Asia2025: Welcome to Asia 2025. I'm Maryann Keady. This week we unravel game theory.

How can it be used in international relations and how can we apply it to US and Chinese strategic manoeuvres today?

We talk to one of the leading proponents of game theory in the United States, Bruce Bueno de Mesquita who has advised the Taiwanese government and written a book with Condoleeza Rice. And we talk to Avery Goldstein, author a book on China's grand strategy and head of the Political Science Department at Pennsylvania University. We talk to him about what China is thinking and why.

Listen up as we talk strategy and delve into the world of game theory.

Well I came to this week's program by reading A Beautiful Mind, a great book by Sylvia Nasar on John Nash, the brilliant mathematician whose descent into mental illness was the subject of a Hollywood film starring Russel Crowe.

As it so happens, Nash dealt with game theory and ultimately, this is what he received his Nobel Prize in economics for in 1994. What struck me is how game theory has been used in international relations today and in the past to look at how an opponent is going to behave, thus the basis for negotiation or conflict in the strategic game. Of course, even on holidays, my mind went to how the United States and China were using this theory in their relations today.

More importantly, with important trade negotiations taking place and the issue of Taiwan on the table, what would be the practical application of this theory? If it can be a way to study war and peace, what can it tell us about the possibility of future conflict between the two powers?

Later in the program we talk to Avery Goldstein from the University of Pennsylvania about China's current grand strategy and discuss the future relationship.

But first, let us unravel game theory with Bruce Bueno de Mesquita who is a Senior Fellow at the Hoover Institution and the Silver Professor of politics at New York University.

His books include The Logic of Political Survival, Predicting Politics and The Principles of International Politics. In 2005, Bueno de Mesquito was named by Foreign Policy magazine as one of the 10 most influential political scientists in foreign policy today.

I began by asking him what John von Neumann and John Nash had done for us in the field of game theory.

BBM: Well what they gave us was a way to think about how people deal with each other strategically. John von Neumann put it really well. He realised that what he called parlour games, playing bridge or playing poker or lots of other games, was a model for how people deal with each other in competitive situations. And so he created a way to think about that which had some weaknesses and then John Nash came along, saw how to solve some of those important weaknesses and created the concepts that define how a game will play out, what the equilibrium conditions are, to use the sort of technical vocabulary. And in the context of international relations, it is at least for me, I'm biased on the subject, but at least for me, it's very hard to see how one could think about international affairs any other way because international relations is fundamentally a strategic contest between parties of different power and different interests trying to manoeuvre to the best possible outcomes that they can get to, given the constraints that they have.

Asia2025: Well the key here is that there is many players and many factors and thus multiple options. And so you can apply it to situations where participants have to take into account the other side's response. Is that correct?

BBM: Exactly. And have to take into account not only the other side's response, but that the other side is taking into account that their response is being taken into account.

Asia2025: Historically, how has this been used?

BBM: Well in the context of international relations, game theory has been used in a couple of ways. First of all of course it is a method that dominates a lot of research in the field. And second, and related, but perhaps more importantly, it has become a tool that governments use to help them sort through problems and work out what is the optimal way to respond under different conditions given what they believe they know and what resources they could bring to bear and what their interests are.

Asia2025: So the realist idea is that there's this sort of zero sum game, that there's a winner and a loser. But as much as I've read, it's ... the Cold War and nuclear deterrents basically showed that by playing different hands, there didn't need to be nuclear conflict.

How does game theory come into this?

BBM: Well first, the notion of zero sum is a very, very tiny corner of game theory and not very many international relations researchers believe that very much of international affairs is zero sum. Even very few realists believe that it's actually zero sum. Zero sum means that what one side gains is exactly equal to what the other side loses so that there is no basis, at least in a two player situation, for cooperation. With more than two players, you can form coalitions. But basically you have two sides and they have opposed interests. That's a little too simplistic.

International relations researchers are more interested in sorting out when the game is not zero sum, how to capitalise on the situation to get the best results for themselves. So one of the things that game theory brings to bear in studying for example war, is the realisation first clearly articulated by a colleague of mine at Stanford, James Fearon, that we know after the fact war is always inefficient. That is, whatever the outcome of a war is, had the contestants known in advance what the outcome would be, they could have negotiated their way out of war. They could have avoided war and saved the costs, while accepting whatever the resolution at the end would be. So they would have been better off. It would have been more efficient.

That brings some important insight to bear in current debate about what the causes of war are. So war is not caused inherently by differences in wealth or differences in power or differences in religion because ... or differences in arguments about who owns what territory and so forth, because all of these things in principle, could be sorted out beforehand, provided that people can make a credible promise to fulfil whatever agreement they make and that means structuring the agreement in a way that ensures that it's credible. So that brings you to think about problems like the Israeli-Palestinian contest in a different way. I don't know how detailed you want me to get. I'd be happy to give an example from that if you'd like.

