IN MARCH 2000 Bill Clinton divided American opinion on China into two camps. First came optimists with an eye on the future, who could see China becoming “the next great capitalist tiger, with the biggest market in the world.” Then came hawks and pessimists, stuck in the past, who saw China stubbornly remaining “the world’s last great communist dragon and a threat to stability in Asia.” A generation later, those words have the poignancy of a message from a lost world.

Like many either/ors, this one turned out to be a both/and. The China of Xi Jinping is a great mercantilist dragon under strict Communist Party control, using the power of its vast markets to cow and co-opt capitalist rivals, to bend and break the rules-based order and to push America to the periphery of the Asia-Pacific region. It is confident of its strength—since the financial crisis of 2008 it has touted state-guided capitalism as superior to free markets—and newly willing to show its teeth, deploying military might to redraw maps in the South China Sea. It punishes foreign businesses for the actions of their home governments. It is engirdling Eurasia with the contracts and rules that come along with the roads, railways and fibre-optic cables of its Belt and Road Initiative.

This has led to the starkest reversal in modern geopolitics. Political leaders and China-watchers across the West—most notably in America, but also in Europe, Australia and Japan—have come to believe that they were wrong about China’s rise. From cabinets to boardrooms to book-lined studies, voices which once argued that a growing middle class would drive China towards Western values have fallen silent. Hopes for reform were dealt a fresh blow when the Communist Party announced the scrapping of term limits for China’s presidency, allowing Xi Jinping to remain head of state indefinitely (see article).

Greatest good, greatest number

Instead debate divides those who think that it was naive to try engaging with China on the basis of such optimism and those who believe it was rational to make the attempt. Defenders of engagement have a point. China decided to rejoin the world after decades of Maoist isolation of its own accord; thinking that it was better to manage the process than not, as successive American governments did, made sense. Few were entirely Panglossian on the subject. Even in the headiest times America paired engagement with a need for “balancing” China’s rise, strengthening American forces in the Asia-Pacific and deepening security and trading alliances. The benefits were real. Cheaper goods have been a boon for American consumers; many American companies have done well out of China. And the simple fact that hundreds of millions of Chinese were raised from poverty counted for something with some Westerners.

But the China sceptics had a point. The West was too confident that a prosperous China would inevitably see its liberal democracies as a model. In hindsight, a lot of clever predictions about China look like wishes in disguise.

There is nothing dreamy about the National Security Strategy America published late last year. A general statement of the administration’s worldview, it says that China “challenge[s] American power, influence, and interests”. For decades, it goes on, American policy was “rooted in the belief that support for China’s rise and for its integration into the post-war international order would liberalise China.” This is deemed a mistake: “Contrary to our hopes, China expanded its power at the expense of the sovereignty of others.”

In consequence, though the strategy stops short of urging a return to cold-war containment, it proposes tougher curbs on Chinese spying and theft of intellectual property, especially from the most innovative American firms. In January an American business delegation warned Chinese officials of Politburo rank that aggressive trade actions by America are more likely than not. Mr Trump’s administration announced tariffs on aluminium foil on February 28th. It is soon to decide on steep tariffs against steel imports and the merits of a trade complaint punishing China for forced transfers of technology; that may allege close to $1trn in total damages.

Even those on the free-trade side of these debates worry about such showcase policies as “Made in China 2025”, a technology strategy aiming to create national champions in robotics, biomedicine, electric vehicles and more. When asked if they worry that China-curbing measures might disrupt global supply chains, nationalists on Team Trump reply that they want to reroute such chains back into America, while there is still time. In the Senate Republican free-traders like John Cornyn of Texas and Democratic champions of openness like Dianne Feinstein of California are co-sponsoring a bill to tighten the screening of Chinese and other foreign investments for national security.

Not long ago, such sabre-rattling would have triggered an uproar from corporate chieftains, worried about reprisals that would shut them out of China’s markets. But big business is no longer a reliable cheerleader for China. The Stockholm China Forum, a private gathering of senior government officials, diplomats, business bosses and academics from China and the West, recently met in Hong Kong. Never before in the forum’s 11 years have those assembled sounded so gloomy.

