Column: A balloon has left the relationship between two nations up in the air

An airborne balloon has quickly changed the course of relations between the United States and China.

At the beginning of this month, China was preparing to host U.S. officials in an effort to strengthen diplomacy with the West. The move was meant to establish a more open policy to reinvigorate its economy that has been hampered by the COVID-19 pandemic.

Then just a week later, a reported Chinese surveillance balloon spotted traveling over U.S. airspace was shot down, taking some of the air out of China’s plan.

The Chinese government was left scrambling to explain what happened, claiming it was a weather balloon that had flown off course. The U.S., however, was not convinced. A planned visit by U.S. Secretary of State Anthony Blinken to Beijing to discuss relations between the two countries was abruptly put on hold.

Further intelligence reports reveal a similar Chinese balloon may have flown over or near Hawaii in 2019 and last year. Since the first incident, the U.S. has shot down three other flying objects entering North American airspace. (On Thursday, President Joe Biden said there’s no indication the latter three objects shot down are tied to China’s spy balloon program, and are likely from private entities.)

The balloon fiasco could not have been more ill-timed for China, the second-largest economic power behind the United States. While considered a major rival to the U.S. and the Western global system, recent events indicated that Beijing might be trying to pivot economically to a more open model.

Over the last decade, China’s government began to exercise more substantial centralized control over the country’s social and economic affairs in its goal to become the largest economic power in the world. But with the COVID-19 pandemic of the past three years, China chose to deal with the crisis in the strictest manner. Its economy grew only 3% last year as the government’s “zero COVID” policy of quarantines and lockdowns bogged down the economy.

These measures not only disrupted the lives of citizens in China, but also directly inserted the state into every single instance of economic decision-making. Then in early December of last year, the central government made a stunning about-turn, lifting the lockdowns in an effort to jumpstart the economy.

Beijing policy-makers clearly seem in search of a new politico-economic model to sustain Chinese growth and innovation in the 2020s. This shift implies a move away from government-heavy investment and direction that has not yielded good results. Instead, it includes more market-friendly and nimble policies focused on encouraging private sector innovation and initiative.

How more market- and private-sector-friendly policies in China will benefit the global economy remains to be seen. One of the big unknowns for 2023 is how quickly the Chinese economy can recover. A rapid turn-around in Chinese consumption would boost global growth — including in the United States and Hawaii — and help limit the effects of a looming recession.

Rapid Chinese growth, however, is also likely to reignite global price increases for commodities. Impacting supply and demand for energy and gas, good Chinese growth could be directly felt at the pump in Hawaii.

Following this month’s balloon incident, Biden made strong statements against China during his State of the Union speech. Biden has been vocal about his agenda for America to compete with China when he signed the CHIPS and Science Act last year to invest billions into U.S. semiconductor development and production.

China fired back last week by claiming the U.S. “overreacted” and used similar surveillance balloons over its airspace, although it has yet to provide evidence.

Interestingly, diplomatic tensions come at a time when trade between the two largest economic powers is near an all-time high. Despite the outrage over the balloon, U.S. leaders can’t be too aggressive in economic retaliation against China. The economies of both countries depend on each other too much.

So, while the U.S. and China warily eye each other regarding security matters, the two sides begrudgingly need each other economically and financially. After the balloon incident, what remains up in the air is how long military tensions will linger this time, or if the two sides can get past this quite quickly.

Christopher A. McNally is a professor of political economy at Chaminade University and an expert on U.S.-China relations.