So for example, in much of the popular discourse about the Palestinian-Israeli conflict, there has been this idea of land for peace, or vice versa, peace for land. And this is an inherently flawed concept, according to game theory reasoning. Why? Well let's work through it.

Suppose I give up land in exchange for your promising to give me peace. Once I've given up the land, it's very costly to take it back. You now have the land which has strengthened you, you have more resources than you had before. You may turn around and say to me, well when I promised peace, I meant if you gave me more land than this. You haven't given me enough. And now I'm in a weaker position than I was before and you're in a stronger position. So instead of our having land for peace, I have given up land and now have the threat of more potential violence and am subject to what we sometimes call salami tactics. Every time I give you something, you're going to ask for more. You can't credibly promise to give me peace because peace comes after you have the land. So you have a choice to change your mind. Conversely, suppose I gave up all of my weapons.

This was a big problem in the Good Friday Agreement in Northern Ireland in what was called decommissioning. I promise to give you peace in exchange for your giving me the same (in the Palestinian context) land. But if I disarm, I no longer have a way to threaten you. And not having a way to threaten you, you may look and say well, I was expecting more peace than this. I'm not going to give you any land. You haven't given me enough peace and you're now weakened and so you are no longer in a good position to make the threat that got me to want to discuss this with you. So game theory helps us to work through that kind of reasoning to see what you need in an agreement to solve those problems. And it highlights those problems.

So you come to recognise that the Palestinian-Israeli dispute is not so much about the substance at dispute, although that's part of it of course, but about how you get the sides to come to an agreement that each has an incentive to enforce after they've agreed to it.

Asia2025: Well it seems to me that game theory then would have been used in many negotiations. Is this sort of a template that people use? I mean, is this why it is a theoretical sort of a form of analysis?

BBM: Well in my non-university life, in my consulting life, I apply game theory to problems for corporations, dealing with litigation, dealing with mergers and acquisitions. In my consulting for government I deal with not just war and peace issues, but all sorts of negotiations over environmental matters, over trade relations, over landing rights and so forth. Each of these is a strategic problem and therefore is a problem for game theory. And generally these problems have, if not ideal solutions that can be found, at least better solutions than can be found by people who are not using game theory.

Asia2025: Well then let's talk about China and the United States because I would imagine, especially in trade negotiations which have hit the front pages recently, there would be a fair bit of game theory and, you know, possibilities of best outcomes for each being negotiated, as well as looking at the future of US-China relations as a whole.

What are we seeing strategy-wise in terms of China and the United States?

BBM: So for a long time, the US attempted in its negotiations with China to use its threat power, so to speak, to promise more trade in exchange, for example, for better human rights in China. And that didn't work. Whereas when the United States uses its tariff power to threaten the Chinese, it tends to get a response. Why is that?

Well, one thing that we can step back and say from a game theoretic perspective is that we probably shouldn't talk about the interests of the United States and China, but rather the interests of the leaders of China and the interests of the leaders of the United States. And those interests change from time to time. But all leaders share in common an interest in keeping their jobs. In the Chinese context, big concessions on human rights are making it easier for people to peacefully assemble and articulate disagreement with the government, puts the leaders at political risk. So promises of better trade, more money, in exchange for human rights is a non-starter because it's asking the leaders to put themselves at political risk.

Conversely, trade in exchange for better access to American markets rather than tariffs in exchange for the Chinese making other kinds of concessions in their trade production, wages, labour law, so on and so forth, those are more likely to succeed. So game theory helps us to sort out what are the things that each side can agree to and what things are too costly, so they can't afford ... politically costly, so they can't afford to agree to. So that helps to frame and focus what in the trade relationship is manipulable and what is not manipulable. Efforts at the moment by the United States Congress to try to force the Chinese to bring the value of the yuan down, bolster basically the dollar to improve the trade balance, is something where there may be some real political leverage. I don't happen to agree with the policy, but that's a separate matter. But as a strategic point, at least that's something where you could imagine the Chinese responding because the cost of not might be higher than the cost of agreeing to it. And you could sort that out in a careful game theoretic analysis in a way that's harder to do just seat of the pants.

Asia2025: Well one area that I guess I was thinking about in terms of game theory and people imagining different scenarios and what was possible and the best possible outcome is of course the Taiwan Strait. I've seen papers discussing the different scenarios possible, according to the best outcome for all. Is this a practical application of game theory? Is this an area where people are saying okay, if this person does this, well perhaps this is our response, you know.

