Why the US wants to get out of the China trap The woman who woke up in her own coffin is now really dead

Do you remember the Washington Consensus? The doctrine of the International Monetary Fund (IMF), which imposed open markets, low rates and as little state regulation as possible on all emerging countries? Of the hymns to globalization, which has lifted 400 million people out of abject poverty and offered the whole population the prospect of prosperity and peace?

Central to the praises of globalization was the relationship between the US and China. Thanks to Deng Xiaoping, the Chinese communists had left behind Mao’s Stone Age communism and abandoned free market forces. In a surprisingly short time, China became the workshop of the world, surpassing the Germans as world export champions.

Chimerica is history

There was also a political thaw. President Clinton allowed the Chinese to join the World Trade Organization (WTO), laying the foundations for a new relationship between the two states. This relationship was soon dubbed “Chimerica”, a term that expressed what was then the new reality: China produces, America consumes – and both are happy.

It’s not that long ago. As recently as 2018, IMF director Christine Lagarde spoke on the Wef in Davos that the world economy was in a “sweet spot”, in an optimal state. It all sounds a little different today.

Today, people speak of the “Trap of Thucydides”, which states that sooner or later an existing and an emerging power will inevitably go to war. Chimerica has become a nostalgic memory at best. Today, the World Bank soberingly states: “Almost all the economic forces that have brought prosperity and progress over the past three decades are weakening. A lost decade approaches – for the whole world.”

Politically, the climate between Washington and Beijing has turned chilly. A mixture of fear and hatred of China is about all that unites Americans at this point. Conversely, the Chinese are taught every day that the superpower USA has become incurably decadent and is in inevitable decline.

There has also been a reconsideration among economists. The praise of the free market and open markets has faded. In the Financial Times, Rana Foroohar quotes Robert Lighthizer, former Trump administration trade envoy and China hardliner, as approvingly saying: “Free trade is a unicorn – a figment of the Anglo-Saxon imagination. Nobody except the Anglo-Saxon world really believes in it and nobody adheres to it.”

So anyone who believes that the Biden administration will reverse violations of neoliberal orthodoxy is wrong. The Trump administration’s tariffs have not been eliminated, but rather increased in the wake of the “chip war”. Faith in neoliberalism has also been lost. Jake Sullivan, the Biden administration’s national security adviser and key thought leader, said in a recent speech that it is a mistake to believe that “markets will always allocate capital productively and efficiently.”

The pandemic and the war in Ukraine have contributed significantly to the new order in the global economy. This can be seen in the example of Germany. After the fall of the Berlin Wall, the former vice world export champion flourished thanks to cheap energy from Russia and the hunger for German cars. Today, the Germans have to import liquefied natural gas from Qatar. Meanwhile, the Chinese are starting to warm up to self-produced electric cars. The result: the German economy entered a recession.

Germans may have been particularly hard hit by the changes in the global economy. But the Chinese and the Americans are also suffering. The Chinese economy is in crisis. Youth unemployment has reached unprecedented heights and growth rates are gradually tapering off; the economists at Goldman Sachs have just done that. It seems that the Chinese economy is still dependent on Western markets.

Conversely, the pandemic has made Americans realize how precarious their supply chains are. That is why Katherine Tai, the trade representative for the Biden administration, warns that “the current trade rules reinforce those supply chains that are fragile and leave us vulnerable. It doesn’t make sense at a time when we want to diversify and make them more resilient.”

Can the downward spiral be stopped?

Economically, the “new cold war” between the US and China that is being talked about knows only losers. But tensions have risen in recent months. China’s unconditional side with Putin in the war in Ukraine has angered Washington. Conversely, Beijing is increasingly irritated by US attempts to support Taiwan. Spy balloons shot down and near misses in the air and at sea don’t really help clear the air.

The current visit by US Secretary of State Anthony Blinken is therefore a welcome, albeit small, step in the right direction. It can help break the downward spiral between the existing and the emerging superpower. He could also do a little bit to defuse the “fall of Thucydides”. The US and China don’t have to be friends. Nobody wants another Chimerica. A new compromise that prevents a hot war is enough.