SHF2025｜Rick Waters

Rick Waters

Former Deputy Assistant Secretary of State, USA; Director of Carnegie China

I have to confess, I wouldn't have expected that a hundred days into the new US administration, things would look exactly as they do. I'd like to talk about three things: How did we get here? What are the risks that are before us? And what are the off-ramps?

So let's start by talking about how we got here. The US-China relationship that I have been a part of for nearly three decades has many deep structural challenges, but a lot of that was not new. Whether it was concerns over PLA modernization, China's global and regional ambitions, bilateral issues over narcotics, or other concerns, or even Taiwan — I don't think that those were fundamentally new.

And early on, there were some signs that President Trump who had managed in his first term for at least the first 3 years, was sending positive signals that the relationship would be tested, but it would not break. That lasted about a week. And I think we all know what has happened since.

But I think if you back up to the question of structurally what has changed, I would offer five broad points.

One is that we now are in a world of far greater geopolitical instability. War in Ukraine, unrest in the middle east, and in this region, we have the security dilemmas inherent in the rise of China's power, and the shifting geopolitical gears between states who are forming new groupings together, or seeking offshore balancing roles from the US and Russia. So the geopolitics of the region has become more complicated.

The second thing that I think has changed is that the global imbalances in the trading system have become more acute, not just because of industrial policies, but because of their scale. And these challenges now have gone to a point where the global trading system is no longer fraying. It is now breaking down.

Third, we can't forget the impact of the pandemic, which in a way was a social and political and economic trauma to all of our societies, but a trauma that was amplified through social media, AI deep fakes within those societies in a way that turn populations against expertise and governing structures.

Fourth, the so-called global order, the structures of the UN system and those without that were created to manage many of these issues, are now essentially paralyzed or in a state of disrepair. And that's not just because of the US and China. That's because of deep differences between the Global East, West, and South on many of the issues of transnational importance that these structures have to contend with.

And fifth, we have to be honest, individuals matter. Whether it's in the US, China or Russia, leaders make a difference.

So I think that is what has changed. And what it means is that the challenges for governments and for their people are now at the greatest point in my professional life, just as the structures that are meant to manage those challenges are at their weakest. Now, I don't want to take time to ascribe blame for what the first hundred days has looked like. Some of that falls on the US itself. I think what's more constructive is to look at the risks, because we must be honest about the risks before us.

And then what the off-ramps look like. So I will offer a modest four worries and one off-ramp.

The first of my worries is that I don't think the US and China in this context will ever go back to the old equilibrium. I think we are now in a period where the two sides have concluded that equilibrium was unsustainable and they're testing a new lower bound. And that process of testing is going to be messy, and it could overshoot, which is the risk. But I think it is most acutely centered around the question of global economic imbalances, industrial policy, and the reality that the economic relationship that once served as ballast between the two countries is now no longer performing that function in the same way.

I think the second worry is that China didn't start at the center of the Trump administration's agenda. I think it was broader. It was the global trading and economic system. It was a global effort to rebalance security commitments and much more. But in a hundred days, China has now become, in some ways, the center of this agenda, not entirely by design. But that's simply where we are. And the battleground that has emerged as a consequence is in neighboring regions, in the periphery, where even if US-China ties are strained, they are now trying to press third countries in new and different incarnations.

I think the third risk is that when the two sides don't communicate effectively, bad things can happen. And it's not just in the economic realm. I'm given some comfort from the fact that today you were talking about a trade conflict primarily. It's not a financial conflict. But we could get there. There are voices in the US talking about Chinese companies delisting from US exchanges. There were rumors which I think are unfounded that China might choose to use its foreign exchange reserves as an instrument of this competition. Now, I don't believe that, but the point I'm making is that there are risks that come from ineffective communication. They exist in the military realm where we've had no senior level engagements. They exist in the societal realm, where there is always a challenge of the law enforcement and security agencies going beyond sometimes even what the leaders intend, if these structures above them are not managing them carefully.

My fourth worry is that, and this saddens me as a diplomat, the US and China have not found a formula to work together in recent years in areas where they do have common interests, whether it's pandemics, whether it is the regional conflicts in which their interests may not be the same, but they're not fundamentally at odds with each other. There should be formulas to do this. And yet, where we are today, the US and China are too often on opposite sides of the table.

So those are my four worries. But lest you think I'm a pessimist, I want to talk now about: one, regaining perspective, and two, what an off-ramp might look like for the two countries given these immense challenges.

The perspective — the US and China have not decoupled. Yes, there are severe strains in the relationship. But there are still US companies here who produce and sell $500 billion worth of goods every year. There are Chinese companies in the US who produce a smaller but still quite consequential amount. There are students, there are scholars traveling, there are family networks, there are values that I think at a societal level are not fundamentally at odds. And I think too often we lose this perspective in moments of tension, when the headlines create emotional reactions on both sides, that overwhelm the true strengths and residual pillars that exist between the societies.

So what does an off-ramp look like? Well, I’m not optimistic that the old formulas will work. I think in this environment, the best that can be hoped for is that the two sides do the things they need to do anyway that would have the additional benefit over time of creating a more positive context.

I think many in China know that China must pivot towards a greater reliance on domestic demand. We've seen that in the statements from the central economic work conference, we've seen that in debates this spring. And the reality is that export led growth, given the scale of China's economy and its manufacturing ecosystem, will no longer be a future driver of significant growth.

I think the US understands that whatever happened on liberation day is unsustainable. And it will have to rationalize and prioritize its own goals. It will have to pull back. I think what may happen is the US will start to be more realistic about the tools that it will use to defend against these imbalances, and the time lines will have to align more realistically with business decisions and with negotiating structures that are forced to implement them.

So maybe if you have each side doing what it needs to do anyway in the economic relationship, over time, the two sides can work in parallel, but with a degree of coordination — “相向而行”, but you still need to have communication. And here, I feel that both sides probably need to be more flexible. Great powers, responsible great powers, both must be flexible about the ways in which they communicate. It can be quiet, it can be back channels, but it has to be more than what we see today.

Last, I will offer one final observation about the US. I think a lot of what you've seen over the first hundred days is a divergence from aspects of traditional US external and domestic policies. Some of this reflects a very real shift in how Americans view globalization or the impact on their communities of decades of wars, fentanyl, social media and other challenges.

But I want to say that the US has not fundamentally changed. There will still be midterm elections in two years. There will be a new president in four. And while the executive branch is testing the boundaries of our system, the residual buffers are still strong. So I think we have to keep that in mind going forward that the US is going through a period of immense change, but it will not come out of this fundamentally different.

I'll end here. Thank you so much. And thank you again for the invitation.