ECONOMIC POWER IN THE 

SINO-U.S. RELATIONSHIP 

Kevin F. Donovan

INSS Occasional Paper 5 

Regional Series

December 1995 

USAF Institute for National Security Studies 

US Air Force Academy, Colorado 
II
III

 The views expressed in this report are those of the author and do not 

necessarily reflect the official policy or position of the Department of the Air 

Force, the Department of Defense, or the US Government. This report is 

approved for public release by SAF/PAS; distribution is unlimited.

******** 

 This paper is the result of research sponsored by the USAF 

Institute for National Security Studies during the summer and fall of 1994. 

********

 Comments pertaining to this report are invited and should be 

forwarded to: Director, Institute for National Security Studies, HQ 

USAFA/DFE, 2354 Fairchild Drive, Suite 5D33, US Air Force Academy, CO, 

80840, (719) 472-2717, DSN 259-2717. 
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V

TABLE OF CONTENTS 

Foreword vii 

Executive Summary ix 

Introduction 1 

The Nature of Power in the Post-Cold War Era 3 

 The Economic Dimensions of Power 4 

 Economics and Interpendence 10 

 Economic Dependence 13 

 Trade and Interdependence 15 

US-China Case Studies 17 

 Post-Cold War National Interests: United States 17 

 

 Post Cold War National Interests: PRC 18 

 Case I: The Most-Favored Nation (MFN) Decision 23 

 Background 23 

 Economic Brinkmanship 28 

 Lessons Learned 31 

 Case II: Proliferation 36 

 Chinese Proliferation of Ballistic Missiles 36 

 Chinese Proliferation of Nuclear Technology 38 

 Analysis: The US Response 41 

 Case III: North Korea 49 

 The Level of Chinese Support for Pyongyang 52 

Conclusion 55 

Endnotes 59
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VII

FOREWORD 

 We are pleased to publish this fifth volume in the Occasional Paper

series of the US Air Force Institute for National Security Studies (INSS). This 

monograph represents the results of research conducted during the summer 

and fall of 1994 under the sponsorship of a grant from INSS. 

 INSS is co-sponsored by the National Security Negotiations Division, 

Plans and Operations Directorate, Headquarters US Air Force (USAF/XOXI) 

and the Dean of the Faculty, US Air Force Academy. The primary purpose of 

the Institute is to promote research done within the DOD community in the 

fields of arms control, national security, regional studies, the revolution in 

military affairs, information warfare, and environmental security. INSS 

coordinates and focuses outside thinking in various disciplines and across 

services to develop new ideas for USAF policy making. The Institute 

develops topics, selects researchers from within the military academic 

community, and administers sponsored research. We also host conferences 

and workshops which facilitate the dissemination of information to a wide 

range of private and government organizations. INSS is in its fourth year of 

providing valuable, cost-effective research to meet the needs of the Air Staff 

and our other sponsors. 

 In this paper Lt Col Kevin Donovan makes a solid academic case for 

the importance of economic issues in a state’s perception of its national 

security. “Economism,” he argues, has to a large extent supplanted military 

concerns in the increasingly interdependent post-Cold War world. His focus 

is on the relationship between the United States and Asia’s emerging regional 

power, the People’s Republic of China. His case studies explore the 

possibility that, where both countries in a bilateral relationship consider 

economic strength as their most important national interest, power through 

asymmetrical economic interdependence shapes outcomes not only within the 

economic arena but in other issue areas as well. Specifically, this study 
VIII

examines the use of economic power to affect outcomes in US-China trade 

negotiations (including the 1994 most-favored nation debate), and security 

concerns (such as Chinese weapons proliferation and North Korea’s nuclear 

program). 

 It is fitting that we publish this piece during a year in which all the 

US military war colleges have agreed to stress studies of China and the Pacific 

Rim in their research programs. 

 We appreciate your interest in INSS and its research products. We 

hope we are meeting a need for this type of analysis and reflection, and we 

look forward to publishing these papers on a regular basis. 

JEFFREY A. LARSEN, Lt Colonel, USAF 

Director, Institute for National Security Studies 
IX

EXECUTIVE SUMMARY 

 This paper explores the shift in the nature of power in the post-Cold 

War international system, arguing that military strength has become 

inconsequential in the pursuit of our, or any industrialized nation's, most vital 

interests. Alternatively, states would do well to focus on the possibilities for 

exploitation of power through economic strength and economic 

interdependence. This research reviews the theoretical approaches to power 

and interdependence and applies these concepts to the bilateral relationship 

between the United States and the People's Republic of China. This case 

study is used to suggest that: 1) the post-Cold War national interests of these 

two disparate countries typify the international shift to economics-based 

power, and 2) under carefully qualified circumstances, power can arise from 

asymmetries in economic interdependence--directly in issues related to trade, 

and indirectly with regard to security areas. 

 Until 1990 the debate over national interests in China and the United 

States was shaped, and more often consumed, by the ideological confrontation 

of the Cold War. Realism, bi-polarity, and zero-sum games dominated 

regional politics, national budgets, and bilateral relationships. In the US, 

many charge that domestic economic health was sacrificed for the sake of 

"containment", even to the extent of financing the smothering of initiative and 

ascendance by our European allies in foreign affairs. 

 The fall of communism has swept away the organizing principle of 

containment as the preeminent driver of US national interest. Although 

"engagement" has failed to capture the strategic imagination of its 

predecessor, President Clinton undoubtedly sees his election as rooted in 

national economic rejuvenation, not grand security strategies. The political 

capital expended on NAFTA approval, the determination to achieve a GATT 

agreement, and the willingness to endure the political risks of lifting the trade 

embargo on Vietnam provides evidence that the US President perceives a 
X

strong link between domestic economic recovery and international economic 

trade. 

 Evidence that the same kind of assessment has been made in China is 

abundant. "Socialism with Chinese characteristics" is the Party's new 

euphemism for Chinese capitalism. Clear signals exist that demonstrate the 

Chinese leadership's dedication to economic growth as the nation's number 

one priority. New career paths have emerged for clever revisionists who can 

accommodate Maoist Marxism to Western capitalism. 
XI

INSS OCCASIONAL PAPERS

1. Explaining Weapons Proliferation: Going Beyond the Security 

Dilemma. Gregory J. Rattray, July 1994 

2. The Ukrainian Military: Instrument for Defense or Domestic 

Challenge? Oleg Strekal, November 1994 

3. North Korea’s Nuclear Program: The Clinton Administration’s 

Response. William E. Berry, Jr., March 1995 

4. Environmental Assistance as National Security Policy: Helping the 

Former Soviet Union Find Solutions to its Environmental Problems. 

Robert L. Dunaway, November 1995 
XII

UNITED STATES AIR FORCE ACADEMY 

Lieutenant General Paul E. Stein 

Superintendent 

Brigadier General Ruben A. Cubero 

Dean of the Faculty 

HEADQUARTERS, US AIR FORCE 

PLANS AND OPERATIONS DIRECTORATE 

Major General Robert E. Linhard 

Director of Plans 

Colonel Richard B. Wallace 

Chief, National Security Negotiations Division 

USAF INSTITUTE FOR NATIONAL SECURITY STUDIES 

Lieutenant Colonel Jeffrey A. Larsen 

Director/Editor 

Editor 

Major Timothy J. Krein 

USAF Reserves 

Ms Judy Thurlow 

Cover Design 

2Lt Grant Simmons 

Technical Support
1

Economic Power in the Sino-US Relationship

Introduction

 Until 1990, the debate over national interests in China and the United 

States was at least shaped, and more often consumed, by the ideological 

confrontation of the Cold War. Realism, bi-polarity, and zero-sum games 

dominated regional politics, national budgets, and bilateral relationships. In 

the US, many charged that domestic economic health was sacrificed for the 

sake of "containment", even to the extent of financing the "smothering" of 

initiative and ascendance by our European allies in foreign affairs.1

 The fall of communism has swept away the organizing principle of 

containment as the preeminent driver of US national interest. Although 

"engagement" has failed to capture the strategic imagination of its 

"containment" predecessor, President Clinton saw his 1992 election as rooted 

in national economic rejuvenation, not grand security strategies. The political 

capital expended on NAFTA approval, the determination to achieve a GATT 

agreement, and the willingness to endure the political risks of lifting the trade 

embargo on Vietnam provides evidence that the US President perceives a 

strong link between domestic economic recovery and international economic 

trade. 

 Evidence that the same kind of assessment has been made in China is 

abundant. "Socialism with Chinese characteristics" is the Party's new 

euphemism for Chinese capitalism. Clear signals exist that demonstrate the 

Chinese leadership's dedication to economic growth as the nation's number 

one priority. New career paths have emerged for clever revisionists who can 

accommodate Maoist Marxism to Western capitalism. 

 In both countries, new government structures and initiatives have 

arisen that demonstrate the importance placed by the state on economic issues. 

 For example, the Clinton Administration has established the National 
2

Economic Council as a counterpart to the National Security Council and 

appointed an Assistant Secretary of Defense for Economic Security. These 

structures represent a fundamentally new approach to the conduct of 

international economic affairs in an attempt to establish mechanisms for more 

unified policy coordination. 

 This paper will explore the shift in the nature of power in the postCold War international system, arguing that military strength has become 

inconsequential in the pursuit of our, or any industrialized nation's, most vital 

interests. Alternatively, states would do well to focus on the possibilities for 

exploitation of power through economic strength and economic 

interdependence. This research reviews the theoretical approaches to power 

and interdependence and applies these concepts to the bilateral relationship 

between the United States and the People's Republic of China. This case 

study suggests that: 1) the post-Cold War national interests of these two 

disparate countries typify the international shift to economics-based power, 

and 2) under carefully qualified circumstances, power can arise from 

asymmetries in economic interdependence--directly in issues related to trade, 

and indirectly with regard to security areas. 

The Nature of Power in the Post-Cold War Era 

 National security during the Cold War was conceived almost entirely 

in terms of military capabilities and preparedness. At the height of the Cold 

War, the U.S. was dedicating 6.5% of its GNP to defense and military 

spending.2

 Power was understood in terms of the "high politics" of military 

might versus the "low politics" of economic affairs and other non-military 

issues. Despite an anemic national economy, the USSR was perceived as a 

superpower whose military strength, client states, and seemingly expansionist 

foreign policy demanded an appropriate Western military response. 
3

 The collapse of the Soviet Empire has produced a sea change in 

international relations. The dramatic changes in Eastern Europe from 1989-91 

have moved competition among great powers away from the military sphere 

and into the economic arena. The 1991 Gulf War hardly dispels this notion in 

that all the major industrialized powers (with newfound tacit support from the 

Commonwealth of Independent States) cooperated in reversing the designs of 

a Third World dictator whose attempt to dominate Mideast oil supplies 

threatened their economic well-being. Nations now rush to downsize their 

military sector in order to free up money to position themselves more 

favorably in the pursuit of domestic and international goals. While military 

strength will continue to dominate outcomes in relationships regarding rogue 

states with underdeveloped economies (Iraq, Iran, North Korea), the use of 

military instruments for resolving disputes among industrialized countries has 

been all but banished in contemporary international politics. 

The Economic Dimensions of Power

 Increasingly, national power is conceived in terms of market share of 

the global economies, trade balances, debt postures, and technological 

prowess. Robert Keohane and Joseph Nye developed an alternative model to 

aide international relations theory's dominant paradigm, realism. Their 

alternative model, "complex interdependence", contains three features. 

 First, in an increasingly interdependent world, it is possible to 

conceive of an environment where physical security is not the overriding 

concern of the system's major actors. While survival remains the fundamental 

requirement for any state, for most major industrialized countries, the 

"perceived margin of safety has widened: fears of attack in general have 

declined and fears of attacks by one another are virtually nonexistent."3

Military force is thus relegated to a less dominant position with respect to 

power resources among industrialized states. 
4

 Secondly, multiple channels of communication exist, including not 

only formal state-to-state contacts, but transnational and transgovernmental 

actors as well. States remain important actors, but analysis that focuses 

exclusively on state interactions will miss important quantitative and 

qualitative activities affecting the international community. An example often 

mentioned in this regard is the relative autonomy of the international financial 

system. 

 Finally, where security concerns are not paramount, the hierarchy of 

issues breaks down. The interconnectedness of international society, 

emphasized by scholars writing from the "global village" perspective, creates 

a myriad of issues that demand the attention of the world's leaders. The four 

P's--population, proliferation, pollution, and poverty--must all be 

simultaneously addressed if human existence on this planet is to be 

maintained, let alone improved. 

 Writing in 1989, Keohane and Nye were careful to point out that 

their "complex interdependence" model represented an ideal type, not their 

interpretation of their contemporary environment.4

 Still, if realism and 

complex interdependence represent opposite ends of a theoretical spectrum, 

the events of 1990-91 have certainly, if perhaps temporarily, moved the 

pointer much closer to the complex interdependence end. The fall of 

communism and the incremental integration of former Warsaw Pact members 

into the Western Alliance have further demoted the importance of the military 

instrument among industrialized nations. Those who would point to the Gulf 

War as evidence of the specious nature of this argument miss the key point 

that such action against Third World aggressors hardly qualifies as a systemthreatening conflict among industrialized countries. On the contrary, the 

remarkable coalition built and maintained under U.S. leadership demonstrates 

the solidarity and commitment of the industrialized world to the preservation 

of the international order. 
5

 Multiple channels of interaction continue to proliferate. Transition to 

market economies in the former Soviet bloc have generated large outpours of 

venture capital to those countries as well as to the transformational communist 

regimes in Vietnam and China, adding new economic dimensions to recently 

established diplomatic relationships. Since the fall of the Berlin Wall, 

regional trade blocs have sprung up in Central Asia (the Economic 

Cooperation Organization which now includes the Muslim-dominated, former 

Soviet Republics) and North America (North American Free Trade 

Agreement, NAFTA) to compete with the European Union. The nucleus of a 

Pacific trade bloc has formed under the auspices of Asia-Pacific Economic 

Cooperation (APEC). A variety of multinational security arrangements have 

been proposed or employed, most notably the Partnership for Peace that 

associates former Warsaw Pact members with NATO. The West has 

encouraged the expansion of communication channels in order to integrate its 

Cold War antagonists into the liberal democratic capitalist system. 

