After the end of the Cold War, it was believed that US would emerge in total dominance for a substantial amount of time. However, it appears that time is coming to an end. One rival that has emerged from the fold is China. This is becoming more apparent as the new Trump administration has adamantly moved the United States away from the global policing role, and China has rapidly increased its economic, diplomatic, and military strength in East Asia as evidenced in a recent article in the Washington Post.
While there will no doubt be numerous forms of analysis coming from scholars in international relations regarding the impact of this situation, I think it might be cogent to refer to an old economist and his wisdom on the present scenario. Ronald Coase, an economist championed for his analysis on the nature of firms and externality theory, has numerous insights that can be applied to the situation at hand and prove that much of what Coase said decades before can be interpreted as true.
The first thing to point out is the dynamic shift the United States is taking in terms moving away from its status as a global hegemon. An idea popularized in one of Coase’s works, The Problem of Social Cost, he highlights the issue of transaction costs in making certain kinds of decisions between parties. This step that the President has taken can, in many ways, be interpreted as a realization of the immense transaction costs an aggressive stance toward East Asian powers can be. Based on the previously mentioned article, President Trump and his administration appear to be completely content with China taking advantage of US retrenchment and showing primacy over the South China and East China Seas.
This brings us to another point that Coase articulated in The Problem of Social Cost. Coase makes the argument that when property rights aren’t properly defined, both parties are responsible for the issues experienced and determining a solution to any problem requires reducing harm to both parties. Coase wrote: “The traditional approach has tended to obscure the nature of the choice that has to be made. The question is commonly thought of as one in which A inflicts harm on B and what has to be decided is: how should we restrain A? But this is wrong. We are dealing with a problem of a reciprocal nature. To avoid the harm to B would inflict harm on A. The real question that has to be decided is: should A be allowed to harm B or should B be allowed to harm A?” The idea that both the US and China are great powers mandates that issues, small conflicts in the Pacific, and Global and Asian economic growth are the responsibilities of both powers and function on this principle of reciprocity. In particular, the issue of North Korea and the recent assertions made by its leadership are for both the US and China to resolve. The realization of transaction costs stops at this point for the Trump administration, which believes that the issue of North Korea should be resolved. Traditional realist approaches to this situation would be unable to solve since there is an unwillingness from the administration and significant costs in aggressing against both North Korea and China. This means that a solution which involves both powers and doesn’t harm either one is necessary from a Coasean perspective. This may not necessarily involve a pricing system of sorts, but it does require a delineation of property rights in terms of responsibility to act and contain North Korean aggression.
Another aspect of the scenario that can involve insights from Coase is the literal aspect of intellectual property rights which has exacerbated tensions between the US and China for a significant amount of time. In an article from the Carnegie Endowment for Peace, a core issue they present administration has with China is its constant violation of US and global property rights. Due to the profitability and incentive structure involved with intellectual property rights and international patents, the Chinese violation of these rights poses a serious problem as it quite literally steps on the rights delineated by arbiters and governance structures. An issue that Coase attempted to clear up almost 60 years ago is being brought up on the international stage.
One final thing I will bring up regarding the insights of Coase into US-China relations is based around his paper, The Nature of the Firm. Although Coase wrote this paper to explain the firm as it exists in markets and the economy, I believe there are numerous applications of his analysis of the firm to describe the nature of governments and institutions. Particularly his quote, “…it is usually argued that coordination will be done by the price mechanism, why is such organization necessary? Why are there these ‘islands of conscious power’?” In this quote, Coase is referencing a phrase that notes the idea that informed organization can occur within the uninformed cooperation and stabilization that already exists. I think that this notion he brings up can very much explain the relationship between the US and China, where both countries function as these organized entities of power which can compete against each other. Regardless of how far President Trump takes retrenchment and economic nationalism, the US will always be in constant contest with China over economic, cultural, and diplomatic battles in the near future. Utilizing analysis from Coase, we can see that this relationship can be sustained since the United States as an organized entity still plans on improving and becoming great again.
Ultimately, there are multiple branches stemming from Coasean analysis that can be applied to US foreign affairs. Particularly, the recent issues regarding US-Chinese relations can benefit from understanding the issues outside of traditional ideologies in international affairs. While this kind of thinking may not spill up to policymakers or foreign advisers, it is beneficial to change the perspective on the current issue functions. One can only hope that the upcoming two-day summit set for this week can end with positive results, regardless of what perspective one looks with.

US-China Relations from a Coasean Persepective