05/24/2013 01:45 pm ET Updated Jul 24, 2013

The Challenge of U.S.-China Relations

While terrorism remains the primary national security concern in the minds of most Americans, the greatest challenge confronting the United States is the rise of the Peoples Republic of China (PRC). For most Americans, a military conflict between the world's two greatest economic powers seems inconceivable. There is simply too much to lose. With the United States importing almost 25% (almost $300 million) of China's annual exports and China holding approximately 8% (or $ 1.12 Trillion) of U.S. sovereign debt, allowing for low interest rates and deficit spending, both would pay severe costs in the event of a conflict. Even the prospect of crisis between these two powers could destabilize world markets, and precipitate a global economic disaster.

The unfortunate reality is that despite high levels of economic interdependence which have contributed to a remarkable period of growth and expansion at home, China's recent international behavior is troubling. President Obama is scheduled to meet with China's new leader, Xi Jinping in early June, and the timing and the substance of those meetings could be critical for the relationship moving forward. While a great deal is made about Chinese cyber-attacks against the United States and questions of currency manipulation that emerged in the 2012 Presidential elections, more basic questions about China's intentions deserve serious attention.

As the latest annual Department of Defense Report only reaffirms, China has continuously expanded its military capabilities. In 2012, China's official military budget was approximately $107 billion, though official U.S. estimates place the real expenditure somewhere between $135-215 billion, a wide range that reflects the uncertainty inherent in understanding what Beijing is actually buying and building.

Many of China's most visible modernization efforts have focused on missile and strike aircraft capabilities that could deter Taiwan, which China views as a breakaway province, from unilaterally declaring independence, or if necessary compelling the reversal of such a development. While the position of the United States is to maintain a "One China" policy, Washington has effectively guaranteed Taiwan's independence so long as neither party unilaterally attempt to change the status quo.

China has also significantly expanded its naval forces, increasing its capacity to project power in the East and South China Seas. Over time, it seems that Beijing envisions these forces as constituting a formidable Chinese naval presence operating throughout the Western Pacific and Indian Oceans.

As China's capabilities have grown, they increasingly threaten key U.S. allies like Japan, South Korea, and the Philippines. Precisely because Beijing's decision-making processes are so opaque, even the most astute observers of China are forced to interpret the regime's intentions through its behavior. For much of the last decade, China's overall diplomacy has been relatively benign. The concept of a "peaceful rise" had been the hallmark of Beijing's foreign policy, but this has changed dramatically over the past three years.

Since 2010, China has been increasingly willing to assert its claims on disputed territories. It has publicly clashed with Japan over the Senkaku/Diayou Islands and recently questioned the legitimacy of Tokyo's rule over Okinawa. Chinese ships have repeatedly harassed Philippines fishing and military vessels around disputed reefs in the South China Sea, and Chinese military forces have crossed into territory claimed by India. These may be small, primarily symbolic provocations, but they have further alarmed China's smaller neighbors and seem to signal a more aggressive Chinese foreign policy.

President Obama's "pivot" to East Asia is directed toward this emerging threat from China, and United States should continue to work closely with its allies, Japan, South Korea, the Philippines, and Australia to build capabilities to adequately address any potential turn for the worse. But more needs to be done to clarify U.S. interests in the Pacific and dissuade Beijing from future provocations. Today, however, the United States and China seem to be drifting toward a crisis.

In his recent piece in Foreign Affairs, Columbia University defense expert Richard Betts captured the uncomfortable choice that seems to be facing the United States:

"Washington needs to determine whether to treat Beijing as a threat to be contained or a power to be accommodated. U.S. policymakers have long tried to have it both ways. Such incoherence is politically natural but harmless only so long as no catalyst exposes the contradiction."

The challenge for the United States is the management of China's rise. Precisely because of the major roles both economies play in the global economic system, the U.S. cannot simply "contain" China in the way that America and its allies were able to contain the Soviet Union during the Cold War. Given the high levels of interdependence between the two, any direct move toward containment would be painful and likely self-defeating.

At the same time, the United States must make clear that intimidation or aggression directed at its allies will not be tolerated and will ultimately be costly to China. Perhaps as importantly, Americans must reconsider the nature of China's rise in light of its newfound assertiveness and evaluate the position of the United States as a Pacific power in the 21st Century.