 On the other hand, the assertion that the current post-Cold War 

environment resembles complex interdependence with regards to the absence 

of a hierarchy of issues is challengable. While physical security concerns 

among industrialized nations appear to have diminished, one should not 

conclude that all issues of importance to the international community are now 

on equal footing. It will be argued here that a hierarchy of issue structures 

continues to exist, albeit different than the Cold War version. Economic 

strength has replaced military prowess as the currency of power. Establishing 

the validity of this proposition is critical to this study in determining whether 

power in one aspect of a bilateral relationship is applicable across issue 

structures. More will be said about this topic later. 

 Finally, it is important to acknowledge the transitory nature of the 

current international environment. In Waltz's estimation, the world has 

witnessed only one systemic change - from the multipolar, pre-WWII era to 

the bi-polarity of the Cold War.5

 It may be too soon to suggest that Waltz's 
6

tote sheet be updated. The events that furthered the deemphasis of force as a 

tool for dispute resolution cannot be considered permanent, as irredentist 

forces continue their assault on the democratically elected leadership of 

Russia. Even so, just as recovery from a gunshot wound, instantaneously 

delivered, becomes agonizingly protracted, a Russian return to the military 

capabilities of 1989 would require vast sums of money over an extended 

period of time, a scenario that lacks plausibility given the current state of 

Russian society. 

 Just as complex interdependence can be criticized as inappropriate 

for the 1990's with regards to its dismissal of issue hierarchy, so too is 

realism's focus on physical security less relevant in contemporary international 

relations. Francis Fukiyama's notion of the end of history is not totally off the 

mark -- no "systems changing" events appear on the horizon. With the defeat 

of communism, and so long as Gramscian hegemony of capitalism continues 

to be accepted by the most economically powerful states, there is little threat 

to the current system. While military power may occasionally be necessary 

for discipline within the system (e.g., Iraq, North Korea), no state appears 

ready to challenge the ideological consensus of capitalism as the basis for 

world order. This point is reinforced by Rufus Yerxa, Deputy US Trade 

Representative, who claims simply "Economic relations will define 

international relations."6

 Thus, somewhere between realism and complex interdependence lies 

"economism": competition among nations is as keen as ever, multiple 

channels exist to express that competition, and economics has replaced 

military strength at the top of the issue hierarchy. The requirement for states 

to maintain and concern themselves with relative power is as appropriate as 

ever, but the resort to warfare among the industrialized nations to resolve their 

competition seems inconceivable. 

 Some would take issue that "economism" is substantially different 

than realism. Helge Hveem argues that criticisms of the realist school that 
7

focus on national security defined strictly in terms of physical security miss 

the point that economic security has always been an important aspect of a 

state's foreign policy. He believes the post-Cold War focus on economics can 

be accounted for within the framework of structural realism: "It is the context 

and dynamics of international systemic change that determine the relative 

weight of the two (and possibly other) aspects of security."7

 Implicit in 

Hveem's argument is that a change at the international systems level may once 

again subordinate economic security to physical security. While disputing this 

contention would seem rash, "economism" seems to distinguish the essence of 

the contemporary international environment from scholars who write in the 

classical realist tradition of power politics, war, and military strength as the 

foundation for international competition. 

 Even so, the notion that powerful states can consciously exploit 

economic power is suspect. It is becoming increasingly apparent that global 

economic markets drive national governments, not vice versa. With the 

collapse of a unifying security threat that distracted attention away from other 

problems and made economic sacrifices more palatable, governments are now 

held hostage to national economic performance. Yet, increasingly, their 

ability to control that performance has diminished.8

 For example, global 

currency markets trade about a trillion dollars per day. When the world's 17 

largest central banks attempted to prop up the US dollar in June of 1994, they 

collected about $5 billion to prop up the price of the dollar. Small wonder 

they had little effect. 

 Not only has the revolution in telecommunications and data 

transmission capabilities shaped this development, a consensus has formed 

among governments that markets do a better job anyway. Paul Krugman 

argues that "basically, governments have consented to a regime that allows 

markets to boss them around because the conventional wisdom, fed by 

experience, says that to throw up barriers to these market forces is to invite 
8

economic stagnation, if not disaster."9 As Thomas Friedman suggests, the role 

of national governments is to act as a broker for attracting their portion of this 

capital flow--sometimes directly, as in the case of the Boeing/McDonnell 

Douglas $6 billion airline deal with Saudi Arabia, or indirectly by following 

sound fiscal policies and by helping to assure currency stability.10

 Because the global market dominates national governments, 

politicians worry about accountability and sovereignty. The pace of regulation 

of the international market is far behind the speed of integration. Where 

supra-national organizations like GATT and the World Trade Organization are 

set up to deal with the problem, powerful nations like the United States 

concern themselves with the impact these organizations will have on their 

unilateral flexibility.11

 Arguably, they have little choice but to participate. In 1920, the US 

opted out of the League of Nations because of concern over sovereignty and 

freedom of action. Similarly, the US could have vetoed the completion of the 

Uruguay Round of GATT talks, but to do so would have undermined its own 

long-standing principles of trade liberalization. It would have also denied the 

US highly beneficial, if less than perfect, outcomes the negotiations produced. 

 Unlike security regimes, the new high politics of the global market and 

interdependence leave national governments with little discretion over 

involvement. 

Economics and Interdependence

 Interdependence as a construct for the examination of international 

relations has a long pedigree. Platitudes about the "ever shrinking world" of 

international society can be traced back to the turn of this century, as scholars 

began to hypothesize about the virtuous effects such interdependencies would 

bring for the global community. The mobility of people, knowledge, goods, 

and ideas would create bonds of need and community among the world's 
9

disparate nations, heightening cooperation and reducing conflict. In one of the 

Industrial Age's earliest and least prescient prognostications regarding the 

impact of international interdependence, an international organization blithely 

predicted in 1913 that: 

The peaceful settlement of international disputes . . . is being 

furthered by the recognition that is rapidly permeating the 

minds of the Western peoples that the world is a unit. The 

wits of diplomats are being sharpened by the discovery that 

war does not pay. The century . . . [has] produced an 

economic interweaving and interdependence of the nations 

that is without parallel in history.12

 Although some statistics suggest that contemporary 

"interconnectedness" is nothing new, Robert J. Art13 argues that several 

factors produce a unique kind of interdependence that raises the stakes that 

industrialized countries have in one another. First, international participation 

in free trade regimes (as typified by GATT) is much more widespread than in 

the previous century where, despite proclamations of the "era of free trade", 

tariffs remained relatively high. Second, citing Rosecrance, foreign 

investment has moved from the liquidity of stock portfolios to direct 

investment of domestic capital in foreign ventures.14 In this regard, the 

investor nation has a much greater stake in the welfare of his foreign partner. 

Finally, the flow of capital, largely uncontrolled by the state, absolutely 

dwarfs the amount of trade in goods (by a factor of at least 25, according to 

Peter Drucker15). 

 Obviously, this "interconnectedness" means that countries experience 

a "structural linkage of fates"16 wherein policy preferences are shaped and 

sometimes constrained by the desires of its global partners. Accordingly, 

states are necessarily sensitive to the policies and preferences of others; 

indeed, much of the literature defines interdependence in terms of this 

"sensitivity" dimension.17 Unfortunately, interdependence as 
10

"interconnectedness" is not very useful in understanding international power 

and influence: "the framework remains unchanged . . . a set of policies 

remains constant."18 Measures like sensitivity interdependence and 

interconnectedness are not unlike scorekeeping at athletic events -- results are 

tabulated but the game goes on. The analyst is usually more interested in how 

observed results are changing the game in progress or perhaps how the game 

will be played in the future. 

 While most observers believe global interdependence has increased 

since World War II, other theorists have suggested the opposite. In an 

influential Cold War formulation, Kenneth Waltz rejected interdependence as 

an empirical reality at the international systems level. This counterintuitive 

conclusion is readily understood when properly situated in Waltz's brand of 

structural realism: in the Cold War bi-polar world, the superpowers' spheres 

of influence were essentially closed to each other; interactions did not take 

place, therefore interconnectedness did not exist. Interdependence as 

"sensitivity" to external economic pressures made little sense when discussing 

East-West economic interaction. Like many others, Waltz believed 

interdependence is properly understood as "mutual vulnerability" and "mutual 

dependence" between parties. Interdependence as "interconnectedness" and 

"sensitivity" has no impact on the structure of the international system and is 

therefore of little concern in explaining international political behavior.19

 Like Waltz, many theorists have moved beyond analysis of 

interdependence as empirical interconnectivity, speculating on the 

consequences of this phenomenon with regards to the political effects of costs 

and benefits associated with close connectivity. These consequences divide 

many scholars into two camps: those that see interdependence as leading to 

ever increasing levels of cooperation, and those that forecast conflict as the 

result of interdependence.20 
11

 

Economic Dependence. 

 While the foregoing has discussed interdependence in terms of 

international interconnectedness, of most importance to the analyst are the 

circumstances under which politicians can exploit interconnectivity to achieve 

foreign policy ends. An important consideration in this regard is the often 

implicit assumption that interconnectedness is symmetrical; that is, all states 

are equally affected by the economic web that binds them together. Clearly, 

this is not the case. 

 The idea that economic relationships are asymmetrical with respect to 

the flow of capital, goods, and services introduces the concept of dependence. 

 David Baldwin21, following Raymond Duvall22, argues convincingly that 

"dependence" in international relations literature has most often referred to the 

costs associated with severing a bilateral relationship and, as such, equates to 

what Adam Smith, Albert Hirschman, and Kenneth Waltz have termed 

"vulnerability interdependence." This understanding is in contrast to 

dependence as covariance of international effects, i.e., the mere 

"interconnectedness" embodied by sensitivity interdependence. Thus, where 

the costs of a relationship are unequally distributed, a source of potential 

power arises.23

 In terms of definitional acuity, where does this leave us? This 

treatise seeks to determine whether power (control over international 

outcomes) springs from, or has a basis in, international economic 

interdependence. To fully frame the problem, the broader conception of 

interdependence shall be understood and defined here as containing two 

dimensions: scope and domain. 

 Scope refers to the number of actors involved within the issue to be 

examined. "Asymmetrical interdependence", "dependence", and 
12

"vulnerability interdependence" refer to bilateral relationships. The literature 

associated with "interconnectedness" and "sensitivity interdependence" 

generally refers to multilateral environments, where relationships are often 

depicted as cobwebs that binds countries together. Certainly, many other 

configurations are conceivable, such as trilateral relationships. 

 Domain refers to the issue area under consideration. 

Interdependencies can occur in international trade relationships, financial 

markets, security alliances, environmental control regimes, and so on. While 

interdependencies are intuitively applicable within an issue area, no a priori

assumptions are made about the appropriateness of interdependencies between

issue areas. Inter-issue area linkage is a specific area of inquiry for this 

research. 

 Domain can thus be viewed along two axes -- the vertical aspect of 

control over outcomes within bilateral, economic issue-areas (e.g., mostfavored nation (MFN) and textile negotiations between the US and China), 

and the horizontal, inter-issue area dimension. The latter suggests that postCold War economic power, unlike military power, is much more fungible 

across issue areas. The resulting asymmetries in economic dependence may 

produce a power base that can be exploited to shape desired outcomes in noneconomic concerns (for example, military, pollution, ocean rights, etc.). 

 The scope and domain dimensions allow us to differentiate between a 

diverse collection of interdependency issues such as the bilateral trade 

negotiations between the US and China (MFN), multilateral trade issues 

(GATT, NAFTA), bilateral security arrangements (NORAD), and multilateral 

environmental issues (Law of the Seas negotiations). Any explanation of a 

relationship one wishes to characterize as "interdependent" must explicitly 

describe these two dimensions. How are the payoffs to China and the United 

States different between the recently signed bilateral textile agreement and 

GATT? If the relationship between the US and China can be described as 
13

interdependent with regards to trade, can that label automatically be applied to 

the security domain? 

 The case studies that follow seek to explore the possibility that, 

where both countries in a bilateral relationship consider economic strength as 

their most important national interest, power through asymmetrical economic 

interdependence shapes outcomes not only within the economic arena but in 

other issue areas as well. Specifically, this study will examine the use of 

economic power to affect outcomes in US-China trade negotiations (vertical) 

and security concerns (horizontal).24

Trade and Interdependence

The foundation for this study is the trade relationship between the 

United States and the People's Republic of China. The issue of Most Favored 

Nation status for Chinese goods imported into the US has been the centerpiece 

of not only US-China economic relations but also as an indicator for the 

direction of all future US-Chinese strategic interactions. The importance of 

this trade relationship has not been underestimated by either side. As such, the 

US-China case study provides a classic opportunity to examine the 

interdependencies associated with international trade in the Post-Cold War 

world. 

 While Keohane and Nye's treatment of power and interdependence 

has garnered a majority of scholarly attention in recent years, many observers 

continue to view Albert Hirschman's National Power and the Structure of 

Foreign Trade (1945) as the seminal study of the nature of trade 

interdependencies.25 Hirschman distinguished two aspects of a policy 

designed to increase one country's power over another. The supply effect of 

foreign trade relates to the advantages in war-making potential derived from 

trade in armaments and strategic resources. Of more concern to us is what 

Hirschman labeled the influence effect of foreign trade -- the ability of one 
14

country to exploit another's dependency on the gains from trade derived by 

trading with the first. For Hirschman, Country A's power and influence over 

Country B can be increased through expansion of Country B's gains from 

trading with Country A. 

 The June 1994 US decision to continue Most Favored Nation status 

for the PRC presents a daunting challenge to this theory. The US attempt to 

"cash-in" on the alleged discrepancy in gains from trade (35% of Chinese 

exports go to the US vs. 1.9% of the US export market to China) clearly 

backfired. 

