Partners or Rivals? the Future of the US – China Economic Relationship

08/28/2018

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Simon Lester | CATO Institute

It seems so long ago now, but towards the end of the Obama administration, government officials from the United States and China were working diligently to try to conclude a bilateral investment treaty (BIT). There was some uncertainty about whether the two governments would reach an agreement, as well as whether the U.S. Congress would ratify the treaty, but nevertheless, these two leading economic powers were working together towards a joint vision in an important area of global economic governance. If the United States and China could develop a shared view of international economic law and policy, the global economy was sure to benefit.

Fast forward to today. Any hope of a joint U.S.-China vision of economic relations or governance seems lost. The rhetoric has intensified in the United States; with a clear bipartisan consensus for a tougher approach on China. President Trump may be leading the charge, but there are many members of Congress pressing him to go faster. The U.S.-China trading relationship will be central to the global economy for years to come, and it is important for that relationship to be a positive one. In the area of foreign investment, the BIT has been shelved amidst fears that China will acquire critical technologies and threaten the status of the United States as the leading player in advanced industries. Several major Chinese investments have been rejected by the Committee on Foreign Investment in the United States (CFIUS), and Chinese investment in the United States has dwindled. Recently, Congress passed legislation expanding the scope of foreign investment transactions covered by CFIUS review, which also imposes additional restrictions on the export of technology to China. While the recent decline of Chinese investment in the United States was attributable to a number of factors beyond CFIUS, a stricter review of foreign investment transactions will certainly aggravate the situation. Worse still, such a move is likely to provoke China to do something similar in its own market. China is already reported to be drafting rules that would link a national security review to strategic foreign investments in publicly listed companies. Whatever trend there may have been towards openness to foreign investment and an agreed set of bilateral rules on investment has been reversed.

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