How bad is the tension between the world's two largest economies, really?

Tensions are mounting in a long fractious Sino-American relationship. 

Notwithstanding the pomp and circumstances of Xi Jinping’s recent state visit to Washington, the Obama administration is tightening the noose on an increasingly blatant China containment strategy – threatening naval confrontation in the South China Sea, strongly hinting at cyberhacking sanctions on three large Chinese companies, and pushing ahead on a major multilateral trade deal (the Trans Pacific Partnership) that excludes China. 

China, for its part, has done nothing to relieve any of these tensions and, in fact, has upped the ante on several other confrontational fronts – namely, dragging its feet on market-opening initiatives such as a Bilateral Investment Treaty (BIT), tightening up the operating rules for foreign non-Governmental organizations (NGOs), and turning its propaganda machine loose on what it claims to be the corrosive values of Western education.  Add to all this long simmering bilateral frictions over currency, trade, and saving imbalances – all of which have worsened in the past several months as China has shifted from currency appreciation to depreciation and begun unloading its vast holdings of US Treasuries – and the bad dream of a Sino-American confrontation is starting to seem as if it might come true.

But the predictable politics of China bashing belie a more sinister development – what historians have long warned of as the inevitable clash between rising and dominant powers.  Mindful of the darker lessons of history, both Washington and Beijing are smug in their disavowal of such a possibility.  Chinese leaders speak openly of a “new great power relationship,” and while US leaders resist this phraseology, they certainly buy into the concept – having elevated the annual Strategic and Economic Dialogue between the two nations to major summit status.

These rhetorical flourishes are, unfortunately, at odds with the signposts of escalating tensions that are very much in keeping with the pathology of codependency.  In human relationships, codependent partners loose their sense of self – drawing sustenance from each rather than from the security that arises from inner strength.  Such a reactive relationship ultimately leads to frictions, imbalances, denial, finger pointing, and ultimately a painful breakup. 

While admittedly it is a stretch to apply this model of destructive human behavior to economies, there is a lot that resonates in the US-China relationship.  During a very difficult period in the late 1970s – a China that was in tatters after the Cultural Revolution and a US that was reeling from a wrenching stagflation – two beleaguered economies came together in a marriage of convenience.  China offered cheap goods to make ends meet for income-constrained American consumers and the US provided the external demand that brought China’s export machine to life.  While the infatuation was innocent at the start, it deepened into a full blown codependency as China lent its surplus saving to saving short America and invested that surplus in US Treasuries at a time when the US was running enormous budget deficits.