China and Inner Asia
University of British Columbia, Canada
This paper draws on balance of power theory to analyze contemporary China-India relations in the multilateral trading system. Although balance of power theory has rarely been applied to the economic realm, global economic institutions are an important site of power politics, including dynamics of balancing and alliances among states. Analysis of power struggles within such institutions can therefore offer important insights for our understanding of institutional soft balancing. Despite bilateral tensions, I show that China and India formed a surprising alliance at the WTO to counterbalance the US and other traditional powers. Their alliance proved highly successful, bringing an end to American dominance and sharply curtailing the ability of the US to set the rules of global trade. However, I argue, a key risk of soft balancing to counter the influence of a dominant power within an international institution is that, if successful, it may ultimately cause that state to abandon the institution altogether. The US responded to China and India’s soft balancing by turning away from the WTO, actively undermining its rules and enforcement mechanism, and instead pursuing its interests through bilateral channels. The article thus identifies a distinct and previously unrecognized wedge strategy – vertical forum-shifting, or moving the action from international institutions to bilateral negotiations, to split an adversary coalition.