BBM: Absolutely. It's an area where lots of game theoretic papers have been written. I've written a few myself. I've advised the Taiwanese government from time to time, and my basic advice to them is don't rely on the United States for your security because we're not a reliable ally in a context like this because of the costs of taking on China. On the other hand, it's very costly as well for the Chinese to take the risk.

And so there's some interesting things to observe about China, when we think about it, from a strategic perspective.

So clearly China would like to control the Taiwan Straits and control Taiwan. They're greatly expanding their military at the moment, including their Navy. I've not followed recently what they've been doing, but for most of their history, and may still be true, one of the things that's interesting to observe is that the Chinese Navy has never developed the capacity to move and land large numbers of troops on another territory across water. So they could parachute people in, they could bomb Taiwan, but they don't have the sea lift capacity to move a substantial ground force onto Taiwan. Now they could develop it, but they haven't. So we have to ask ourselves, why haven't they? They are signalling that they don't intend to pick a war with Taiwan, presumably because they are deterred by the possibility that the United States would credibly defend Taiwan.

Asia2025: So it's more likely that they have created the potential to interrupt, I guess, American systems rather than move a sort of a land, a mass of sort of an army into Taiwan?

BBM: Right. They've created the ability to make life difficult in Taiwan if they chose to, though they have not chosen to do so. But not the ability to, by force, take Taiwan. And I think the message that they're sending is that they are patient and that they think in time, Taiwan will reunite with them. And in time, I think they're right because over the long haul, dictatorship is a stable system but it eventually erodes. And if China becomes democratic in the future, then there's little reason for the Taiwanese not to be interested in [unclear].

Asia2025: In poker, secrecy is important and bluffing, what about in international relations? How does this destabilise the possibility of negotiation, and is this a problem in China-US relations? I raise it of course because often people bring out the old hoary, the Chinese are very secretive.

BBM: Well bluffing is of course a very important part of strategic behaviour. Most of the time people have an incentive to bluff in the sense of pretending to be more resolved about an issue than they really are.

So China, I'll give you a quite concrete example of game theory application, China has always declared a very adamant posture with regard to their being one China and Taiwan being part of it. Many years ago, about 22, 23 years ago, I was asked by the then Under Secretary of State for International Economic Affairs, Alan Wallace, to do a game theoretic model when China applied for membership to the Asian Development Bank. And China of course insisted that Taiwan had to be removed from the Asian Development Bank because there was only one China. And I modelled the possibility of China coming in and Taiwan remaining in and identified a way to achieve that. It was pursued and it was achieved. And to this day, the Asian Development Bank is the only major international organisation that has both Taiwan and China as members. Taiwan had a little fig leaf change of name, and that was it. What was clear is that while the Chinese were bluffing about how resolved they were, they were bluffing. That the value to them of being in the Asian Development Bank greatly exceeded the political costs to them of making a concession that allowed Taiwan to remain. And so they made the concession.

Unfortunately people still continue to believe when China blusters, that it's always true.

Now as with poker, you don't bluff all the time because if you always bluffed, people would always challenge you, always have overbid relative to your hand, and so you would get challenged and you would lose a lot of the time. So there's an optimal frequency to bluff and an optimal level and there's an optimal level to challenge. Bluffing is usually about faking more resolve. Sometimes it's about faking less resolve. It is sometimes suggesting that you are more amenable to settling things than you actually are and game theory can help to sort out the logic of when it is in somebody's interest to bluff, when it is not in their interest, and how to work out whether or not somebody is bluffing. This is ... gets into a fairly technical area having to do with how learning takes place or is believed to take place in game theory models.

But basically the intuition is you look for people to do something that is not consistent with the posture that they have taken. So if you use all the information that you can see, and you observe that, for example, China agreed to join the Asian Development Bank with Taiwan and this tells you, this helps you to learn something about the limits of their resolution to be tough on Taiwan. And so you can update. You can form a better view, a more informed view about what is a credible thing to think about them.

Asia2025: That is absolutely fascinating and it makes me wish I had more inside knowledge of what was taking place in the negotiations and I imagine that this all took place as well during the Cold War. There must have been a lot of this incredible modelling and trying to work out when the Russians or when the Americans were full of bluster, I guess.

BBM: Sure. Unfortunately for the Cold War, game theory technology, until the late '70s, early '80s, was pretty primitive. It's still relatively primitive, but it was much more primitive. When John Nash created the Nash equilibrium concept in the early '50s, game theory had no good way to deal with uncertainty or incomplete information, not knowing about the other ... exactly ... the truth about the other side. And of course all interesting international relations problems are of that type. You don't know exactly what the other side has in mind. That's what bluffing is about.

But in the 1970s, there's a body of work that transformed game theories and some Nobel prizes were won for this work by John Harsanyi and by Reinhardt Selten. Game theory became capable of dealing in a pretty sophisticated way with uncertainty and with being able to sort out information more efficiently. And that made it a much more valuable tool for government decision makers because it then was not just a body of math, but a way to start to think seriously about very hard problems.

