current U.S.-China confrontation a Cold War 2.0

In such a Cold War 2.0 scenario, Washington would have very little tolerance for China-related risks, filtering all China-related matters through thick national security lenses. In fact, U.S. policymakers wouldn’t merely pressure Beijing to rectify the trade deficit, abandon large chunks of its state-controlled economic policies,  level the playing field and put a halt to direct and indirect intellectual property rights infringement. More ambitiously, Washington would also want to slow down China’s transformation into a leading economy able to compete with the United States. After all, 120 companies out of the list of Fortune 500 global powerhouses are Chinese (while 126 companies hail from the United States and 52 from Japan) . This scenario – currently in the making through import tariffs, blanket bans against the rollout of Chinese 5G networks, export controls in emerging and foundational technologies and against Huawei itself – would lead to a technological and economic decoupling between the two powers, with major ruptures to global supply chains.

Japan would have to navigate between two deeply unpalatable options in such a scenario. Japanese multinationals and small & medium enterprises rely heavily on Chinese demand and regional supply chains. Policymakers in Tokyo would thus need to square the circle between a strong U.S.-Japan alliance and the preservation of deep economic ties with its wealthy neighbor. China’s rise presents opportunities and risks that need to be managed, in some cases with the help of the United States – but Japan will hopefully not get dragged into needless confrontations that entail economic pain and self-fulfilling prophecies that turn China into an enemy. Tokyo must resist a U.S.-China decoupling and brave the stormy Trump seas while teaming up with like-minded European partners to preserve the open global economy in the face of “might makes right” approaches from both sides of the Pacific Ocean. The expected unwillingness of U.S. allies, possibly including Japan, to pick sides in this hypothetical Cold War 2.0 makes this scenario unlikely.

Japan must avoid getting dragged into needless confrontations and self-fulfilling prophecies that turn China into an enemy

Indeed, the above is but the first of four likely scenarios for U.S.-China relations in the medium run. Each of them carries a set of policy implications for Japan and other U.S. allies. Naturally these scenarios are reductionist since appropriately working out the different permutations and possible futures is too complex for the purposes of this article, but these four scenarios can help frame the costs and decisions that Japan may face going forward.

The second scenario, and the optimum scenario for Japan, would be sustained U.S. regional engagement, with renewed American commitments to the global commons, including preservation of the multilateral free trade system. In this scenario, the United States would maintain its forward military presence and deter a more assertive China with the help of its allies. In addition, the United States would join the revived Trans-Pacific Partnership and coordinate with Japan, the European Union, and like-minded parties to shape the rules of twenty-first century economic practice, and work together towards the realization of connectivity projects through government financing (rather than rhetoric and MoUs). The aim would not be a zero-sum containment of China, but rather the preservation of a favorable regional balance coupled by joint efforts towards shaping Chinese political and economic behavior in a constructive direction through sticks, carrots, and international norms. One concrete example of such an attitude is Japan’s constructive ambivalence towards the Belt and Road Initiative (BRI), as Tokyo aims at shaping Chinese government financing towards international standards gearing up to the G-20 Summit.

Yet, Japan may want to keep its options open in the face of China’s rise and the relative decline of the United States. In the third scenario, cost-cutting offshore balancing, the United States would shun liberal hegemony in favor of a strategy that plays defense rather than offense, while still aiming to preserve a balance vis-à-vis China. It would do this by retrenching U.S. forward deployment to its islands and protectorates such as Hawaii and Guam and, more cynically, would rely on sympathetic regional powers – such as India and Japan – to preserve the balance. The problem with this strategy is that the Asia-Pacific regional system is effectively unbalanced, as China’s material capabilities outmatch that of all its neighbors.

In this scenario, Japan may still rely on U.S. extended deterrence (through the nuclear umbrella) to shore up Japan’s defences, perhaps by further increasing its asymmetric capabilities and making a Chinese invasion of Japanese islands costly, while considerably deepening Japan’s strategic relationships in the Indo-Pacific. To keep its options open, Japan would more proactively push for a dual-hedge between the United States and China. Rather than focus on deterring and confronting China’s influence, Abe’s successors will pursue meaningful engagement of Beijing by conceding to membership of China’s Asia Infrastructure Investment Bank and by openly supporting Xi’s BRI.

Policymakers should be quick in reading the tea leaves and adjusting their states’ foreign policy line accordingly

In the final scenario, a new breed of U.S. policymakers would reason that a U.S.-China confrontation is not worth the massive costs and would therefore pull back U.S. commitments in the region. In this scenario, the United States would retreat to its earlier isolationism while recognizing a Chinese sphere of interest in the Western Pacific. For its part, an aging and depopulated Japan may retrench to its own form of splendid isolationism akin to most of its pre-Meiji history, or bandwagon with a Sino-centric order, not unlike the brief parenthesis during the Ashikaga shogunate (1401-1551). In this scenario, Japan’s role would more closely resemble that of a much more affluent and influential Switzerland that stands aloof from a China-centric regional order through its financial and economic prowess. In the face of persistent antimilitarism and a diffuse nuclear allergy, Japan may be unable to effectively confront Chinese coercive diplomacy. Tokyo would need to make political concessions, such as, at the very least, a public recognition of the existence of a territorial dispute over the Senkaku/Diaoyu Islands and a tacit acknowledgement of China’s routine deployments of its forces there.

With the caveat that the above exercise has taken China’s rise and U.S. relative decline as a given, Japan confronts four likely future scenarios: a “G-2” order with China and the United States acting jointly as the world’s great powers, U.S. offshore balancing, U.S. balancing-plus-engagement, and a Cold War 2.0. The final scenario is the most likely as of now, but the indisposition of European allies to lean on the U.S. side is coupled with tepid U.S. public opinion that does not (yet) prioritize a costly containment strategy. The truth is probably in the middle and, following Trump, the United States will return to a more reasonable (if still sterner) China policy to accommodate those concerns – if not by choice, by necessity.

Finally, while the offshore balancing and G-2 scenarios may now look like a distant mirage, one should never forget that “events, dear boy, events” may stir the trajectory of U.S.-China relations on a completely different path in the future. Policymakers should be quick in reading the tea leaves and adjusting their states’ foreign policy line accordingly.

Giulio Pugliese is a lecturer in war studies at King's College in London He specializes in the politics, both domestic and international, of the Asia-Pacific with a focus on Japan, China, and the United States. He has presented at a variety of venues, and published articles and contributing chapters concerning academic, policy-oriented and commercial themes in Italy, the United States and Japan. His most recent, co-authored work, Sino-Japanese Power Politics: Might, Money, Minds (Palgrave Macmillan, 2017), will soon be translated into Korean.

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