Nothing to lose but your supply chains

Foreign businesspeople talked of the “promise fatigue” that has set in as Chinese markets are opened only after they have ceased to matter (the recent decision to allow in American credit cards now mobile payment systems have made them irrelevant is an example). There was talk of dawn raids by Chinese regulators who take away computers filled with priceless intellectual property and global client lists, and of Western businessmen detained on murky grounds. They were especially shaken by the Chinese government’s punishment last year of Lotte, a South Korean-Japanese firm which owns land south-east of Seoul on which American anti-missile batteries are now based. The Chinese dislike the radars, which could see deep into their territory. So they have closed Lotte supermarkets in China, ostensibly as fire hazards. Such arbitrary actions oblige even those businesses making hefty profits in China to think hard about diversifying their risks.

Though some sectors of American business, including retailers and commodity exporters, enjoyed a bumper 2017 in China, the days when boardrooms would nod through anything resembling a bold China strategy are over. Today, faced with continued Chinese subsidies, competition from state-backed rivals (see Schumpeter) and limited market access, the mood is grim.

It could get grimmer. Western officials and experts note China’s growing military strength and its increased willingness to interfere in political debates across the democratic world, whether by funding friendly politicians and academic institutions, stirring up nationalism among Chinese students overseas, buying up foreign media outlets or bullying publishers. The “window” for confronting and challenging Chinese aggression, they say, is closing.

Part of what is so spectacular about the decline of Sino-optimism is how recently and how thoroughly it held the high ground. The idea that global engagement and rising prosperity would drive Chinese convergence with Western values was one of the last beliefs shared by all sides in the Washington elite. In that speech from 2000, aimed at encouraging Congress to dismantle barriers to commerce with China prior to its joining the World Trade Organisation (WTO), Mr Clinton drew a direct line between free enterprise and pressure for accountable government. When individuals have the power to realise their dreams, he enthused, “They will demand a greater say.” Just two months later George Bush, campaigning for the presidency at a giant Boeing plant, predicted that China’s WTO entry would bring both more jobs and political benefits. American goods would flow to Chinese consumers, China would enjoy “more open contact with the world of freedom.’’

The optimists’ camp could count on support from political and business elites, and from diplomats and sinologists who had been watching China’s rise since the last days of Chairman Mao. The pessimists’ camp was much smaller, and was dominated by old-school security hawks and hard-to-impress trade union leaders, sniffing a plot by bosses to lower American wages. Now one of their number sits in the Oval Office.

Westplaining modernity

The optimists made two sorts of mistake. The first was to overestimate the subversive power of various novelties. This was often an error of projection: they could not imagine being as tireless as Chinese leaders turned out to be in defending their authority. Modern telecommunications technologies “have proved an unambiguous threat to totalitarian regimes,” Rupert Murdoch claimed in 1993. He later recanted, seeking to assuage appalled Chinese leaders, but plenty of others insisted that he had been right first time, if not about the faxes and satellite televisions of the 1990s, then about the internet of the 2000s. Why, technology entrepreneurs would scoff in Beijing bars a generation ago, China would have to hire hundreds of thousands of secret policemen to control the internet. Then China did more or less precisely that.

When Britain returned Hong Kong to China in 1997, under a 50-year agreement to preserve its free speech, free markets, rule of law and limited democracy, a New York Times columnist wondered if the city would prove a “colossal Trojan Horse”, bringing democracy to China’s mainland. Today Benny Tai, an activist law professor, sees little scope for an Odysseus of Hong Kong. Mr Tai was one of the founders of the Occupy Central protest movement which blocked streets in the business and financial heart of Hong Kong for weeks in 2014, in a bid to press the government to move towards universal suffrage—something Hong Kong’s Basic Law promises. But he no longer believes that direct pressure from Hong Kong democrats is enough to achieve universal suffrage. He now believes Hong Kong’s best hope is the emergence of a democratic movement in China.

The second broad error made by optimists was to imagine that Western governments and organisations could explain to Chinese leaders where China’s self-interest lay. The modern history of foreign interactions with China is littered with such sometimes condescending attempts. An ambassador to Beijing, 20 years ago, was fond of describing one of the West’s roles as helping China to correct its worst blunders. Our job is “to build ladders for China to climb down,” he would sigh.