Asia2025: Can I ask, I mean this may be too detailed, what advancement, I guess, in terms of games theory, did they make?

BBM: Well, so John Harsanyi's great insight, he's a Berkeley Economist, his great insight was to resolve a classic problem that people had raised that it actually appears briefly in the movie that we began this conversation with, it's A Beautiful Mind, and that is suppose I think, for example, that we're playing prisoner's dilemma and you think we're playing chicken. So we think we're in different games.

People ... so there's uncertainty about what is the strategic problem. People before Harsanyi didn't know how to deal with it. Harsanyi created a solution. His solution was to say well let's suppose, besides you and me, there's a third player and we'll call that third player nature, and with some probability, nature has chosen that we're playing a prisoner's dilemma and with some probably it's chosen that we are playing chicken. We each know that probability. We don't know which game we're playing for sure, but we know that there's some probability that it's one or the other. And as we play and we observe behaviour, we will learn to improve our estimate of that probability. And so we will come to eventually the optimal strategy, given what we each believe is the situation.

So it was really a trick in which he said you ... by assigning these probabilities and then the issues become how you assign those probabilities which is an empirical problem, not a theoretical problem, you can solve the game. Then a group of people, particularly a group of people at Stanford, worked out a solution concept, a modification of what is called Nash Equilibrium. So John Nash's equilibrium concept is really very simple and very intuitive. It says that the game is played in such a way that each player has no incentive, no interest in changing the strategy, the set of actions that that player is going to choose unilaterally. So I would only change action if I believe that you were going to do something different than I thought, than I originally thought you were going to do. But as long as I have a view of what you're going to do, there's a best response from me. Once we introduce uncertainty into that, so I don't know what you're going to do, then a group of people worked out so how could we address what is the best strategy for me to choose when I don't know what you're going to do, but I have a belief that there's some probability for example that you're a very tough type of person and there is some probability that you're not.

There's some probability that Saddam Hussein had weapons of mass destruction in 2003, and some probability that he didn't. So George Bush would be sitting there thinking, well there's some chance he does, there's some chance that he doesn't, what's the optimal response under each of these settings? And Hussein, for his part, would also be sitting there thinking, well there is some probability that if Bush believes I have these weapons, he'll attack me and overthrow me, and there's some probability that if he believes I have these weapons, he will be deterred by domestic political pressure that will fear the consequences. And there's some probability if he knows I don't have these weapons, that he'll attack me or not. Well, one could see how to thing that through and if you actually sit down and write that out, what you'll discover is that if you were Saddam Hussein, the optimal thing to do would be to have not made obvious that you did not have weapons of mass destruction because the best chance of preventing the United States from invading, didn't work out for him, but the best chance was to persuade the Congress not to authorise the war on the basis that there would be too many Americans killed because he had these weapons.

So he therefore had an incentive not to let inspectors in whenever they wanted to, and so which is what he did. At the same time, this would have reinforced the belief on the part of George Bush that he has weapons of mass destruction because if he had them, he certainly would want to keep this hidden so as not to create political problems. If he didn't have them and he believed that we wouldn't attack him, maybe we wouldn't have the basis to attack him if we knew he didn't have them, he would reveal it. So only somebody really didn't have them would let inspectors in. Somebody who did have them, wouldn't let inspectors in, and somebody who did not have them, might not let inspectors in because he wants to show, he wants to bluff that he's tougher than he is. So we have a solution concept for working out how you use that information to create your beliefs and to become informed by observing the actions and that's ... these are the insights that Harsanyi, Selton and some others had that allowed game theorists to address uncertain situations in a more comprehensive way.

It's a little hard to explain without a blackboard, but that's sort of the idea.

Asia2025: Well you did an exceptional job, I have to say. I did actually understand it, so thank you so much. I would just like to say that I will bring you forth yearly to discuss what has happened between China and the United States and how we can put it into a game theory model. So thank you so much for your time.

BBM: My pleasure. Thank you.

Asia2025: And that was Bruce Bueno de Mesquita, talking to us about game theory.

You're listening to Asia 2025. I'm Maryann Keady, and we're talking game theory and strategy.

Well it seems but a small jump to go from game theory to what are the Chinese thinking strategically. I'm not sure if you heard, but this week the Chinese made very public announcements that if the US pressured them on trade, they would think about dropping the US reserves on the world market. Whether or not this is good strategy is debatable, but they could be, in game theory terms, just bluffing.

Professor Avery Goldstein from the University of Pennsylvania, is someone who can give us some idea of what Chinese strategy is today.

He is the author of Rising to the Challenge: China's Grand Strategy in International Security, as well as the author of many articles on this subject.