 While the explanation for the breakdown in Hirschman's theory will 

be explored intensively below, some preliminary observations are relevant 

here. Harrison Wagner identified a critical deficiency in Hirschman's analysis: 

 towards what end, in what ways, can a country exploit the power and 

influence it derives from an asymmetrical trade relationship? In effectively 

dismissing this question, Hirschman suggests that all things are possible: "We 

are here concerned only with the methods and conditions leading to this 

power, not with its possible uses which may be the reaping of advantages of 

any kind -- military and political, as well as economic."26 On the contrary, 

Wagner argues that the ability to exploit an advantage in trade for noneconomic ends is extremely contingent, never absolute. As we shall see 

below, Wagner's dictum is highly relevant to the MFN outcome. 

US-China Case Studies 

Post-Cold War National Interests: The United States 

 The Democratic victory in the 1992 Presidential election was widely 

interpreted as a mandate for a fundamental shift in the focus of the executive 

branch: from the foreign policy bias of George Bush to the domestic economic 

rejuvenation promised by Bill Clinton. The new President did not disappoint 

those expectations. Mr. Clinton's economic agenda was full, and his early 

accomplishments were impressive: meaningful deficit reduction legislation, 
15

major export enhancement programs, aggressive bilateral trade agreements, 

and important regional and global trade accords. The attention to domestic 

concerns, which many believe came at the expense of coherent foreign policy, 

prompted an anonymous commentator to suggest that "Bill Clinton thinks he 

has been elected Governor of the United States."27

 The prevalence of US economic rejuvenation found its way into the 

Clinton Administration's 1994 National Security Strategy (NSS). The NSS 

envisioned three components: military forces for defense and power 

projection, promotion of domestic economic prosperity, and support for 

democratic movements worldwide. According to one officer familiar with the 

development of the 1994 NSS, inclusion of this economic pillar caused 

consternation for military strategists who have had difficulty adapting 

economics into more comfortable Cold War definitions of security.28

 Economic growth and development as a formal component of US 

national security is a novel, but theoretically unsurprising, development. As 

the first post-Cold War president, Mr. Clinton felt that his primary 

constitutional requirement to "provide for the common defense" needed much 

less attention than does his concurrent obligation to "promote the general 

welfare" of the American people. Yet, the NSS went on to suggest that one of 

the first goals in promoting economic growth is federal deficit reduction.29

Considering that more than half of what has been called the "discretionary" 

portion of the federal budget is dedicated to defense, one might wonder about 

the temptation of robbing Peter (military forces) to pay Paul (roads, civilian 

research, etc.). 

 The primacy of economics in the Clinton Administration's definition 

of the national interest has been well established. Less well known is the 

centrality that economic development holds in the Chinese Communist Party's 

definition of their own national interests. 
16

Post-Cold War National Interests: The People's Republic of China.

 The images of Elvis, Jerry Lee Lewis, Chuck Berry and Mao Tsetung seem, to say the least, incongruous, as they stare down at the mere 

mortals from the fresco overlooking the customers at Beijing's Hard Rock 

Cafe. To the Western analyst, brought up on Cold War images of millions of 

dour Chinese communists in colorless, non-descript Mao jackets, Beijing in 

1994 required a new appreciation of the changes that drive contemporary 

international relations. Shopping malls, Mercedes, discos, and five-star hotels 

now mix with dirty, dimly-lit specialty shops and the struggling street vendors 

that line Beijing's crowded boulevards. Along Beijing's renowned 'Silk Alley', 

entrepreneurs in hundreds of closet-sized shops, jammed one against another 

in the city's Embassy section, hawk their famous Chinese silk apparel to an 

international clientele in a splash of color and capitalist zeal that rivals 

anything in the West. Construction is everywhere as new hotels, apartment 

buildings, and convention centers add new skyscrapers to the city's already 

impressive skyline. While friendliness abounds, Chinese authorities struggle 

to manage the social upheaval that necessarily accompanies the economic 

revolution which is transforming the PRC's urban landscape. 

 Probably no less significant than Mao Zedong’s Long March of the 

1930's, the latest revolution in Chinese society can be traced to the Third 

Plenary Session of the Communist Party’s 11th Central Committee which met 

in 1978. At this historic session, the Chinese Communist leaders abandoned 

the endless and divisive debate regarding the progress of the “class struggle”30

as the central focus of the Party’s efforts. In its place, a strategic decision was 

made to pursue economic construction as the Party’s central task. While the 

traditional Marxist distinctions between “productive forces” and the “relations 

of production” were still relevant, the latter was to take back seat to the former 

as the Party’s leadership attempted to revive the backward Chinese economy. 
17

 As a result of its latest “opening” in 1979, China now boasts the 

fastest growing economy in the world.31 Its annual growth rate has averaged 

9% since the reforms took hold and have reached 12.8% and 13.4% in 1992 

and 1993. The World Bank estimates that at present rates, by 2002, Greater 

China (PRC, Taiwan, Hong Kong) will have a nominal GDP of $2.5 trillion, 

which equates to a purchasing power of $9.8 trillion32, making it the largest in 

the world, slightly ahead of the US at $9.7 trillion. The PRC’s real GDP per 

capita has grown at 7.5% annually while exports have increased by 10% per 

year, both rates nearly triple that of the rest of the world.33 The annual report 

of the Pacific Economic Cooperation Council, which has consistently been 

within half a percentage point of regional economic growth predictions since 

1989, estimates that the Chinese economy will grow by 10% in 1994 and 8.2% 

in 1995 (compared to less than 4% in OECD countries).34

 International trade is a key ingredient in the PRC’s economic boom. 

The decade of the 90’s has witnessed a steady increase in both the United 

States’ and China’s total import and export volume (see Figure 1). In the 

PRC, trade now accounts for about one third of its gross national product.35

1990 1991 1992 1993 1994

0

200

400

600

800

1000

1200

1400

$ Billions

1990 1991 1992 1993 1994

China

United

States

Figure 1. Total Exports Plus Imports36
18

 China’s trade potential has not eluded US corporations. Motorola 

estimates that by 1997, China alone will account for half of the world demand 

for electronic pagers. Carrier has tripled its sales of air conditioners to Asia 

since 1986 to about $1 billion and now thinks that by 2000, Asia may account 

for half its sales, up from 5% in 1970.37

 Possibilities abound in other commercial areas as well. In the 

telecommunications field, China will be adding as many lines between 1992 

and 1997 as the US (18 million). China’s potential to the aviation industry is 

huge: the PRC was expected to account for a sixth of all world purchases of 

passenger aircraft in 1993 and is currently Boeing’s biggest customer. 

China’s immense population and growing economy will require enormous 

amounts of power generation capacity. Already the world's fourth biggest 

generator of electricity, China plans to add 15,000 megawatts of capacity 

every year for a decade.38

 The commitment to market economics has, to put it mildly, created 

tension in Chinese political, social, and educational sectors with regard to its 

communist ideological heritage. Founded on the back of Marxist-Leninism 

and carried forth by the legendary revolutionary Mao Zedong, the PRC is led 

by a new generation of moderates who struggle to reconcile today’s statesanctioned capitalism with yesterday’s anti-bourgeois dogmatism. The result 

has been a plethora of ad hoc theorizing.39

 Perhaps most remarkable is the idea that “there is no basic 

contradiction between socialism and a market economy.” Indeed, markets are 

to be used to unleash the inherently superior productive forces of socialist 

society.40 These theoretical innovations laid a new foundation for establishing 

the merits of economic policy. The three “provideds” are now the standards 

against which the people can judge the efficacy of all kinds of work: 
19

 - “Provided that a thing helps develop socialist social 

 productive forces” 

 - “Provided that it strengthens the combined national strength of 

socialist states” 

 - “Provided that it raises people’s living standards”41

Few political economists in the West would have a fundamental quarrel with 

such criteria. 

 Along with the challenge of managing a booming economy, Chinese 

officials also must overcome the spread of social problems which accompany 

this growth, particularly the millions of migrant workers whose displacement, 

low wages, and constant search for work create pockets of social unrest. Still, 

these problems have not deterred the Communist Party from staying the 

course when it comes to economic reform. The absolute centrality of 

sustained economic growth to the Party leadership is an unrequited theme: 

There is one center for all the work for the party and state, 

namely, economic construction, and this is a center from 

which we must not deviate. And we must not create other 

centers. Under normal circumstances, we must adhere to this 

center, and even under abnormal circumstances -- unless in 

cases like a massive enemy invasion -- we must also revolve 

closely around it.42

Neutral economic observers concur that the Chinese leadership is deadly 

serious about the economy’s place in the PRC’s policy hierarchy: “China’s 

great strength is its deep and pervasive commitment to economic growth as the 

supreme aim of national policy.”43 In this regard, national interests as 
20

perceived by both the Communist Party and the Clinton Administration seem 

close indeed; “there is one center” has the ring of “it’s the economy, stupid!” 

Case I: Most-Favored Nation (MFN) Decision

 Background. The preceding analysis suggests that both the PRC and 

the US place economic growth and development at the pinnacle of their 

national interests. The theories of Hirschman, et al, predict that when such 

strong mutual economic interests intersect, the ability to sway outcomes 

should gravitate in the direction of the actor who is less dependent upon the 

other. Based on the bilateral trade statistics described earlier, it would appear 

that the US enjoys substantial advantages over the PRC, at least in regards to 

trade matters. 

 The events surrounding the Clinton Administration's decision 

regarding Most Favored Nation status for China seem to support the theory. In 

January 1994, China acquiesced to US demands regarding trans-shipments of 

textiles exported to the US by China.44 In July and August of 1994, in a 

dispute over intellectual property rights (IPR), the US succeeded in pressuring 

the Chinese government to close down several compact disc factories involved 

in the illegal production of pirated material.45 In both instances, threats of 

economic sanctions and retaliations were successfully employed: reduction in 

import quotas in the textile case, withholding of US support for China's 

readmittance to GATT in the IPR dispute. 

 Although the US-China experience in the textile and IPR cases give 

credence to the argument that power arises from asymmetrical 

interdependence, in the theory's biggest test--renewal of China's Most-Favored 

Nation status--the US was unsuccessful in exploiting its apparent advantage in 

trade dependency. Far from influencing outcomes, the Clinton 

Administration's MFN policy resulted in a humiliating foreign policy defeat. 

Since the Sino-US MFN case constitutes the theory's most significant 
21

challenge, a critical analysis of the essential components of this case is 

necessary to test the efficacy of the Hirschman/Keohane and Nye theory. In 

this regard, a brief review of the stakes and events behind the case is required. 

 It is not difficult to understand the rationale behind Senator Max 

Baucus' warning that failure to renew China's MFN status would be "the trade 

equivalent of dropping a nuclear bomb." If trade statistics told the only story, 

it would seem that the US had a nuclear monopoly. In 1993, the US reported 

to the International Monetary Fund that China exported $32.4 billion of goods 

to America, representing 35% of China's total export market. Compared with 

$8.77 billion of US exports to China (1.9% of its export total). The resulting 

Chinese trade surplus vis-à-vis the United States ranged from $18 billion (in 

the President's MFN renewal announcement) to $24 billion, depending on the 

trade figures used.46 The Economic Policy Institute in Washington notes that 

the US's import/export ratio with China shows a wider imbalance that the 

much more high-profile Japanese trade problem.47 It would thus appear that 

the Chinese had much more to lose than the US. 

 These numbers have been the subject of fierce speculation and 

conflicting analysis,48 particularly by PRC officials, who dispute them. China 

complains that the US statistics wrongfully include Chinese exports to Hong 

Kong that are transshipped to the US for additional profit. US trade officials 

counter that the Hong Kong dealers are mere fronts for Chinese exporters. 

The picture becomes more muddled with the realization that none of these 

figures (nor world trade statistics in general) reflect money made by national 

enterprises operating in foreign markets.49

 Regardless of which figures were correct, no one denied that the loss 

of China's trade with the US would be devastating to the PRC economy, a fact 

highlighted by the International Monetary Funds’ statistics in Table 1 

 Total Exports/ Total Imports/ % Exports to % of 
22

% of World 

Total 

of World Total Trade 

Partner 

Nation’s 

Export 

Total 

United 

States 

$666 Billion/ 

15.9% 

$553 Billion/ 

12.8% 

To China: 

$9.29 B 

 

 1.4% 

 China $121Billion/ 

2.9% 

$191 Billion/ 

4.4% 

To U.S.: 

$41.36 B 

 

34.0% 

Total world exports: $4.185 trillion 

Total world imports: $4.312 trillion 

 US imports from China 7.48% of its total imports 

 China imports from US 4.86% of its total imports 

Table 1. 1994 U.S.-China Trade Statistics50

 The World Bank claimed that revocation of MFN status would raise 

tariffs on Chinese goods by five to ten times, resulting in a decrease of 

Chinese exports to the US anywhere from 42 to 96 percent.51 Obviously 

Beijing would retaliate, but the impact would clearly be far less on US exports 

and the US economy as a whole. Analysis also suggested that the enormous 

drop in Chinese exports would cost the regime over 1 million jobs.52

 Of course, trade statistics do not tell the entire story. Key segments 

of the American economy are tightly integrated with the Chinese market and 

would have been seriously impacted by a trade cut-off. Certainly, many of 

these industries also had the high-powered cover of influential lobbyists and 

interest groups. They included the Footware Distributors and Retailers of 

America, who pushed the fact that 55% of the shoes sold in America are 

imported from China. The Toy Manufacturers of America noted that 44% of 

the toys exported to the US, a figure approaching $3.7 billion, came from 

China.53 The US-China Business Council estimated that, in the next five 

years, the market for telecommunications in China would approach $30 

billion; in the next three years, the market for auto parts will total $29 

billion.54 Fifteen percent of all textiles shipped to the US come from China, as 

do 6% of all clothes sold in America.55 Retailers such as the Gap, Sears, J.C. 
23

Penny, Kmart, and Walmart faced sharp price increases if China's MFN status 

was eliminated. They actively promoted MFN renewal through their interest 

group representatives. At risk for Boeing was a $5 billion contract to supply 

aircraft and services to the PRC.56

 Retail sales levels and billion dollar contracts translate into domestic 

jobs. In the high technology field alone, Secretary of State Christopher 

estimated that 170,000 US jobs depended on trade with China.57 Other 

estimates range from 150,000 to 200,000.58 For an Administration that 

campaigned and politically sustained itself on job creation figures, the 

magnitude of these numbers was impossible to ignore. 

