A test for US-China ties

This year has seen tensions rise in US-China relations. Trade frictions, consternation over territorial issues, and China's suspicions about the target of the US "pivot" to Asia have soured the atmosphere.

But the past year has been one destined to see tensions escalate in Asia in that not only China and the United States but also Russia, the Democratic People's Republic of Korea, and the Republic of Korea will see or have already seen leadership changes. And Japan is very likely to have its national election within a few months. So leaders everywhere in the region have been distracted by domestic leadership politics and have thus been determined not to appear weak abroad. Diplomatic flexibility and nuance rarely triumph in such circumstances.

The year 2013 will witness a very different set of incentives because the US and Chinese leaders will know that they are going to be dealing with each other for at least four years to come. It, therefore, is time to sit back and ask what fundamental approaches the US and China should take. In doing so, both Washington and Beijing should keep in mind that no other country in the region wants to have to choose between siding with one or the other. All Asian countries want to participate in and benefit from China's growth, just as all want a large US presence for the stability and opportunities that affords them.

It is worth remembering that, despite tensions, US-China ties bear no relation to the Cold War era. The American and Chinese economies are truly interdependent - neither can take major actions against the other without doing serious damage to itself in the process. They share major concerns beyond Asia, too.

In the Middle East, for example, the US' direct dependence on energy from the region is rapidly dropping to zero, while China's dependence is large and rising. But the US retains major diplomatic and security interests in the region, while China's military capabilities there will remain very modest for years to come. Sino-American cooperation across economic, diplomatic and security issues can, therefore, offer much to both sides, while working at cross-purposes over Middle East policy can hurt both.

As they enter 2013, the top officials in the new US and Chinese administrations would be wise to lift their gazes beyond all the immediate issues demanding their attention and devote serious effort to addressing two fundamental issues that will shape US-China relations over the coming decades.

First, both countries are at a similar point in their national trajectories. Neither the US nor China can simply continue managing things domestically as they have done in recent years.

In the US, the major problem is the large fiscal deficit. While American debt levels are manageable right now, they will become a huge drag on the country within a decade unless the balance between revenues and expenditures is significantly altered. Everyone in the US recognizes this, but to date the political parties have remained deadlocked on how specifically to deal with it. Either the new administration will reach an agreement with the Congress on how to resolve this issue or America will get into very deep trouble in the next 10 years.

China faces a comparable problem, although the details are very different. The development model of the past few decades has become increasingly unsustainable. A new model - that moves toward greater innovation, higher technology, less resource intensity, more value-added services, less dependence on exports and capital-intensive investments and greater dependence on household consumption to drive demand, and related changes is now increasingly urgent.

The 12th Five Year Plan (2011-15) recognizes the need for these types of changes, but successfully implementing them will require related changes in China's political economy - and these to date have proven too politically difficult to execute.

Thus, the US and China must make significant reforms for the long-term success of each country. Less widely appreciated is the fact that each also has a vital interest in the success of the other's reforms. China is deeply invested in the US economy and counts on it to do well. The changes envisaged in China should open up major economic opportunities for American enterprises and reduce trade frictions. And if each country does well economically, it is likely to be more open, confident and flexible diplomatically. Candid discussion of these issues with a view to maximizing the chances for successful reforms in both countries should, therefore, be very much on the US-China agenda in 2013.

The second issue concerns distrust about long-term intentions. Many in China assume the US is engaged in a wide-ranging conspiracy to constrain or disrupt China's rise, and they interpret most US actions in this context. Many in the US feel China has a zero-sum approach to US-China relations and thus conclude that the US must hedge against China's efforts to marginalize the US, especially in Asia. Such views can create a self-fulfilling prophecy of mutual antagonism.

This mutual distrust has grown despite the fact that Sino-US relations are extraordinarily wide-ranging and intensive. Addressing it will require some fresh initiatives, and devising these will require creative thinking on both sides. Perhaps one component should be to restructure the Strategic and Economic Dialogue so that it can become a platform for discussion of long-term plans and concerns. Other components are likely to require developing new types of interaction between the People's Liberation Army and the US military.

In short, the new administrations in the two countries should explicitly address the lack of mutual trust over long-term intentions and actively seek to develop new approaches to building such trust. This effort can in itself potentially improve the capacity of both countries to manage better the many specific problems they confront throughout Asia and elsewhere.

The coming year, in short, offers an opportunity for the US and China to more creatively strengthen the foundation for cooperation for mutual benefit. Getting bogged down in the many existing trouble spots and failing to address these larger issues can prove very costly to both countries' vital interests.

(The author is a senior fellow in foreign policy and the John L. Thornton China Center at the Brookings Institution.)