Is China still adhering to a peaceful rise, and how is it dealing with the strategic environment that sees the United States as a remaining superpower?
Well, Avery Goldstein has thoughts on this and he talks to us about how the EP3 spy plane incident nearly led to a new cold war between China and the United States.

He also tells us how the next three years are going to be very rocky indeed for US-China relations.

I began the discussion with what might be the predominant strategic thought in China today.

AG: Well I think it's pretty clear the most important influence on China's military strategy, its grand strategy, is they're thinking about the United States and the world in which they live that the United States is really defining. And what they have to do is cope with that international reality while also trying to increase their influence within the region and East Asia. But I think also more recently to try to elevate their profile on the world stage beyond Asia.

Asia2025: Well it's been pretty much about this peaceful rise and historically, I mean if we go back, the Cold War ended, it was thought that we were going to have a multi-polar world, but China realised as was evident in the Taiwan Strait dispute, that it seemed to be a world of US power and alliances, that China still had a long way to go in challenging the US.

How much did that affect Chinese strategic thought and is that when we really started to begin to see this, this phrase of China's peaceful rise?

AG: Oh, absolutely. I think the lingo of peaceful rise doesn't emerge until the early 21st Century. But clearly it was a reaction to not just the situation in the Taiwan Strait in 1996, but also China's observations about what the United States military was able to do in the Balkans, in the Persian Gulf more than once, and their assessment that China just was not got going to be in the same league as the United States for many, many years, and that there were no other candidate great powers out there that were likely to challenge the Americans. So they were going to have to learn how to cope with a world in which the United States remained the sole superpower, a world in which the United States, as you said, through alliances and through its own capabilities, could frustrate China's ambitions if it chose to do so.

Asia2025: Well certainly for its economic growth, it's required to move within the International system, isn't it? And it's increased its partnerships. Explain to us how China has reduced the prospect of people being alarmed by their growth or provoking them to oppose China.

AG: Yes, well in this case it has to do with the mutual benefit that China and its trading partners derive from their economic relationships. Again this is a situation where the international economic system is one where China faces not only the United States, but other countries closely allied with the United States, major advanced industrial states that are American allies and trading partners. And China has sought and succeeded to become integrated into that international economic system. And to the extent it has, it's become a valued trading partner, both an importer and exporter of goods with many of these countries and they recognise that if they step on China's toes or confront China over issues that China cares very deeply about, that they run the risk of souring those economic relations. And China can use that without really being explicit about it, can play that economic card as a way of ensuring that others don't really challenge China.

Asia2025: Well, I mean, we have seen today though, with the sort of discussion on regarding trade disputes between the US and China, that China's threatened to dump a trillion US dollars on the market and they're sort of saying we will do this, if this sort of continues.

AG: Well that's very interesting. Actually I think that what happened was someone without really the authority to say so, floated this idea that China might consider ... might think about doing this. But I don't think the Chinese are likely to explicitly make these kinds of statements or these officials won't make these statements. And I think this is probably the sort of thing that they would like to remind others about the consequences of disrupting these trade relations. But if China were actually to take the kinds of actions they're talking about, it would not only harm countries like the United States and others, but certainly would also harm China since China's so heavily invested in the international economic system now.

Asia2025: Right. So it would be basically sabotaging its own growth.

AG: It'd be self-defeating.

Asia2025: Well, but on the issue of Taiwan, China is rather intractable, isn't it?

AG: Yes.

Asia2025: Is this part of their strategy? Or is it an Achilles' heel, its nationalism....that may prove to be costly? It's just something that I've constantly wondered.

AG: I think, with respect to Taiwan, it is different, the Taiwan situation. But the Chinese over the past two or three years, seem to be more forward thinking and realise that if they can play for time, that the situation with respect to Taiwan is likely to work to their advantage; that the rhetoric about peaceful resolution of this difference has been around for a long time. But I think they believe in it more than in the past, that if they can avoid a crisis in the short term, that things will in fact work out the way they want them to work out with respect to Taiwan.

But this is the one issue where if China is pushed too hard, they've dug in their heels, they've publicly committed themselves not to bend too far on the Taiwan issue, and they would run the risk of in fact confronting the United States militarily, they would run the risk of paying a heavy price in terms of their economic interests, and I believe it when they talk about running the risk of perhaps disrupting the 2008 Olympics if it comes to that, if they're pushed too hard on the Taiwan issue.

Asia2025: That's quite extraordinary, isn't it, I mean, because that is only a couple of months away I guess.

AG: And they've got a lot invested in it, not just financially.

Asia2025: When you say a lot invested, you're talking about the historic and the nationalistic sort of aspect to this?