 While President Clinton was threatening the Chinese with severing 

economic ties, the international competition lobbied intensively to expand 

their influence in the PRC. In a move reminiscent of Mr. Clinton's Oval 

Office joint announcement of a $6 billion aviation deal with Saudi Arabia, 

Chancellor Helmut Kohl visited Beijing in November 1993 with 40 German 

businessmen and came away with $4 billion in contracts and letters of intent.59

Kohl also lobbied hard for construction of a $1 billion Mercedes-Benz 

minivan plant in China while the main competition, Chrysler, awaited the 

MFN decision.60

 In addition to severely handicapping US domestic retail sales, 

corporate profits, and the Chinese export market, failure to renew MFN status 

threatened bilateral benefits derived from foreign direct investment (FDI). 

The World Bank reported that China was the largest recipient of external 

finance in 1993: $15 billion of the $27 billion total external finance flows to 

China was FDI.61 By the end of June 1994, China had approved a total of 

199,678 foreign investment projects. More than $266 billion had been 

pledged, while $76.6 billion was actually invested.62 Foreign ventures 

accounted for a third of China's foreign trade volume in first half of 1994.63

Certainly, the US was a major player in the growth of FDI -- more than 550 
24

US companies have offices in Beijing, and US firms invested nearly $3 billion 

there in 1993 alone.64

 With the stakes so high on both sides, it seems surprising that the two 

powers would have engaged in such reckless economic brinkmanship. The 

events leading up to the June 1994 decision point are instructive in assessing 

foreign policy development in the post-Cold War era of "economism." 

 Economic Brinkmanship. In the early months of 1994, the Clinton 

Administration continued to transmit mixed signals regarding the 

Administration's stance on MFN renewal. Within days of each other, two 

separate Administration officials visiting Beijing conveyed opposing messages 

regarding US policy on human rights and bilateral trade.65

 The unraveling of the Administration's obtuse MFN strategy 

culminated in the disastrous visit of Secretary of State Warren Christopher the 

week of 11 March 1994. Mr. Christopher had advertised the purpose of his 

trip as "inform[ing] China's leaders of the urgent need to make further 

progress on human rights."66 Variously lambasted by American commentators 

as "a humiliation"67, "a kick in the teeth"68, and "a diplomatic calamity"69, 

Mr. Christopher's visit was preceded by continued dissident arrests70 and a 

general deterioration of the political atmosphere.71 Arriving amidst Beijing’s 

flaunting disregard for US human rights concerns, Mr. Christopher was next 

subjected to a lunchtime gathering of the American Chamber of Commerce, 

Beijing, who exhorted the Secretary to push for MFN renewal. Representing 

the Chamber's 300 member companies, senior officials from AT&T and 

General Electric extolled the virtues of the free market system's impact on 

China's human rights progress: "The important part is that the [human rights] 

trend-line is moving in the right direction. It is going and it is continuing, and 

what is driving it is economics." They warned of the dire consequences for 

American economic prosperity should MFN not be renewed: "Choices for 
25

American companies . . . are stark. Either we establish a major presence in the 

China market, or we forget about being a global player."72

 Against this twin barrage from both Chinese and American quarters, 

Secretary Christopher felt compelled to defend his trip and his human rights 

message in a series of press conferences in Beijing and soon after his return to 

the US. On three different occasions during a Beijing press conference on 13 

March, Mr. Christopher claimed the Administration's China policy enjoyed 

support from "both houses of Congress." He repeatedly made reference to a 

letter he received on the eve of his departure signed by 275 members of the 

House of Representatives supporting the link between human rights and MFN. 

 The need to continually invoke this mandate from the Legislative Branch 

belied the defensiveness felt by the Administration in the wake of the visit's 

disappointing results. Although some progress in the US human rights 

demands was cited, Secretary Christopher admitted that more progress was 

needed, particularly with regard to the release of political prisoners.73

 The response to Mr. Christopher's trip produced consternation at the 

highest levels in the Administration. President Clinton reportedly erupted in 

frustration: "What the hell is Chris doing there now?"74 He later told reporters 

he was "disappointed" with the trip and made no public effort to back his 

Secretary of State's actions.75 Confronted by 17 "rattled" finance ministers 

from around the Pacific Rim at a Hawaiian meeting following the Christopher 

trip, Secretary of the Treasury Bentsen urged that a compromise be found such 

that MFN status could be renewed.76

 The Chinese were similarly unimpressed with the Christopher visit. 

With the US clearly on the ropes, Foreign Minister Qian Qichen suggested 

that the importance of China's trade with the US had been exaggerated: "For 

23 years before President Nixon opened the door of relations between China 

and the United States there was no trade whatsoever between China and the 

United States. I think you lived quite well. And so did we."77
26

 On May 26th, President Clinton announced that although "the 

Chinese did not achieve overall significant progress in all the areas outlined in 

the executive order relating to human rights . . . I have decided that the United 

States should renew most-favored-nation trading status toward China."78

Citing his continued commitment to human rights in China, Mr. Clinton 

reemphasized his commitment to a policy of engagement with the PRC as the 

best course of action for achieving his human rights agenda in China. 

Following the recommendations of his senior policy advisors, most notably 

Secretary Bentsen, President Clinton elected to de-link MFN status from 

human rights, arguing that "we have reached the end of the usefulness of that 

policy."79 His decision did, however, contain several fairly inconsequential 

sanctions, including a ban on the import of Chinese munitions, and the 

maintenance of the post-Tiananmen Square sanctions.80

 To many in the West, Beijing's behavior prior to Christopher's visit 

could hardly be considered deft diplomatic maneuvering. With the stakes so 

high, the harsh treatment of the US Secretary of State, given the much more 

practical alternatives, seemed baffling. Some suggest a Clinton-esque lack of 

cohesion on the part of the Chinese government, wherein a hard-line faction, 

headed by the Public Security Bureau bent on maintaining public order, 

battled the more conciliatory State Council, favoring rapprochement with the 

US on the MFN issue.81 Others discerned a more purposeful and unified 

approach in the government's actions, hypothesizing that a show of strength 

towards the US was necessary to buy-off hard-liners, an opportunity that was 

more tangible given the weakness of the US position.82

 Lessons Learned. While some commentators suggested that US 

leverage over China was extremely limited83, others argued "America has a lot 

more leverage over China than it ever exercised in the years of George Bush's 

Presidency."84 What does the Sino-US bilateral trade relationship teach us 

about power and economic interdependence? How does one explain success 
27

in producing favorable outcomes in some bilateral economic issues (textiles, 

intellectual property rights) while failing in the most important test (MFN)? 

 One answer lies in restating a fundamental difference between the US 

and China: the American state is beholden to and responsible to those whom 

elected it. In the post-Cold War era, elected governments must assume 

responsibility for economic growth and well-being. As George Bush now 

understands, if economic welfare is not provided for, governments are 

removed. Thus, the management of foreign trade and its impact on economic 

factors (usually translated into domestic jobs) is critical for the continuance in 

power of the elected government. In authoritarian China, where power is held 

by the unelected Party, poor economic performance does not translate into 

removal from office. Thus, China, despite the fact that trade with the US is an 

essential component of their economic well-being, can resist without fear of 

loss of control over political power. In such a case, we may be comparing 

apples and oranges. The policies that would likely be pursued between two 

elected governments may not apply between different forms of government. 

 A second insight is provided by what Harsanyi describes as the 

Blackmailer's Fallacy.85 A blackmailer, who could cause $1000 of damage to 

a wealthy man, assumes he can extort $999 from his would-be victim since 

this sum represents the marginal break point at which the rich man derives 

some "benefit" from complying with the blackmailer's demands. However, as 

Harsanyi points out, the victim could just as well argue that the blackmailer 

would prefer getting $1 in ransom rather than carrying out his threat and 

receiving nothing. The actual payoff from this confrontation, assuming away 

complicating external factors such as police involvement, is somewhere 

between $1 and $999, and the presumed ultimatum is actually a bargaining 

game. 

 In the case of the US-China trade relationship, the "ultimatum" that a 

political concession (progress in human rights) must be surrendered for 

continued trade advantages was exposed by the Chinese as a delusory fallacy. 
28

 This sort of ultimatum assumes that imposition of trade penalties on China 

has no impact on the US; the loss of a $24 billion bilateral trade surplus for 

China results in no corresponding cost to the US in carrying out its threat. 

While a decision to revoke MFN would have an undeniable impact, the 

Chinese can afford to reject the terms offered and presume the US would be 

willing to accept the minimal payoff (perhaps vague intentions to examine US 

human rights concerns) rather than carry out its threat. The US "blackmailer" 

failed to understand what the Chinese "victim" knew: this ultimatum was 

really a bargaining game whose outcome was likely to fall somewhere 

between the two extremes depending on each party’s willingness to accept 

risk. 

 Certainly, Chinese attitudes toward risk may be fundamentally 

different than those of the United States. To the Chinese Communist Party, 

loss of political legitimacy and control is not worth a $24 billion trade surplus 

or even a figure much higher. Further complicating the issue was the desire to 

conduct the game in an atmosphere of high profile international attention, a 

circumstance that may have turned what should have been a negotiating 

session into a game of international "chicken." 

 Finally, we should return to the analysis of Harrison Wagner 

regarding bargaining theory. Wagner wants us to focus more on the 

evaluation of the relative importance of the political concession demanded and 

less on an evaluation of the trade relationship: 

If governments are bargaining over some political 

concession that one government has demanded of another, 

their evaluations of their trading relationship tell us nothing 

about their evaluations of the political concession that is at 

stake in their negotiations . . . in fact, the commonsense 

ideas underlying Hirschman's analysis . . . are useless in 

telling us when one government can use the threat of 

interrupting trade to extract political concessions from 

another. 
29

The concessions demanded in the textile and IPR negotiations were confined 

to technical matters regarding trade, whereas the concession demanded by the 

US in the MFN decision was perceived as a US incursion on the Chinese 

leadership's sense of political legitimacy and sovereignty. While 35% of the 

PRC export market represents a huge payoff "controlled" by the US, the 

political, social, or economic costs to the PRC of accepting the US terms are 

left unaddressed. Moreover, as the Kohl trip to Beijing points out, the alleged 

dependence of the PRC on the US as an export market fails to address 

alternative sources for maintenance of that payoff, especially viable in an 

international system characterized by the "interconnectedness" version of 

interdependence. 

 The MFN case suggests that, for conflict confined to a case of 

"vertical" interdependence (i.e., within the economic issue-area), a state might 

not get much out of linking trade with issues that strike at the heart of its 

partner's internal political power and control. On the other hand, leverage 

seems possible for "vertical" issues that have few internal political overtones. 

Whether this analysis applies to areas of "horizontal" interdependence, 

particularly the relationship between economic and security issues, remains to 

be seen. 

 Finally, as a postscript to the MFN story, it is interesting to speculate 

on the future of US human rights policy. If, as one of my professors once 

remarked, Wilsonian liberalism has always been the "touchstone" of American 

foreign policy, President Clinton's MFN decision may have been its death 

knell. Just as "only Nixon could do China", so too would it take someone with 

the Camelot-ian idealist credentials of Bill Clinton, to expunge as a key 

foreign policy theme, the struggle for human rights and self-determination, in 

favor of more pragmatic domestic economic concerns. Ever since Tiananmen 

Square, the US has clung reluctantly to the preeminence of human rights over 

potentially grander themes in the Sino-US relationship (security collaboration, 

economic cooperation). With the 1994 permanent delinking of human rights 
30

from US-Chinese trade relationships, Mr. Clinton succumbed to the 

imperatives of post-Cold War "economism." 

 We have seen that under appropriate circumstances, asymmetries in 

bilateral trade relationships can translate into sources of power within 

economic structures of international relations. We are next interested in 

whether, and to what degree, a country's economic power is useful in 

obtaining desirable outcomes in the area of military security. This study 

examines two security issues of importance to the US and China, proliferation 

and the North Korean nuclear weapons program. 

Case II: Proliferation

 In addition to the steady build-up of PRC military capabilities86, 

Sino-U.S. relations have been strained over the on-going dispute regarding 

Chinese weapons proliferation to other Third World countries, particularly 

those that the U.S. regards as rogue nations. The Clinton Administration's 

1993 Bottom-Up Review and 1994 National Security Strategy cited 

proliferation of weapons of mass destruction as one of the top threats to 

national security. 

 During the Cold War, use of the China card in the US-Soviet poker 

match was considered more important than the relatively lower-level concerns 

of Chinese proliferation. The watershed events at the turn of the decade, 

however--the collapse of the Soviet Union, Tiananmen Square, and the 

Persian Gulf War--elevated Chinese proliferation on the US security agenda, 

as the strategic importance of the PRC as a counterbalance to the USSR 

disappeared. Likewise, the Allied victory in the Gulf War revealed the scope 

of the Iraqi nuclear weapons development program and alerted the West to the 

dangers of indiscriminate third-party transfer of technology for weapons of 

mass destruction. Western concerns regarding China's weapons proliferation 

activities revolve around two main issues -- ballistic missile and nuclear 

technology transfers. 
31

Chinese Proliferation of Ballistic Missiles. Since the early 1980's, 

China has been linked to the sale and transfer of ballistic missiles and/or 

ballistic missile technology to Saudi Arabia, Syria, Iran, and Pakistan. 

 China secretly sold 36 DF-3 (Dong Feng) Intermediate Range 

Ballistic Missiles (IRBM) to Saudi Arabia during the Iran-Iraq War, a 

transaction reportedly worth more than $3 billion. The Saudi's approached the 

Chinese after the US Congress rejected the Reagan Administration's attempts 

to sell more F-15 fighters to Riyadh than the previously imposed limit of 60. 