More subtle attempts to influence China aimed to harness forces pushing for change within the system. Working with reformist officials, Western governments promoted the idea that China could benefit from the rule of law, even if it were not ready to adopt universal values. They organised seminars and gave scholarships to judges and lawyers to study abroad on the argument that, if prosecutors, police officers and courts were to grant citizens the rights which in theory they already enjoyed under China’s laws and constitution, that would be a big advance. But with some reformist lawyers jailed and many more silenced, and with Mr Xi opposed to any separation of powers that might put laws above the Communist Party, a foreign expert says: “The window has closed, the chance of using the rule of law to advance human rights has vanished.”

Attempts to explain to China why it should join the West in a rules-based global order reached a high point in 2005. In an influential speech Robert Zoellick, then America’s deputy Secretary of State, urged China to become a “responsible stakeholder” in the international system that was helping it become stronger and more prosperous. The world, he said, was watching China’s rise and was wondering how it would use the influence that came with it. That very gentle, veiled threat came along with an assessment of China’s fragility. Pointing to strikes, rural anti-corruption protests and rising crime, Mr Zoellick advised: “Closed politics cannot be a permanent feature of Chinese society. It is simply not sustainable—as economic growth continues, better-off Chinese will want a greater say in their future, and pressure builds for political reform.” Seeking signs of hope, he pointed to village and grassroots elections and suggested that “they might be expanded—perhaps to counties and provinces—as a next step.” That turned out to be a mirage—but only after American presidents had praised such elections time and again in speeches to Chinese audiences.

Western leaders also spent years praising China for embracing global goods, with varying degrees of justification. Europeans spoke admiringly of the leadership it showed in climate diplomacy and renewable energy. Its rulers were hailed for hosting six-party talks aimed at curbing North Korea’s nuclear programme. The mood has soured now. China has signed up to unprecedented sanctions on North Korea, curbing its coal trade with that murderous regime. But Chinese leaders continue to water down and resist still-harsher sanctions, as they fear the collapse of the Kim regime more than its nukes.

The strong and the weak

Some past optimism was a form of cockiness. Asked about some warships China had bought from Russia in 2000, an American in Beijing described them as “an interesting morning’s work for the Seventh Fleet.” Not now. Pentagon types question the military utility of China’s outposts in the South China Sea. But the new bases, built atop reefs bulked up with dredged rock and sand, have real diplomatic nuisance value. Ian Storey of the Institute of Southeast Asian Studies in Singapore notes that China is urging neighbouring governments to agree on a Code of Conduct for the South China Sea that would ban military exercises within the 200-nautical-mile (370km) Exclusive Economic Zone of any coastal state without that state’s permission. That would greatly complicate America’s life in the Pacific.

Far from China converging with international laws, Western officials see the country seeking to be subject only to weak and vague rules over which it maintains strong powers of interpretation. Though not challenging bodies like the WTO or UN directly, China is increasingly keen on alternative forums. Nobody is quite sure what China means when it calls for schemes funded under the Belt and Road Initiative to be subject to special dispute settlement courts in China, but it makes American and European officials anxious.

Weighing the challenge of a rising China dispassionately is made harder by a simultaneous, and not coincidental, crisis of confidence in the West. One happy story that no longer provides much cheer is the idea that open societies will always outpace lumbering autocracies. In 2013 America’s vice-president, Joe Biden, dropped in on the visa queue at the American embassy in Beijing and startled the Chinese students there with his observation that though American school pupils might not be at the top of global league tables, their defiance of orthodoxy gave them an edge. “Innovation can only occur where you can breathe free,” he told them. In a speech in 2014 Mr Biden conceded that China is graduating lots of scientists, but challenged his audience to name “one innovative product that has come out of China.”

Today the West is in a funk. It is a time for serious thinking about how to balance China more effectively, with a united front and without losing sight of the strengths of democratic, accountable government, a free press and independent courts. Instead the West feels tired, timid and tetchy. From Washington to the capitals of Europe, the air is filled with calls for “reciprocity” in dealings with China. Such calls cover everything from more aggressive screening of investments to proposals to deny Chinese academics visas if Western counterparts are denied access to China. More transparency is a necessity when Chinese money is on offer. But few will win from tit-for-tat reprisals.

Western politicians have spent years rationalising their retreats in the face of Chinese pressure. The West has lost hope that it can make China embrace universal values. That would be a poor reason for the West to betray those values in response.