AG: They see this as, as it's often put, as their coming out party on the world stage. They see Olympics that have been held in Japan in 1964, and in Korea, South Korea later on, as the events that really heralded their emergence of these countries as major players on the world stage. It gets them a lot of recognition. And domestically within China, they've really geared up the people to view this as a major event as China re-emerges as one of the world's great powers and they talk in China about not just holding the Olympics, but holding a perfect Olympics as they sometimes put it.

Asia2025: But in the ... if you take the view of the US strategists, it also is possibly a window of opportunity for the US then to pressure China if it wished to do so, let's say on currency issues.

AG: It is, and not just on currency issues. This is ... one of the things I heard when I was in China in June was that between now and the holding of the Olympics, the Chinese leadership was going to be very sensitive to trying to ... insofar as they would try to avoid any major confrontations, anything that could clearly disrupt the Olympic games. Now part of that would entail cracking down on dissidents and other groups at home.


But part of it is also probably to make some concessions to foreigners on issues ranging from human rights to the situation in Darfur, perhaps on economic relations so that events over the next year or so don't wind up spoiling the Olympic Games. Again, the one exception to all of that would be Taiwan, that the Chinese will not simply overlook any major dispute over Taiwan, even before the Olympic Games.

Asia2025: Well back to strategy. I spoke to James Holmes last year and we talked about Alfred Thayer Mahan, Clausewitz and Mackinder. These are theorists that the US and Western strategists have traditionally looked to.

But what about China? Are they developing their own strategic thought that counters the premises of these, you know, I guess I call them the fathers of strategy?

AG: I don't think so. I think that in large measure, the Chinese have become consumers of the Western strategic literature. Of course there also is a Chinese tradition, one that has maybe a longer timeframe and greater ... a longer perspective on trends and at least perhaps greater patience in the implementation of strategy. But at least in terms of both my reading of what the Chinese say and also in my discussions with Chinese who think about strategic issues, it's clear that they are very much consumers of geostrategic thought, they think a lot about the importance of sea powers, they've become a more important international trading nation and what that implies in terms of requirements for China to develop its Navy, even if it's not going to be a Navy on a par with the United States.

Asia2025: Well in your article, "Rising to the Challenge: China's Grand Strategy in International Security", you look at how China and the United States nearly fell into a cold war after the demise of the Soviet Union.

What happened, and how?

AG: Well I think what happened in terms of US-China relations was that the collapse of the Soviet Union coincided with a very strained period in US-China relations after the Tiananmen Square incident in 1989. And so you not only had the demise of the common enemy that had helped drive the United States and China together in the 1970s and the 1980s, but you also had a change in the perception of the United States and many other Western countries about the nature of the Chinese regime from one that was a strategic ally of sorts against the old Soviet Union in the Cold War, to perhaps the one remaining power out there that was hostile to the United States and whose domestic political system was one that we found distasteful.

And the reaction in the United States to the events in Tiananmen Square I think really soured many Americans' perception of China and from the Chinese perspective, the events in Tiananmen Square raised the spectre along with the subsequent collapse of the Soviet Union that their political system might be at risk. And some in China viewed the United States as actively promoting what we now call regime change in China. And so they were growing ... coming to see the United States as potentially a threat to their own domestic stability. So I think on both the American side and the Chinese side, there was this growing sense that they were emerging as at least rivals and perhaps at some point adversaries down the road.

Asia2025: Well you say that congagement, the strategy of containment mixed with engagement, has saved the US and China from this scenario. But do you think this policy of congagement can continue with the pressures of the currency revaluation, trade wars, America's close alliance with the allies in Asia, Japan and Australia and others? Surely this is redetermining what the policy is towards China.

AG: Well I think this phrase congagement actually was developed by some think tankers in the United States. I think it does capture this notion that there are areas of our relationship with China where in fact we have conflicting interests and we want to contain Chinese influence, but that we do have common interests where we want to engage China and we can gain mutual benefits from cultivating the relationship.


And I do think that it is ... it can be a durable approach, this idea that we have a mixed interests and we're neither purely friends nor enemies, but that there are certain areas where we cooperate and work together, but there are invariably going to be areas where we have sharp disagreements. I think on the economic dimension, the idea that we have frayed tensions with China, disagreements about the currency, etcetera, and more recently concerns about Chinese consumer product safety, I think these are the sorts of conflicts that I find quite management, that in fact economic tensions are rarely the kind that lead countries to become outright military adversaries. I'd be more concerned about the ... whether or not, and it's really an open question, China will accept the role that the United States is willing to grant it in terms of its military power in the Western Pacific. I think that's really an open question.

Asia2025: Are you saying, sorry, the military power of China? The growing military ...

AG: Yes. I mean, China will grow more powerful. The question is will it be satisfied with the kind of military profile that the United States will find acceptable in the Western Pacific. It's unclear what the United States sees as an acceptable level of military power for China to wield in the Western Pacific which has long been an area where the Americans have been preponderant.