The Saudi's claimed they needed the missiles as a deterrent to Iranian missile 

attacks. Although the DF-3 was designed by the Chinese to carry nuclear 

warheads, the Saudi's (and later the Chinese) assured the US that the missiles 

they received had been modified to carry only conventional munitions. While 

the profit potential from the sale was certainly a motivation for Beijing, some 

have suggested that Beijing was also interested in cutting into the Saudi 

relationship with Taiwan (one of the few remaining countries still maintaining 

diplomatic relations with Taipei). In fact, within two years of the missile sale, 

Saudi Arabia dropped its recognition of Taiwan in favor of the PRC. 

 China has also actively marketed the shorter-range M-9 SRBM to 

Middle East countries (reportedly Syria and Iran), and the M-11, primarily to 

Pakistan. Export of both of these solid-fuel, mobile missiles violate Missile 

Technology Control Regime (MTCR)87 guidelines. However, in November 

of 1991, China agreed to abide by the MTCR as part of a deal that would have 

Washington lift the first set of sanctions imposed on China in June 1991 for 

the transfer of missile technology to Pakistan. This was done in March 1992. 

 Still, Beijing's commitment to the MTCR remained questionable. In 

August of 1993, the US determined that China had transferred M-11 missilerelated components to Pakistan during 1992, which, by law, required the 

imposition of sanctions once again on both Chinese and Pakistani firms. The 

largest impact of these sanctions was on the export of four US satellites built 

by Hughes and Martin Marietta scheduled for launch by the PRC (satellite 
32

components are in the MTCR annex of prohibited items if they are destined 

for export to those countries found to be in violation of the terms of the 

regime).88

 Once again, Washington seemed less than enthusiastic about 

following through with the sanctions it had imposed. The Washington Post

reported that the Clinton Administration had officially proposed waiving the 

sanctions in November 1993 (just prior to the President's Asia-Pacific 

Economic Cooperation (APEC) meetings with Chinese President Jiang Zemin 

in Seattle), presumably in exchange for a more formal Chinese commitment to 

the MTCR. Although this initiative failed to produce an agreement in time for 

the APEC meeting, the offer was subsequently accepted in October of 1994 in 

a highly publicized agreement signed by Secretary of State Christopher and 

Foreign Minister Qian Qichen in Washington.89 In that accord, the PRC 

agreed to abide by nearly all the provisions of the MTCR without formally 

becoming a member. The US, in turn, lifted the ban on satellite technology 

transfer, clearing the way for sales totaling several hundred million dollars. It 

is important to note that this post-MFN agreement on missile technology 

proliferation was essentially identical to the one rejected by the Chinese prior 

to renewal of their MFN status. 

Chinese Proliferation of Nuclear Technology. Equally troubling for 

Western democracies is China's cavalier attitude regarding recipients of its 

nuclear technology. Although a member of the Nuclear Nonproliferation 

Treaty since 1992, China has been linked with nuclear technology transfers to 

Pakistan, Algeria, Syria, Iraq, and Iran. 

 China has reportedly supplied Pakistan (not a signatory to the NPT) 

with weapons grade uranium90, tritium (used to achieve fusion in hydrogen 

bombs)91, and even a design for a 25 kiloton implosion device.92 China has 

also signed a contract to build a 300 megawatt nuclear power reactor for 

Pakistan even though Japan, Germany, and France have reportedly denied 
33

provision of nuclear supporting systems for this reactor in accordance with 

Nuclear Suppliers Group policy. Despite this lack of Western support, China 

believes the reactor can be complete by the year 2000. China's past problems 

with nuclear-capable India are reflected in the cozy nuclear relationship with 

Pakistan, a partnership that is foreboding given continued India-Pakistani 

animosity. 

 To date, Chinese nuclear technology support to Iran has fallen 

generally within the framework of the NPT, to which Iran is a signatory. 

Despite US protests, two 300 megawatt nuclear reactors had been planned for 

export to Iran. However, in further evidence of the prominence of 

“economism”, the Chinese canceled the deal in September of 1995, due in 

part, at least, to the fear that the US would withhold advanced nuclear energy 

technology needed for China’s own future energy requirements.93 

 IAEA teams have also investigated Iranian sites in pre-announced 

inspections and found no NPT violations. Still, the US and others fear the 

transfer of dual-use technology to this Islamic fundamentalist state, whose 

ambitions in the region are suspect and whose nuclear motivations are easily 

discernible in light of the nuclear postures and aspirations of Israel, Iraq, and 

others in the Mideast. As Iraq demonstrated, a covert nuclear weapons 

program is possible even where a country is a member of the NPT, and IAEA 

safeguards are in place. Moreover, many observers question the Iranian need 

for nuclear power in a country that is energy-rich. The Iranians are also 

involved in a $2 billion-a-year military buildup and have attempted to import 

nuclear components that are inconsistent with a peaceful nuclear power 

program.

94

 CIA Director James Woolsey has testified that China's nuclear 

relationship with Iran, Syria, and Algeria all appear to be NPT-compliant, 

although the Pakistani-PRC connection is "of greater concern."95 China does 

not require IAEA safeguards on all nuclear materials transferred and it is not a 
34

member of the Nuclear Suppliers Group. Continued Chinese secrecy in 

ballistic missile and nuclear-related material transfers remain a concern for 

Western countries. 

 However, some analysts have argued that rather than deriving a grand 

geostrategic design, Chinese weapons proliferation results from fragmented, 

autonomous, and uncooperative decision-making cells within the PRC defense 

establishment. Complex, family-connected networks operate across military 

organizations, government ministries, and nominal civilian corporations. 

These networks can be unresponsive to central direction from the Ministry of 

Foreign Affairs, who must deal with the protests of foreign governments. 

Because arms sales continue to provide much-needed hard currency to their 

organizations (and powerful individuals as well), these autonomous networks 

have little incentive to bend to international, or even internal, pressure. In an 

examination of the Chinese sale of DF-3 missiles to Saudi Arabia (negotiated 

by Poly Technologies, an ostensibly civilian corporation run by the PLA), 

researchers report that when the Foreign Ministry objected to the sale, the 

issue was presented to Deng Xiaoping. When told that the sale had produced 

a profit of two billion dollars, Deng replied, 'bu shao' (not little). The matter 

was thereby closed, and the ministry lost the argument.96

 Analysis: The US Response. The troublesome nature of the Chinese 

military build-up, nuclear technology transfers, and arms export programs 

once again leads us back to an examination of power, interdependence, and 

control over outcomes. Can the US prevent, or otherwise limit, PRC behavior 

in the security realm that it finds unacceptable? To what extent are (or could) 

the available options (be) tied to economic interdependence? 

 If proliferation is the top new danger to US security interests, then the 

irresolute US response to Chinese proliferation activities demonstrates that at 

least this Administration has substituted the "low politics" of economics for 

the "high politics" of military security. During the Cold War, the problem was 

conceptualized in terms of geostrategic politics straight from the Realist 
35

school; in the post-Cold War era, the imperatives of economism and the 

attendant repercussions for domestic politics make economic confrontation 

unpalatable for a politician interested in keeping his job. As Congressional 

Research Service analyst Shirley Kan has suggested97, US willingness to 

invoke its substantial economic leverage as part of a strategy to change 

Chinese proliferation behavior has never been seriously pursued. Because of 

the autonomous nature of the Chinese arms export operation, others suggest 

any committed effort to invoke sanctions would prove futile anyway.98

 Certainly, half-hearted unilateral attempts have been made to punish 

Chinese proliferation through economic means. Sanctions have been imposed 

on targeted industries and companies in the PRC by both Republican and 

Democratic administrations. However, as we have seen with the MTCRrelated sanctions on satellite and high-speed computer equipment, any 

Administration that attempts to punish China through economic means is 

immediately confronted by a phalanx of opposing interest groups ranging 

from powerful industry representatives, who are quick to mobilize "jobs" and 

"competitiveness" arguments, to Pentagon officials who wish to avoid 

alienating China in acknowledgment of Beijing's influence over regional 

security issues (most recently, North Korea). Even within the Administration, 

officials from the State and Commerce Departments often find themselves at 

odds when sanctions loom. 

 Similarly, members of Congress find themselves less enthusiastic in 

the degree to which they are willing to legislate punishment of the PRC. 

Immediately after Tiananmen Square, strong support was generated for 

linking broad-based conditionalities to China's MFN renewal, including 

expansive non-proliferation requirements. That enthusiasm has waned as 

Tiananmen fades from memory. Since the end of the Cold War, neither the 

Bush nor Clinton Administrations favored explicit ties between MFN and 
36

proliferation issues, both seeking to handle these two issues in separate 

forums. 

 Still, the legislative tool has not been forsworn as a unilateral 

measure; both the Arms Export Control Act and Export Administration Act 

remain in effect and have been supplemented by the Iran-Iraq 

Nonproliferation Act, enacted as part of the FY 1993 Defense bill. This new 

law requires sanctions on any country transferring goods or technology 

(including dual-use items, training, and/or information) that could be used in 

the development of weapons of mass destruction. Sanctions include 

suspension of economic and military assistance. In the summer of 1993, bills 

were introduced that would expand the level of sanctions on countries dealing 

with Iran and Iraq to include financial assistance and coproduction/development programs.99 As past experience has shown, US 

willingness to apply such sanctions to China as a result of this meant-forpublic-consumption legislation remains dubious. 

 For the Clinton Administration, export control hardly seems the 

issue. So far, the pace of US export deregulation has far outstripped that of 

unilateral export control measures. Following his economic security theme, 

President Clinton has institutionalized a new General License (GLX) that 

extensively decontrols export of telecommunications equipment and 

computers (raising the threshold at which export licenses are required to 1 

billion theoretical operations per second, a four-fold increase). 

 Not surprisingly, American business applauds the rapid pace of 

decontrol. AT&T estimates that the new regulations could have a $100 

million per year impact on its overseas business. Dick Iverson, President of 

American Electronics Association, cites billions of dollars of additional 

exports for America's high tech companies." One commentator notes gleefully 

that the "national security nerds in the Defense Department and the 

intelligence community, worshippers of Richard Perle's mid-1980's arguments 

that the Soviets would use PCs to target their ICBMs, are now running for 
37

cover, having been flushed from their impregnable fortifications that date back 

to the 12 years of Reagan-Bush export control ideology.100

 Whereas US unilateral approaches appear ambiguous, bilateral 

initiatives regarding proliferation have been confined to an increase in 

informal, high-level military-to-military contacts. Beginning in November 

1993, military contacts between Washington and Beijing were resumed 

following their prolonged freeze in the aftermath of Tiananmen Square. 

Assistant Secretary of Defense Freeman's visit to Beijing resulted in the 

establishment of the Defense Conversion Commission, a bilateral initiative 

designed to explore ways to convert outmoded Chinese defense industries into 

money-making domestic plants. Several site-survey visits to China were 

planned by Pentagon officials in the wake of the Assistant Secretary's visit.101

While not particularly significant in strictly military terms, the Defense 

Conversion Commission is best characterized as a confidence-building 

measure and a stepping-stone to more concrete military cooperation. 

 In the policy debate leading up to the 1994 MFN decision, influential 

offices in the Pentagon expressed concern for the future health of this 

emerging military relationship. The DoD position was that long-term, 

strategic interests should drive US policy towards China and that termination 

of MFN status would jeopardize on-going initiatives and the maintenance of 

smooth relations. Key offices in the Pentagon believed the DoD position was 

significant in the decision to renew China's MFN status.102 Similarly, had 

MFN status not been renewed, the Air Attaché in Beijing was convinced that 

"we would have had very little to do."103

 Recent evidence suggests that bilateral approaches are not confined 

to security matters. In the months leading up to the May 1994 MFN renewal 

decision, the Chinese had repeatedly told American officials that for reasons 

of domestic politics, Beijing could respond better to the issue of human rights 

if the US quit threatening them with trade punishments. In announcing the 
38

President's decision to Ambassador Li Daoyu, Assistant Secretary of State for 

Asian Affairs Winston Lord reportedly told the Ambassador that "You said 

this way was going to be more productive. Now prove it."104 The Chinese 

may be doing just that. On 30 August 1994, during Secretary Brown's postMFN trip to Beijing, China, apparently without provocation, announced it was 

willing to reopen the dialogue with Washington over human rights. Most 

observers see the move as a reward to the US for severing the MFN link 

between trade and human rights. If this gesture proves sincere, a new era of 

bilateral approaches to Sino-US problem-solving may be unfolding -- 

including new hope for a reduction in the spread of weapons of mass 

destruction. 

 The US may wish to rely on multilateral approaches to the problem 

of Chinese weapons proliferation. Both President Clinton and Secretary of 

State Christopher have recommended a resumption of the Five Power Talks, 

in particular urging Chinese participation. Of course, the West would most 

like to see formal Chinese accession to the MTCR and more transparency in 

its commitment to the NPT. Chinese support in the UN Security Council for 

tougher IAEA enforcement powers would go a long way in demonstrating 

Beijing's anti-proliferation resolve. Similarly, the nuclear powers and China's 

neighbors will likely seek China's commitment to the Nuclear Suppliers Group 

and the Australia Group (for chemical and biological weapons). Also, many 

of the non-nuclear countries tie their support of non-proliferation programs to 

the nuclear powers' conclusion of a Comprehensive Test Ban Treaty. Recent 

Chinese nuclear weapons tests, conducted despite international pressure to 

desist, indicates that a CTB may prove elusive. Still, many commentators 

predict Chinese acquiescence to formal membership in these multilateral 

regimes since they provide the great-power prestige long sought by Beijing. 

