In the early 1990s, the United States began to run a significant trade deficit with China due to the dual forces of greater trade liberalization and China’s transition from a command economy towards a market economy. Proponents of free trade with China argue that greater integration will lead to a convergence of interests that reaches beyond economics. Despite growing economic and cultural ties with China, the U.S. still maintains military assets to defend Taiwan. Large scale conflicts on the order of cold war expectations are unlikely due to the growing importance of multinational entities such as international institutions, corporations, and nonprofits. This means that developed nations must contend with world opinion or forego the assistance of these groups in pursuing national interests. Situations such as Taiwan could limit economic integration and potentially introduce long term political risk with an impact on the U.S. economy similar to the Middle East effect on oil price. While the Chinese government presents itself as a monolithic entity to foreigners, the ability of the central government to enforce policy differs greatly throughout the country. The potential for political instability will likely increase as China becomes more integrated with the rest of the world. Western nations have already experienced the challenges of applying World Trade Organization regulations on market driven economies. The effects will be even more difficult to manage in China’s hybrid economy. The Chinese government’s primary concern is to govern the entire nation with diverse cultures, languages, and economic interests despite a lack of infrastructure and strong institutional development. To do this without some form of participatory government requires a population which is not critical of government policies. This is achieved through the promise of economic growth.
Recommended CitationRush, Stephen, "Can Increased Trade Prevent Conflict with China?" (2007). Honors Projects in Economics. Paper 1.