Asia2025: Well you have said though, and it's something that I would agree with, that the US holds, still holds huge advantages over China, both in hard and soft power. I mean, since 9/11, strategically the United States has made inroads into the heartland, Mackinder's heartland, Central Asia.

AG: Yes.

Asia2025: Surely this is something that continues to make Chinese strategists think long and hard before any sort of attempts to sort of go to any military conflict with the United States.

AG: Absolutely. They're not in a position, as you said. At present, the Americans have such a huge advantage in terms of military capabilities, both on land and at sea, that the Chinese cannot directly challenge the Americans. And the Chinese have been concerned about the American military presence that's grown in Central Asia, especially since the war in Afghanistan began. But the Chinese response hasn't been simply to sit there and wring their hands. Instead, they have cultivated through the Shanghai Cooperation Organisation, through diplomatic efforts, and jointly with other countries in the region, a diplomatic position that attempts to pressure the United States into minimising its military footprint in the region and in fact Shanghai Cooperation Organisation has encouraged the United States to, as soon as is feasible, to begin to diminish its military presence in the region around Afghanistan.

So I think in the short term, China's strongest card is its diplomatic card. But at the same time, they will continue to build up slowly and steadily their military capabilities.

Asia2025: Well you do believe that you think it'll be a couple of decades before China really becomes a great power? Is that something you still believe?

AG: Yes. If you mean by great power, a peer competitor of the United States?

Asia2025: Correct, sorry, yes.

AG: I do think that that is absolutely the case. In the interim, China can still cause tremendous problems for the United States in the event of a conflict, but it is unable to wield the kind of clout on a variety of dimensions and beyond its ... beyond the area of China's immediate orders that the United States is able to wield on the world stage. So at least a couple of decades.

Asia2025: With the US having a strong hand, I've just conducted an interview on game theory, with the US with a strong hand and China playing a weak hand, are there pitfalls for both powers?

AG: Certainly. One of the ... for the United States, I guess can look at it from either player's perspective here, from the American perspective, I think the concern is overplaying the American hand and putting on ... partly provoking the Chinese to conclude they have not recourse other than to build up and challenge the Americans at some point in the future and to encourage them to work even harder to catch up more quickly, and perhaps to encourage some other countries that view the Americans playing their hand, playing too strong a hand, or pushing the Chinese too hard to perhaps support the Chinese.

And of course the candidate country that might react in that fashion and help out the Chinese might be the Russians. On the Chinese side, looking at it from their perspective, I suppose the mistake that the weak can make is to too aggressively try to strengthen their hand and in so doing perhaps provoke the stronger state, the United States, to decide that it's better to act sooner rather than later, to cut the Chinese down a peg.


So I think the Chinese self-restraint serves their interest at this point. I think they recognise that, but as you mentioned earlier in our discussion today, one of the questions is the extent to which rising Chinese nationalism might push the leadership to act too aggressively and perhaps provoke the United States.

Asia2025: But knowing China as well as you do, do you subscribe to the view that it's like Germany at the beginning of the 20th Century, that it wants its place in the sun? Do you subscribe to the view that China does feel that it is going to be the natural hegemony of Asia one day?

AG: I think they really haven't resolved this for themselves. Certainly there are some in China's strategic think tanks that hold that view. There are others who I think have a more sober point of view. And in fact in my book, Rising to the Challenge, the argument I make is that I think China's strategic thinkers today aren't at the same place intellectually where German thinkers might have been in the early 20th Century, but rather where Bismarck was in Germany in the 1870s, looking ahead, wanting to consolidate a position as a great power, realising it was a risky environment, a risky world in which he had to operate and trying to craft a very subtle, diplomatic and military strategy that would bide time for Germany while it rose to become a true great power.

I don't think that Bismarck necessarily would have, and probably would have disagreed with in fact the kinds of policies that Germany pursued in the early and mid 20th Century. And I think it's an open question what the successors of leaders in China today will see as the appropriate way forward for China. I think it's possible they can make the kinds of mistakes that Germany, and after Germany, Japan made, but I don't think it's inevitable.

Asia2025: Well how much ... I mean, I'm just looking at that traditional strategy, say like Sun Tzu, how much is surprise still a core feature of Chinese strategic thinking? Have they stepped back from this?

AG: Surprise.

Asia2025: You know, I always think of Sun Tzu and think of the, you know, that key line where you know the element of surprise is an important part of warfare.