 One final multilateral forum for reduction of Chinese proliferation 

activities centers around the follow-on regime to the now defunct COCOM 

(Coordinating Committee on Multilateral Export Controls). Originally a 17-
39

country institution whose purpose was to deny high technology to the Soviet 

bloc, COCOM has outlived its usefulness in the post-Cold War era. Although 

COCOM's target has disappeared, the underlying premise remains the same -- 

stopping the proliferation of weapons and weapons technology to countries 

deemed a threat to COCOM member nations.105

 Many of the battles COCOM members fought were not directed at 

the Soviet bear, but at each other. Member countries often resisted US 

leadership regarding the extent of the items to be banned from export to the 

Warsaw Pact. The fractious nature of this loose coalition was most clearly 

evident over the uproar concerning the Reagan Administration's 1982 

sanctions on European firms working with the USSR on the trans-Siberian 

natural gas pipeline, and the 1988 debacle regarding the Toshiba-Kongsberg 

transfer to the Soviet Union of precision milling equipment, useful in the 

manufacture of stealthy submarine propellers.106

 The history of COCOM provides no comfort for those hoping for 

more cohesive non-proliferation regimes in the post-Cold War era. Yet efforts 

are underway to craft a 21st century replacement, which would target a new 

set of threats. The source of those threats is no surprise -- mainly Middle 

Eastern "rogue" nations such as Iran, Iraq, and Syria. While the US Congress 

continues its unilateral efforts to pass new legislation that updates the Export 

Administration Act of 1979, negotiations have been completed regarding 

COCOM's successor, tentatively being referred to as “The New Forum.”107 

Membership in the new regime includes NATO members as well as Japan, 

Austria, Finland, Switzerland, Sweden, Luxembourg, Australia, the Czech 

Republic, Slovak Republic, Hungary, Poland, New Zealand, and, most 

noteworthy, Russia. 

 Noticeably absent from this line-up is, of course, the People's 

Republic of China. As Dr. Chris Szymanski has noted, "excluding China from 

the MTCR was the big mistake of the 80's; leaving them out of a post-
40

COCOM regime will be the big mistake of the 90's."108 As Dr. Szymanski and 

others point out, failing to enlist the PRC's support as a founding member of 

The New Forum abandons an opportunity to further American interests. 

Moreover, stroking the Chinese regarding the US perception of the stature of 

the Chinese contribution will likely pay dividends in future bilateral security 

issues. 

 A still bolder approach is possible. At a recent ASEAN Regional 

Forum in Bangkok, Foreign Minister and Vice Premier Qian Qichen stated 

that China adheres to the principle that armaments should only be used for 

defensive purposes and that an arms race should be averted at all costs.109 The 

US could test this resolution through a combination of both bilateral and 

multilateral approaches: US-made, high technology defensive weapons 

systems for formal Chinese accession to the MTCR and New Forum 

membership. One possible option would be the sale of F-16 Air Defense 

Fighters, a modified version of the F-16 that has no air-to-ground 

capabilities.110 A breakthrough arrangement such as this has the potential for 

solidifying the Sino-US security relationship through increased defense 

industry ties, shared regional and global security goals, and a partnership 

based on participation rather than rhetoric. The downside does not appear 

steep -- even a revisionist approach by a hard-line, post-Deng regime would 

cost the US little in terms of military balance-of-power calculations. 

 What does the foregoing tell us about power linkage across issue 

areas ("horizontal" interdependence)? In total, the evidence above suggests 

that, unlike "vertical" interdependence, asymmetries in economic 

interdependence do not translate directly into security areas. Threats of 

economic penalties for non-compliance with proliferation demands are subject 

to some of the same constraints witnessed in the MFN case, namely: targeting 

the interests of powerful political elites with personal agendas not necessarily 

related to the general welfare of Chinese people; and the disinclination of 
41

Congress to commit to blunt economic instruments in the face of domesticallyunacceptable Chinese economic retaliation. 

 On the other hand, it is increasingly clear that the Sino-US economic 

relationship drives the security relationship. To the extent that the US can 

strengthen economic ties with the PRC, the possibility for cooperation, if not 

leverage, in the area of weapons proliferation is greatly enhanced. 

Case III: North Korea

 During the first half of 1994, a series of events related to North 

Korea's attempts to develop a nuclear weapons capability brought the region 

to the brink of war. Seemingly at the last minute, the crisis was defused when 

former President Jimmy Carter’s eleventh hour diplomatic mission produced a 

surprising breakthrough that led to the announcement of a series of summit 

meetings between North and South Korea. The death of Kim Il-Sung in July 

of 1994 appeared not to derail follow-up progress on the Carter initiative as an 

agreement was announced in August wherein the US guaranteed Pyongyang 

$4 billion worth of modern nuclear reactors to replace its current equipment, 

in exchange for a promise by the North to forego further production of 

plutonium. The US and North Korea formally agreed to this deal in October 

1994.111

 Our interest here is the critical role played by the People's Republic 

of China regarding their willingness to influence their long-time friend and 

ally, North Korea, on the basis of the Sino-US economic relationship. 

 Throughout the North Korean nuclear crisis, the US led the effort to 

garner international support for a firm response to the North’s nuclear 

provocation. As an alternative to military action, the US sought an 

international coalition for imposition of economic sanctions through the 

auspices of the United Nations Security Council. Key to success in this effort 

was the role of North Korea’s long-time ally, the People’s Republic of China. 

The PRC’s Security Council veto power assured that, without Beijing’s 
42

acquiescence, US-led efforts to punish North Korea via the United Nations 

was a lost cause. The concurrent development of the North Korean nuclear 

crisis and the US-PRC most-favored-nation decision provides an interesting 

laboratory for examining the degree to which horizontal economic 

interdependence affects the pursuit of national interests. 

 The most obvious avenue of inquiry is to examine Chinese attitudes 

regarding the North Korean issue before and after the MFN decision. One 

could hypothesize that the improved Sino-US bilateral atmosphere resulting 

from the decision to delink trade and human rights might translate into 

increased cooperation from the PRC regarding support in the Security Council 

for economic sanctions against North Korea. The evidence to support such a 

contention, however, is mixed. 

 As a matter of principle, the PRC has never supported the use of 

economic sanctions through the United Nations. Beijing has abstained on 

every UN Security Council sanctions vote since 1945, regardless of the 

country involved.112 In the run-up to the Carter mission in mid-June 1994, the 

Clinton Administration actively sought Security Council support for a 

sanctions resolution. Although the Carter mission effectively terminated 

further discussion of Security Council sanctions, China had given clear 

indications it would not support the US position.113 Instead, Beijing continued 

to stress the need to "open dialogue, mitigate contradictions, and seek a way of 

settling the problem step by step."114 The PRC leadership continued to stress 

that sanctions would be interpreted by the North as further provocation. 

 Undoubtedly, the US would have welcomed another Chinese 

abstention had the matter come to a vote. The duplicity of continued 

abstentions allowed the PRC to claim the mantle of defender of national 

sovereignty, while at the same time effectively acceding to the desires of the 

international community. Because the little remaining North Korean 

international trade was conducted primarily with the PRC (for example, China 
43

supplies 75% of North Korea's petroleum requirements, 72% of its grain 

imports, and 88% of its coal shipments115), the larger question became, 

"would Beijing do anything to enforce sanctions approved by the Security 

Council?" As a practical matter, it can be argued that the matter was not too 

pressing, in that few would expect the North to suddenly cave in to 

international economic pressure after resisting decades of similar measures. 

Still, perceptions of the level of PRC support for internationally approved 

actions cannot be dismissed by a country intent on becoming a responsible 

regional and global leader. 

 Even though Beijing's position in the June 1994 UN sanctions 

deliberations was ambiguous, the Chinese appear to have been supportive in 

other ways. Several sources report that the Chinese leadership met with 

elements of the North Korean General Staff in early June (after the MFN 

decision) to press for restraint and patience on the part of the North Korean 

Army. While publicly professing the solidarity of a relationship rooted in 

"blood-bound friendship", indications are that Beijing told the North to expect 

no Chinese support for an attack initiated by Pyongyang.116

 Throughout the West, Chinese ties with and influence over the North 

Koreans were seen as the key for conflict resolution. The British Times

suggested that "resolution of the (North Korean) crisis lies not in New York, 

nor Washington, nor Tokyo, but in Beijing." Berlin's Der Tagesspiegel

agreed: "The key to resolve the nuclear problem lies in China." An editorial 

in Belgium's Catholic Gazet van Antwerpen went so far as to suggest that 

China had reneged on the debt it owed Washington for the MFN decision: 

"During the debates on the prolongation of China's MFN status, it was said in 

Washington that its extension would make China help the United States in the 

question of North Korean nuclear weapons. Obviously, nothing is less true 

now. On the contrary, China is stiffening its standpoint."117
44

The Level of Chinese Support for Pyongyang. Despite international 

assumptions, determining the extent of China's influence over North Korea is 

problematic.118 Far from a close working relationship, one Chinese 

government source claimed that a high degree of mistrust characterizes the 

PRC-DPRK bilateral relationship. On the North Korean side, Pyongyang still 

smarts from Beijing's decision to establish relations with South Korea. When 

military and economic support is needed, the North Korean regime unfailingly 

runs to China for support while insisting on maintaining autonomy for their 

own actions in these fields and others. Communist hard-liners in Pyongyang 

frequently criticized the economic reform movement in China as "revisionist". 

 Similarly, Chinese government officials are often "frustrated and exasperated" 

at unilateral North Korean actions. Beijing was apparently as surprised as the 

rest of the international community by North Korea's decision to withdraw 

from cooperation with the IAEA. The death of Kim Il Sung will likely 

estrange the two communist neighbors even further--Kim Jong Il is held in 

much lower esteem by the old guard Chinese than was his revolutionary 

father.119

 In general, US Embassy officials and influential Beijing think-tanks 

tended to downplay the extent of Beijing's influence over North Korea. They 

worried that unrealistic expectations on the part of US government officials 

regarding MFN "debt-collecting" was potentially damaging for the burgeoning 

Sino-US relationship. These sources believed that contrary to the accepted 

orthodoxy, the crisis was not going to be resolved in Beijing. 

 Beyond the question of influence, caution is required before 

associating Beijing's positive efforts in the North Korean crisis with the MFN 

decision for at least two additional reasons. First, the general tact of Beijing's 

foreign policy regarding North Korea prior to the MFN decision was not 

significantly different than after President Clinton's May 1994 MFN decision. 

 Late in 1993, China, along with eight other nations, abstained from a UN 
45

general assembly vote where 140 countries praised the IAEA for its 

impartiality and urged Pyongyang's cooperation. More importantly, the US 

and China cooperated in the Security Council to forge a compromise on the 

Korean sanctions issue in late March 1994120, only two weeks after Secretary 

of State Christopher's contentious MFN visit to Beijing. North Korea's 

cooperation may have also reflected a perceived need to counterbalance the 

negative impact of the Christopher visit with the MFN decision still in the 

balance. 

 Second, what has been characterized as cooperation above, might 

more closely reflect what Robert Keohane describes as "harmony".121 US and 

Chinese interests on the Korean peninsula, and the Pacific region in general, 

are not far apart. The Chinese have no interest in seeing the Pyongyang 

regime acquire nuclear weapons. They are equally concerned with the impact 

this would have on the nuclear aspirations of neighboring states, particularly 

Japan and South Korea, as well as the possible reintroduction of American 

nuclear weapons onto the Korean peninsula. One official at the US Mission to 

the United Nations noted that China "agreed 100% with US goals" on the 

peninsula.122 Moreover, any conflict in the region would be antithetical to the 

economic growth so important to the contemporary Chinese leadership. One 

commentator has suggested that the PRC's Korean policy merely reflects 

Beijing's more general national security strategy which is "to remove all 

foreign-policy impediments in its rush for domestic economic 

development."123 Certainly, many would argue that, however unattainable, 

this sentiment also captures the Clinton Administration's attitude precisely. 

Thus, to the extent that Beijing was pursuing its own self-interests, it is 

difficult to attribute any perceived Chinese support for the US position as a 

successful application of American economic power and influence. 

 It is interesting to speculate whether the Chinese role in the Korean 

crisis would have changed if MFN had not been renewed. Assistant Defense 
46

Secretary Freeman's Defense Conversion Commission initiative began a series 

of high level military exchanges, including Admiral Charles Larson's visit to 

Beijing in early July 1994 and a reciprocal visit by PLA Deputy Chief of Staff 

General Xu Huizi to Washington in August. Both visits were high profile and 

well received and neither was likely to occur in the wake of Sino-US 

dissension over Korean policy brought about by leftover MFN antagonisms. 

The nascent military relationship between the US and the PRC was 

undoubtedly helpful in garnering information about DPRK military activities 

and intentions during the crisis. Thus, while some might characterize the 

MFN decision as an "independent event"124 relative to China's support for the 

US position in the Korean crisis, lack of a positive MFN outcome would likely 

have poisoned an otherwise increasingly cordial military relationship. This 

situation was not only undesirable in June of 1994, but would be in any future 

Korean crisis, as well. 

Conclusion

 Secretary of the Air Force Sheila E. Widnall has stated: "The 

changing world political and domestic social environments have two profound 

implications for the American military. First, we now better understand that 

national security requires more than military might. It also requires economic 

strength, environmental well being and a cohesive society. The result is a new 

set of budgetary priorities."125 Arguably, the Secretary's statement implies 

that, with respect to this new conception of national security, the torch has 

been passed from the military soldier to the economic man. A "new set of 

budgetary priorities" that favor economic rejuvenation means that the military 

instrument of national security has been marginalized in its ability to secure 

contemporary society’s most important demands. Although more work is 

required in areas such as the proliferation of weapons of mass destruction, the 

physical security requirements of the major industrial countries have been 
47

largely satisfied. National interests in the post-Cold War era center nearly 

exclusively on domestic growth and international competitiveness. Very few 

places are left in the world where military instruments are even equal to 

economic means in their effectiveness for achieving this new set of national 

goals (the Persian Gulf may be one of them). Commenting on the most recent 

showdown with Japan over bilateral trade issues, one American official 

remarked that this economic dispute was similar to the military confrontation 

in Haiti with one major difference: "This is really important."126 

 Nations defend interests and uphold values. In an interdependent 

world where borders become less relevant to the operation of the market, 

where powerful nations hold increasing stakes in the future of their 

competitors, and where national interests coincide, the role of the US military 

may be confined to upholding values in places like Bosnia, Haiti, Rwanda, and 

Somalia. While these US-led peace keeping and peace enforcement activities 

are relevant for the maintenance of international order, success or failure in 

these missions will change little in the most important affairs of the largest 

states. Moreover, the angst expressed by the American people through their 

elected representatives in initially committing US forces to these regions and 

the rapidity in pulling them out in the face of even minimal casualties, 

provides clear enough evidence that where unimpeachable economic rationale 

for military intervention is not forthcoming, the US commitment will not be 

resolute. Because the on-going requirement to “uphold values” has largely 

supplanted the need to “defend interests”, the US military's current absorption 

in "operations other than war" may describe exactly their future role in 

international affairs. 