AG: Right. Although I would say that's probably true not just of the Chinese but most military strategists would prefer to have the element of surprise on their side. I do think there is certainly an element of that in current Chinese thinking about how, if pushed, they would cope with a crisis in the Taiwan Strait. Clearly the one, the best scenario for them if they have to have recourse to military force, is to be able to get in a quick and unanticipated first blow to try to cripple the Taiwanese military insofar as they can and perhaps to preclude the American ride to the rescue which would be ... which would follow. So I think that element is still there.

One of the disadvantages they have, however, is that there aren't many venues in which the Chinese would be able to take advantage of the element of surprise, certainly not in a direct engagement with the United States, far from China's borders.

Asia2025: Why is that?

AG: They don't have the ability to project power very far. And so China can prepare military capabilities in China for use in the Taiwan Strait that are geared up and ready to go, but to project power much beyond the Taiwan Strait, even very far into the South China Sea, let alone to the East China Sea in confrontations with Japan or even further out, dealing with American forces in the Western Pacific, not to mention dealing with the American homeland, is well beyond what the Chinese are able to do at this point.

Asia2025: I know you're not a seer, Avery Goldstein, but what do you see in the next, I'm not going to say five, because that's far too in the future, but in the next, say, three years? What do you see in terms of US-China relations?

AG: I actually expect that it's going to be a fairly rocky three years. And certainly the next two years are going to be difficult for reasons that have to do with American electoral politics. I think it's likely that, as often happens in American Presidential campaigns, there'll be a competition in trying to show that each candidate is going to be very tough on China, not just militarily but economically.

I think there are going to be ramifications of the Presidential campaign on the island of Taiwan that runs the risk of provoking a crisis that will drag in the Chinese and the Americans on opposite sides. I think that itself can be folded into the US election, Presidential election campaign in 2008. I think that there is likely to be a resurfacing of issues that might be tamped down in the run up to the Olympics as China tries to forestall any blowups over issues other than Taiwan. And I expect many of these things will start to percolate to the surface in 2008, 2009. So I think the next couple of years are likely to be rather difficult and certainly in the first ... history tells us the first couple of years of a new Presidential Administration in the United States tends to be a time when each side is, China and the United States, are trying to feel out their relation ... and to figure out their relationship and each side tends to adopt a rather tough stance towards the other until the new relationship's defined.

Asia2025: Although if we look at the election of George Bush, of course he was very tough and very outspoken about Taiwan and of course Condoleeza Rice's speech as soon as they were elected.

AG: Yes.

Asia2025: But then we had the war on terror and the relationship changed, or the rhetoric changed.

AG: Yes.

Asia2025: Now is that likely that after, you know, a period of say six to eight months, the rhetoric is cast aside and again there is this discussion of okay, we have to work together economically?

AG: I think that is likely to the extent, as we said earlier, given the mutual economic interests of the United States and China, it would be very difficult to imagine a rupture in this relationship not harming both counties economic interests and indeed the interests of most countries that are integrated with the world economy. I think each side has reasons why it would want to avoid a sharp deterioration in the relationship and I think that you refer to the opening year of the current Bush Administration, George W Bush, that in fact I think it probably would have taken longer to get the relationship back on track.

It would have happened eventually, but that it wasn't just the beginning of the war on terror after September 11th, but even a more important catalyst was the crisis over the US EP3 spy plane and the collision with the Chinese fighter jet that really brought things to a head earlier than might normally ... one might normally anticipate in terms of resolving the nature of the US-China relationship.

Even before September 11th, over the summer of 2001, there were delegations going back and forth, there was Secretary of State Powell's visit to China that really began to signal that the new Bush Administration was not going to adopt a very hard line on China but rather is going to try to figure out some way to develop a good working relationship with the regime in Beijing.

Asia2025: So after the spy plane incident, was it a matter of each going back to their corner and working out how this was going to play out?

AG: I think, as I guess I might have put it in the book, each ... they looked into the abyss, they realised where this was headed. I mean, it was possible that a confrontation of the spy plane could have gotten even uglier, but I think both sides had ... it was a sobering incident where each side understood what it would mean to truly push this to the limit and have the relationship deteriorate into a New Cold War.

And I think the Chinese, especially for their own economic interests, realised that that might in fact doom their aspirations to rise to great power status because it'd be hard to sustain their economic development. And on the American side, I think there was a recognition that there were many problems that would be much more difficult to solve without a good working relationship with the Chinese. Terrorism wasn't at the top of the list in the summer of 2001. It became much more important thereafter.

Asia2025: And that was Avery Goldstein, Professor and Chair of the Political Science Department at the University of Pennsylvania. I might add that I will also post the interview I did with Tim Harford, Financial Times economist and author of The Undercover Economist, also looking at game theory. Harford explains how game theory can be applied to both sport and poker.

And that's it for this week. Asia 2025 is produced at the Argo Network in New York with Paul Ruest.

I'm Maryann Keady. Thanks for listening. Have a great week.