 Michael Kramer has argued that "Bill Clinton's reflexive faith in the 

efficacy [of economic instruments] is hardly surprising, since he is the No. 1 

proponent of the post-cold war's leading fallacy: economic might counts far 

more than military clout."127 Left unspoken in this presumed "fallacy" are the 
48

stakes involved. Mr. Kramer correctly suggests that economic instruments are 

ill-suited for "toppling tinhorn dictators. who couldn't care less about their 

citizens' economic status." He assumes that only force can overturn unwanted 

foreign governments. The UN-sponsored, US-led intervention into the 

Haitian regime of General Raoul Cedras in September 1994 is only the most 

recent case in point. But toppling today's dictators is problematic for the US 

only in consolidating the political will to do so, not in its ultimate ability to 

accomplish the task. The more important difference is that the military 

capabilities of post-Cold War dictatorships hardly threaten the general welfare 

of the citizenry of the United States, as did the former Soviet Union. Where 

the stakes involved are national well-being and increasing living standards, as 

they are in the post-Cold War era, the ability to squash dictatorships will not 

advance the cause very far. 

 Because the stakes have shifted from national survival to economic 

competitiveness, international economic instruments have become more 

important than military ones regarding the contribution they make to a nation's 

most fundamental post-Cold War interests. As Kramer himself suggests, 

economic instruments work best when friends, not enemies, are the target. 

The evidence above points out that not only are economic instruments viable 

in influencing international behaviors, they are most effective when pursued 

on the basis of cooperation and engagement rather than confrontation. Rather 

than clashing over human rights in the pursuit of democracy in the PRC, it 

could be argued that there is nothing quite so subversive as a well-run joint 

venture. 

 Economic power still counts in affecting international outcomes. The 

US-PRC case study suggests that asymmetrical dependence in the vertical 

domain of bilateral economic relationships produces the potential to influence 

dependent partners so long as the scope is confined to economic issues. 

Where that scope is allowed to drift into areas perceived as relating to internal 

political sovereignty and control, economic power is much less productive. 
49

 The evidence above suggests that for issues related to horizontal 

interdependencies, economic power, if not directly fungible, sets the climate 

within which powerful nations can advance their agendas. Whereas economic 

interdependence may not always translate into security cooperation, an absent, 

neutral or antagonistic economic relationship offers no solace in the 

economism of the post-Cold War era. 
50

ENDNOTES

1 See Alan Tonelson and Ronald A. Morse, "Outdated Alliance Strategies", in 

Powernomics: Economics and Strategy After the Cold War, ed. Clyde V. Prestowitz, Jr., 

Madison Books, 1991, pp. 241-256.

2 International Institute for Strategic Studies, Military Balance 1993-1994, p. 224.

3

 Robert O. Keohane and Joseph S. Nye, Power and Interdependence, Harper Collins, 

1989, p. 27 (italics in the original). 

4 Ibid, p. 249-50. 

5 Kenneth Waltz, Theory of International Politics, Addison-Wesley, Reading, MA, 1979, 

p. 163.

6

 As quoted by Norbert Wieczorek, "Uruguay Round and the Future Agenda for Global 

Trade," Retired Officer Association National Security Report, July 1994, p. 53. 

7

 Helge Hveem, "Responses to Interdependence: International Restructuring, National 

Vulnerability and the New Protectionism," Interdependence and Conflict in World 

Politics, James N. Rosenau, Hylke Tromp (ed.), Avebury, 1989, p. 134. 

8 See, for example, Steve Coll, "Retooling Europe," Washington Post National Weekly 

Edition, August 22-28, 1994, p. 6. Coll argues that the sell-off of European state-owned 

enterprises (some $100 to $150 billion worth of West European government assets in the 

next four years) is indicative of the retreat from socialism these governments see as 

necessary to boost international competitiveness. Moreover, they recognize that the 

"process is already weakening the grip of European governments of their own economies, 

which now can be more easily moved by decisions made by private investors and 

speculators, rather than politicians."

9

 Quoted by Thomas Friedman, "When Money Talks, Governments Listen", New York 

Times, 24 July 1994, p. E3. 

10 Ibid. 11 For a discussion of the debate surrounding loss of sovereignty resulting from GATT 

and the WTO, see Ronald Brownstein, "Critics See Foreign Ties as a Leash Around U.S. 

Neck," LA Times, 12 June 1994, p. 1. 

12 Woods and Baltzly cite the International Conciliation Association Pamphlet No. 70 in 

their 1915 paper titled Is War Diminishing?, p. 10-11. 

13 Robert J. Art, "Excerpts from a Defensible Defense: America's Grand Strategy After 

the Cold War," International Security, Spring 1991, p. 5-53.

 
51

 

14 Richard Rosecrance, Rise of the Trading State: Commerce and Conquest in the 

Modern World, Basic Books, New York, 1986, p. 145-47. 

15 Peter Drucker, "The Changed World Economy", Foreign Affairs, Spring 1986, p. 782. 

16 Norman Angel, as quoted by Jaap de Wilde, "Norman Angell: Ancestor of 

Interdependence Theory," Interdependence and Conflict in World Politics, James N. 

Rosenau and Hylke Tromp, eds., Gower Publishing, Brookfield, VT, 1989, p. 26. 

17 Richard Cooper's "Economic Interdependence and Foreign Policy in the Seventies" 

(World Politics 24 (January 1972): 158-181) represents the "archetype of this literature" 

(John Kroll, "The Complexity of Interdependence," International Studies Quarterly (1993) 

37, pp. 321-348.

18 Keohane and Nye, p. 12.

 
52

 

19 Waltz has argued that sensitivity measure of interdependence are "economically more 

interesting" but "politically less important" than relationships of dependence. See Waltz, 

"Myth of Interdependence," in International Cooperation, ed. C. Kindleberger, Harvard 

University Press, 1970, p. 205-223, and Chapter 7, Theory of International Politics, 1979. 

20 See, for example, Robert O. Keohane, After Hegemony, Princeton University Press, 

1984, and Robert Gilpin, War and Change in World Politics, Cambridge University Press, 

1981. 

21 David Baldwin, "Interdependence and power; a conceptual analysis," International 

Organization, 34:4, Autumn 1980. 

22 Raymond Duvall, "Dependence and Dependencia Theory: Notes Toward Precision of 

Concept and Argument," International Organization 32 (Winter 1978), p. 51-78. 

23 The notion that power arises from asymmetrical interdependence is most often 

associated with Keohane and Nye as articulated in their influential book, Power and 

Interdependence. However, they were certainly not the first to introduce this idea. 

Predating Klause Knorr ("International Economic Leverage and Its Uses", Economic 

Issues and National Security, 1977) and Kenneth Waltz's ("The Myth of National 

Interdependence", in Kindleberger's The International Corporation, 1970) work in this 

area, the classic treatment of this subject remains Albert O. Hirschman's 1945 study on 

international trade, a work which will be examined in more depth below. 

24 This interpretation of vertical vs. horizontal interdependence differs from other 

scholars' use of this terminology. Rather than distinguishing among domains (issue 

areas), Michael P. Sullivan (Power in Contemporary International Politics, University of 

South Carolina Press, 1990, p. 43-44) and Richard Rosecrance ("Whither 

Interdependence?", p. 427) use these terms to examine trend data exclusively within the 

economic domain of a bilateral relationship. Similarly, May Ann Tetreault ("Measuring 

Interdependence", p. 442-443) discusses bilateral vs. systemic interdependence, still 

within a strictly economic context. 

25 For example, David A. Baldwin, in discussing the contribution made by Hirschman, 

writes: "From a conceptual standpoint the period since 1968 has contributed very little to 

thinking about international interdependence" (International Organization 34, 4, Autumn 

1980, p. 489). Keohane and Nye's book Power and Interdependence was first published 

in 1977 and remained essentially unchanged in its 1989 edition. 

26 Hirschman, p. 26.

 
53

 

27Commentator wishes to remain anonymous 

28 This source, who by agreement with the Naval War College, must remain anonymous, 

stated that the White House had made the economic dimension of national security "the 

number 2 component, knocking on number 1's door". Discussions took place on February 

1, 1994, Naval War College, Newport, RI. 

29 "Our primary economic goal is to strengthen the American economy . . . The first step 

toward that goal was reducing the federal deficit . . ." A National Security Strategy of 

Engagement and Enlargement, The White House, US Government Printing Office, July 

1994. 

30 Preoccupation with “class struggle” as the organizing concept of the Party’s ideology 

has been abandoned: “It took decisive measures to eliminate the interference [emphasis 

added] of class struggle which was quite acute at certain quarters for a moment.” Zheng 

Bijian, Gong Yuzhi, and Pang Xianzhi, “On the Political and Theoretical Significance of 

Volume 3 of the Selected Works of Deng Xiaoping,” Renmin Ribao, Beijing, PRC, 13 

December 1993, pp 1,3; translated and published by Foreign Broadcast Information 

Service, China edition, 93-239, 15 December 1993, p12.

31 Despite the impressive figures that follow, Richard Hornik has argued that there are 

many causes for concern regarding the Chinese economic miracle. He charges that the 

PRC's growth is a "facade" and that most aspects of the economy, when closely examined, 

reveal a "mess." He argues, that despite their best intentions, the CPC is incapalbe of 

managing the transformation to a market economy because of the dichotomy between the 

openess necessary for reform and the Party's demand for continued control. See Richard 

Hornik, "Bursting China's Bubble", Foreign Affairs, May/June 1994. p. 28-42. The 

Pacific Economic Cooperation Council, while more upbeat than Hornik on the longterm 

prospects for the Chinese economy, agrees that the pitfalls are immense (Michael 

Zielenziger, "Without You I'm Nothing - New report says China propels Pacific Rim 

Growth", Far Eastern Economic Review, June 23, 1994, p. 56.

32 ”Asia Survey”, The Economist, October 30, 1993, p. 14. 

33 Yun-Wing Sung, “China’s Impact on the Asian Pacific Regional Economy,” Business 

and the Contemporary World, Spring 1993, p. 105. 

34 Zielenziger, p. 56. 

35 .Bijian, et al (op cit), FBIS China, 15 December 1993. 

36 International Monetary Fund, International Financial Statistics, November 1995, p. 

66-67. 

37 ”Asia Survey”, p. 15. 

38 ”Asia Survey”, p. 16. 

39 Bijian, et al (op cit), p 13. 

40 "Only when the productive forces are developed can we: Increase our material 

wealth, improve the people’s livelihood, and provide the necessary material conditions for 

eliminating poverty; solve various problems arising in the process of economic and social 

development to maintain political and social stability; and can we increase the national 

strength, accelerate the modernization of national defense, raise China’s international 

 
54

 

status, and create favorable conditions for achieving reunification of the motherland." 

Zhao Fulin, Secretary of Guangxi Autonomous Regional CPC Committe, “Earnestly 

Studying Volume 3 of the Selected Works of Deng Xiaoping,” Renmin Ribao, Beijing, 

China, 26 November 1993, p. 5; translated and published by Foreign Broadcast 

Information Service, China edition, 93-240, 16 December 1993, p. 41.

41 Li Ruihuan, CPC Central Committee Political Bureau Standing Committee member, 

quoted in Tzu Ching No 12, 5 Dec 1993, pp 8-11; translated and published by Foreign 

Broadcast Information Service, China edition, 93-240, 16 December 1993, p.15.

42 Ruihuan, p. 15. 

43 “Asia Survey,” p. 13. 

44 See Thomas L. Friedman, "U.S. Pares Imports of China's Fabrics in a Punitive Move," 

New York Times, January 7, 1994, p. 1, and Patrick E. Tyler, "Textile Accord With China 

Averts Trade Clash," New York Times, 18 January 1994, p. D1. 

45 This was reported in the lead story of the Beijing China Daily newspaper, 30 July 

1994. 

46 Jim Hoaglund, “Battered in Beijing,” Washington Post National Weekly Edition, 

21-27 March 1994, p. 29. 

47 Louis Uchitelle, in "Back to Business on China Trade," New York Times, May 27, 

1994, p. D1, quotes the Bureau's 1993 statistics that show $31.5b exported from China to 

the US while the US sent $8.7b to China.

48 The numbers cited come from the IMF's Direction of Trade Statistics, June 1994 

edition. Many other figures have been cited. For example, U.S. News and World Report

suggests the China-to-US export figure is 38% ("The China Syndrome," 21 March 1994); 

 Secretary of State Christopher claims the number is "almost 40%" (Foreign Policy 

Bulletin, May/June 1994, p.28); in an interview with the author, Christopher J. 

Szymanski, Minister-Counselor for Economic Affairs at the US Embassy in Beijing, 28 

July 1994, claims the right number is 27 percent. Not surprisingly, the Chinese dispute 

these numbers claiming that an interruption in China's MFN status would "seriously affect 

only 10% of China's exports" (Patrick Tyler, "Beijing Says It Could Live Well Even if 

U.S. Trade Was Cut Off," New York Times, March 21, 1994, p. A10). 

49 For a brief but lucid description of the difficulties of measuring international trade, see 

Bob Davis, “World-Trade Statistics Tell Conflicting Stories”, Wall Street Journal, March 

28, 1994, p. 1. For example, if profits earned overseas by all U.S. companies are added to 

trade statistics, trade deficits of $28B, $39.7B, and $76.8B in 1991, ’92, and ’93 

respectively become trade surpluses of $24B and $8.5B in ’91 and ’92, and the deficit for 

’93 is reduced to $30.8B. 

50 International Monetary Fund, Direction of Trade Statistics, September 1995. These 

statistics are as reported by the United States, whose figures differ substantially from 

the People’s Republic of China. The PRC does not include goods shuttled through 

Hong Kong and Taiwan, but destined for the United States, as part of their total exports 

to America. Washington, of course, does. It is also interesting to note that Chinese 

figures show that Japan is China’s number one trading partner: in 1994, total trade 

with the US was listed at $35.4B while trade with Japan reached $47.8B. 

 
55

 

51 "Colliding with China," The Economist, March 12, 1994, p. 37. 

52 Susan V. Lawrence, "The China Syndrome", U.S. News and World Report, 21 March 

1994, p. 39. 

53 Paul Davis, "Threatened by trade war," Providence Journal-Bulletin, March 29, 1994, 

p. D-1, D-14. 

54 Susan V. Lawrence, "The China Syndrome," p. 39. 

55 Uchitelle, p. D1. 

56 Jeff Cole, "Boeing Nears Major Order from China," Wall Street Journal, 26 May 1994, 

p. A3. 

57 Foreign Policy Bulletin, May/June 1994, p. 20. 

58 See Thomas L. Friedman, "U.S. to Maintain Trade Priviledges for China's Goods", 

New York Times, May 27, 1994, p. A8, and Patrick E. Tyler, "Beijing Says It Could Live 

Well Even if U.S. Trade Was Cut Off," New York Times, March 21, 1994, p. A10. 

59 See "Gripped by China", The Economist, 27 November 1993, p. 15. Similarly, a 

Spanish delegation of 200 businessmen, headed by Deputy Prime Minister Narcis Serra, 

visited Beijing in late July 1994, signing seven agreements and memoranda with VicePremier Zhu Rongji, who praised Spain for "always tak[ing] the lead among European 

countries in developing ties with China." ("Zhu pledges closer relations with Spain", 

China Daily, 26 July 94, p. 1). 

60 "China Syndrome", p. 42.

61 “World Bank Reports on Foreign Investment in China,” Foreign Broadcast 

Information Service, China edition, 93-240, 16 December 1993, p.4. 

62 Wang Yong, "New policies planned on foreign investment", China Daily, 28 July, p. 1.

63 Xiao Yong, "Foreign ventures do a third of trade", China Daily, 27 July 94, p. 1). 

64 "The China Syndrome," p. 39. 

65 In late February, State Department Assistant Secretary for Human Rights, John 

Shattuck, emphasized that MFN would not be renewed if human rights concessions were 

not forthcoming. In early March, Under Secretary of Commerce, Jeffery Garten, extolled 

the virtues of continued bilateral trade expansion. 

66 Foreign Policy Bulletin, May/June 1994, p. 27. 

67 Hobart Rowen, "Who's Driving This Thing?," Washington Post National Weekly 

Edition, 28 March-3 April 1994, p. 5. 

68 Hoagland, "Battered in Beijing," p. 29. 

69 Philip Terzian, "Revenge of the China rhetoric", Providence Journal-Bulletin, 27 

March 1994, commentary section. 

70 See "Crackdown sets bad tone for Christopher's trip to China," Providence Sunday 

Journal, 6 March 1994, p. A13.

71 In the months following the signing of the executive order on May 28, 1993, a series of 

incidents strained US-Sino relations including the Yin He freighter incident, discovery of 

 
56

 

M-11 missile technology transfer to Pakistan, and the conduct of a Chinese nuclear 

weapons test in the face of protestations from Washington.

72 "Secretary Christopher's Visit to China: Human Rights and Most-Favored-Nation 

Renewal," Foreign Policy Bulletin, May/June 1994, p. 21. 

73 Foreign Policy Bulletin, May/June 1994, p. 28.

74 Elaine Sciolino, with Thomas L. Friedman and Patrick Tyler, "Clinton and China: 

How Promise Self-Destructed," New York Times, May 29, 1994, p.1.

75 Ibid, p. 8.

76 See Thomas L. Friedman,"Bentsen Wants Compromise With China on Rights," New 

York Times, March 20, 1994, p. 20.

77 Patrick I. Tyler, "Beijing Says It Could Live Well Even if U.S. Trade Was Cut Off," 

New York Times, March 21, 1994, p. 1. 

78 "U.S. Renews Most-Favored-Nation Trade Status for China," U.S. Department of 

State Dispatch, May 30, 1994, Vol. 5, No. 22, p. 345.

79 Ibid, p. 345.

80 These include: denial of participation in the U.S. Trade and Development Assistance 

Program; OPIC and the U.S.-Asia Environmental Partnership Program; continued 

opposition to non-basic human needs loans by the World Bank to China; and denial of 

dual-use technology licenses and U.S. munition list items.

81 See "Crackdown sets bad tone for Christopher's trip to China", Providence Sunday 

Journal, March 6, 1994, p. A13, and "Colliding with China", The Economist, March 12, 

1994, p. 37.

82 See Tyler, "Beijing Says It Could Live Well Even if U.S. Trade Was Cut Off," p. A10. 

83 Daniel Williams and Clay Chandler, "The Hollowing of a Threat", Washington Post 

Weekly Edition, May 16-22, 1994, p. 18.

84 "China's Bad Report Card," New York Times editorial, 9 February 1994.

85 J.C. Harsanyi, Rational Behavior and Bargaining Equilibrium in Games and Social 

Situations (New York: Cambridge University Press, 1977), p. 186-189.

86 For an authoritative overview of the PRC's military build-up and modernization 

program, see Robert G. Sutter and Shirley Kan, "China As A Security Concern in Asia: 

Perceptions, Assessment, and U.S. Options", Congressional Research Service (CRS) 

Report to Congress No. 94-32 S, 5 January 1994, p. 8.

 
57

 

87 The Missile Technology Control Regime (MTCR) was established in 1987 by the 

United States, France, United Kingdom, Canada, West Germany, Italy, and Japan. 

Neither a treaty nor an executive agreement, it is instead a set of guidelines that "member" 

countries agree to abide by with regards to the selling or transfer of systems, subsystems, 

or components of missile systems capable of delivering a nuclear warhead. A missile 

with a range of 300 kilometers (186 miles) and a payload of 500 kilograms (1100 pounds) 

was deemed to fall into that category. Unlike the IAEA, no organization exists to monitor 

compliance, although the US has passed domestic legislation (Arms Export Control Act 

and Export Administration Act) that has the effect of implementing MTCR guidelines. 

Neither China nor the former Soviet Union was approached for original membership. In 

January 1993, the MTCR guidelines were expanded to include missiles capable of 

delivering chemical and biological munitions. China agreed to abide by the earlier 

guidelines but not the latter, although the M-9 and M-11 missiles are covered by the 

earlier protocol. 

88 For an excellent summary of China’s proliferation activities, see Robert Shuey and 

Shirley A. Kan, “Chinese Missile and Nuclear Proliferation: Issues for Congress,” 

CRS Issue Brief, Congressional Research Service, Library of Congress, August 23, 

1995. 

89 Elaine Sciolino, "U.S. and Chinese Reach Agreement on Missile Export," New York 

Times, October 5, 1994, p. 1.

90 Gary Milholin and Gerard White, "A New China Syndrome: Beijing's Atomic 

Bazaar," Washington Post, 12 May 1991, p. C1.

91 Ibid.

 
58

 

92 Nucleonics Week, 23 May 1991. 

93 Although concerned about Iran’s ability to pay, China was equally concerned with 

US public law that required “detailed presidential certifications” of Chinese 

compliance with nuclear export agreements, particularly the guidelines of the NPT. 

Without these certifications, the PRC would not be allowed to contract with American 

firms such as Westinghouse Electric for advanced nuclear power technology needed to 

support their plans for at least 14 new nuclear reactors in the next 30 years. See R. 

Jeffrey Smith, “China-Iran Talks Spark U.S. Worry,” Washington Post, April 17, 1995, 

p. 1; John M. Goshko, “China Drops Reactor Deal With Iran,” Washington Post, 

September 28, 1995, p. A22; Elaine Sciolino, “China Cancels Deal for Selling Iran 2 

Reactors,” New York Times, September 28, 1995, p. A1; and Shuey and Kan, op cit., 

p. CRS-13. 

94 Nucleonics Week (24 September 1992, October 1, 1992) reported that Iran had nearly 

procurred a plutonium production research reactor from China and important fuel cycle 

systems from Argentina. The US was successful in halting these shipments, with MFN 

conditionality a factor in China's case. 

95 Shuey and Kan, p. CRS-9. 

96 John W. Lewis, Hua Di, and Xue Litai, "Beijing's Defense Establishment: Soling the 

Arms-Export Enigma," International Security, Spring 1991 (Vol. 15, No. 4), p. 

97 Personal interview, US Embassy Beijing, 27 August 1994. 

98 Lewis, p. 108-109.

99 Senate Bill 1172 (McCain/Lieberman) and Senate Bill 1054 (Glenn)/House of 

Representatives Bill 2358 (Lantos). 

100 Erik Wemple, "Wow!", Commentary, Export Control News, March 31, 1994, p. 11.

101 Personal interview with Dr. Eden Woon, 24 June 1994, Office of the Assistant 

Secretary of Defense for International Security Affairs, Pentagon, Washington DC. 

102 Ibid. 103 Personal interview with Colonel Rocky Roland, Air Attaché, US Embassy, Beijing, 

29 July 1994.

104 Freedman, "Clinton and China", op cit, p. 8. 

105 For an indepth review of the history of COCOM, see Michael Mastandano, Economic 

Containment, COCOM and the Politics of East-West Trade (Ithaca, N.Y.: Cornell 

University Press), 1992.

106 Ibid., pp. 302-307. 

107 R. Jeffrey Smith, “U.S. Agrees to New System for Curbing Sensitive Exports,” 

Washington Post, September 20, 1995, p. 15. 

108 Dr. Szymanski is Minister Counselor for Economic Affairs, US Embassy, Beijing. 

His comments come from a personal interview with the author, 28 July 1994, op cit.

 
59

 

109 "China Opposes an arms race - Qian", China Daily, 26 July 94, p.1. 

110 F-16ADF's were developed specifically for US Air National Guard squadrons 

dedicated to the North American Aerospace Defense Command (NORAD), in which they 

currently serve.

111 The best study of the North Korean nuclear program and the Clinton 

Administration’s response is found in William E. Berry Jr., INSS Occasional Paper #3, 

North Korea’s Nuclear Program: The Clinton Administration’s Response, USAF 

Institute for National Security Studies, March 1995. 

112 William J. Taylor, Jr. "North Korea and Nuclear Weapons," ROA National Security 

Report, February 1994, p. 147.

113 The author's discussions with US Embassy officials in late July, 1994, indicated that, 

despite public pronouncements, a number of leading Beijing policy think-tanks felt China 

was likely to abstain from a UN vote on limited sanctions.

114 Chinese Foreign Minister Qian Qichen as quoted by Patrick E. Tyler, "China Tells 

Why It Opposes Korea Sanctions," New York Times, 13 June 1994, p. A5.

115 FBIS Hong Kong message 111005Z July 1994. For more on the PRC-DPRK 

economic relationship, see "A nervous posse assembles against North Korea, The 

Economist, March 26, 1994, p. 39; FBIS China Daily, 18 August 1994, p. 5, "Article 

Views Economic, Military Aid to DPRK"; and Susan V. Lawrence, "Bullish on 

Pyongyang", U.S. News and World Report, February 21, 1994, p. 49. 

116 FBIS Hong Kong Message, 240930Z June 1994, Subj: "Column Views Beijing's 

Advice to DPRK." See also, Patrick Tyler, "China Tells Why It Opposes Korea 

Sanctions," op cit. The author's discussions with US Embassy officials in late July, 1994, 

confirm that the PLA, although still maintaining fairly close ties with its North Korean 

counterparts, had no desire to become militarily involved with Pyongyang over this issue.

117 Taken from a copy of the United States Information Agency's Foreign Media 

Reaction Daily Digest, June 10, 1994, provided by the Defense Attaché Office, US 

Embassy, Beijing. 

118 The information in the following two paragraphs was gathered during informal 

discussions with anonymous sources during the author's 26-31 July 1994 trip to Beijing.

119 Revolutionary credentials are not lost on the younger Kim. An FBIS report out of 

Okinawa, 11 July, 1994, relates the following story about a visit to China by Kim Chong 

Il in June 1983: "According to a Chinese source, when (the late former Chinese 

President) Li Xiannian asked Kim to 'have a seat', Kim declined to sit in a chair. He took 

out a pen and a note from his shirt pocket and stood to listen to Li's story. According to 

the source, this is because Kim Chong Il faithfully obeyed his father's instruction: "There 

is no place where you sit down in a venerable Chinese revolutionist's presence."

 
60

 

120 With the American side pushing for a UN Security Council resolution calling on the 

North Koreans to allow IAEA inspections to continue, the Chinese suggested, and the US 

agreed to, a less punitive statement, with somewhat milder language. Paul Lewis, "U.S. 

and China Reach Accord at U.N. on Korean Nuclear Issue", New York Times, April 1, 

1994, p. A7. 

121 Robert Keohane defines "harmony" as a situation in which "actors' policies (pursued 

in their own self interest without regard for other) automatically facilitate the attainment 

of others' goals" whereas "cooperation" requires that actions "be brought into conformity 

with one another through a process of negotiations, which is often referred to as "policy 

coordination." After Hegemony, 1984, p. 51. 

122 Telephone interview with David Wallace, member of the US Mission to the United 

Nations, 16 July 1994. 

123 Patrick Tyler, "A Puzzle for the Chinese: How to Chastise an Old Ally", New York 

Times, 2 April 1994, p. A1. 

124 David Wallace, op cit. 

125 Policy Letter, Office of the Secretary of the Air Force, September 1994, p. 1. 

126 Thomas L. Friedman, "Blinking First on U.S.-Japan Trade," New York Times, 

September 27, 1994, p. E2. 

127 Michael Kramer, "A Rung on the Ladder to War," Time, 13 June 1994, p. 31.