China-US relations

What’s next for China-US ties as President Donald Trump begins year two at the White House?

His flip-flopping approach to relations with Beijing left everyone guessing in 2017, but no one is expecting him to behave any differently in the year ahead

PUBLISHED : Friday, 19 January, 2018, 6:00am
UPDATED : Friday, 19 January, 2018, 11:28pm

A year into US President Donald Trump’s presidency, his relationship with China reflects – perhaps more than in any other area – the policy reversals that have characterised his tenure and undermined his administration’s key objectives.

As year two dawns, analysts and policymakers are forecasting further friction.

Washington’s position on some of the most pressing issues identified by the US leader, problems that require Beijing’s cooperation, has weakened: the US trade deficit with China has grown and North Korea appears to have nukes.

While multiple US government investigations into China’s trade and investment practices are under way, and the threat of punitive tariffs looms, there is no sign that Trump will temper his outbursts on any subject. This was made clear by the recent controversy over what coarse expletive he used in meetings with lawmakers and cabinet officials to malign Haiti, El Salvador and African countries.

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More downside in relations with China would jeopardise the world’s largest bilateral trading relationship, valued at US$648 billion in 2016, and two-way foreign direct investment worth more than US$250 billion in the past 10 years.

We have seen the cycle of the volatile Trump being nice to China this minute and the next he is harsh to China
Shi Yinhong, Centre for American Studies at Renmin University of China

“We have seen the cycle of the volatile Trump being nice to China this minute and the next he is harsh to China,” said Shi Yinhong, director of the Centre for American Studies at Renmin University of China in Beijing and an adviser to the State Council, the country’s highest government body.

Speaking in an interview with the South China Morning Post, Shi said he was “not optimistic” about the prospects for bilateral ties because Trump appeared set to impose punitive tariffs on imports from China.

He was referring to Trump’s pivots from China-bashing – with accusations of currency manipulation, hacking and stealing American jobs – a year ago, to praise for President Xi Jinping and admiration for his ability to exploit the global trading system, during their bilateral meetings in April and November.

“I don’t blame China,” Trump said during his state visit two months ago. “After all, who can blame a country for being able to take advantage of another country to the benefit of its citizens?”

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Trump then blamed his predecessors for letting “this out-of-control trade deficit to take place and to grow”.

The November trip, according to Trump, was a success because US$250 billion dollars of deals were signed, including a plan by Sinopec, China Investment Corporation, Bank of China and others to develop a liquefied natural gas export terminal in the US and a 1,290km pipeline to deliver fuel to China.

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Trump then switched back to belligerence after North Korea tested a missile that flew higher and longer than any other fired by its military, accusing Beijing of doing too little to stop Pyongyang’s nuclear weapons programme. Somewhere around this time, Trump ended his administration’s “Comprehensive Economic Dialogue” with China, a bilateral effort to address “major economic policies” including “cooperation to shrink the trade deficit”.

The lack of clarity led to anger and anxiety on both sides, reflected in the collapse of two high-profile cross-border deals and culminating in Trump’s national security assessment last month, in which he said China was actively working to undermine US security interests.

A partnership between Huawei and AT&T fell apart late in negotiations, with reports that the US telecommunications giant had walked away under pressure from Washington regulators, which reportedly expressed concerns about Huawei’s ties to the Chinese government and security agencies.

The Committee on Foreign Investment in the United States (CFIUS ), an inter-agency federal review panel shot down Ant Financial’s US$1.2 billion takeover of US money transfer service MoneyGram. Ant Financial is an affiliate of Alibaba Group, which owns the Post.

Tighter scrutiny on Chinese investments in the US through CFIUS is one of the few policy areas where Trump’s administration is aligned with Republicans and Democrats in Congress.

“China poses a threat unlike anything the US has ever faced before – a powerful economy with coercive, state-driven industrial policies that undermine the free market, married up with an aggressive military modernisation and the intent to dominate not only its own region, but potentially beyond,” Senator John Cornyn told lawmakers in a hearing in Washington this week.

Cornyn and Senator Dianne Feinstein, a Democrat, introduced legislation in November that would expand CFIUS’s authority to determine what investments constitute a potential threat to US security and make reviews of investments involving certain technologies mandatory.

The legislation has the support of US Defence Secretary James Mattis, Treasury Secretary Steven Mnuchin and Attorney General Jeff Sessions.

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There were more signs of a deteriorating relationship this week when, in a phone call with Xi, Trump expressed his “disappointment” that the US trade deficit with China grew in 2017 and said “the situation is not sustainable”.

China’s trade surplus with the US rose 8.6 per cent year on year to a record US$275.8 billion, or about 65 per cent of China’s total global trade surplus, the General Administration of Customs said last week.

Expectations that the current anti-China posture will continue are supported by its survival following the ouster of Trump’s former senior policy adviser Steve Bannon, who, according to a recent insider account of the president’s first year in office, pushed for an “all-encompassing war” with Beijing.

Those with more moderate views about China, including Trump’s chief economic adviser Gary Cohn and son-in-law Jared Kushner, who serves as a senior White House adviser, have been silent on China.

Kushner has reason to keep quiet. The Wall Street Journal reported this week that US counter-intelligence officials warned him early last year that Wendi Deng Murdoch – a friend of Kushner and Trump’s daughter Ivanka Trump – might have been using her relationship with him to advance Chinese government interests within the White House.

“As China is rising on the global stage, the structure of Sino-US relations is changing and the US’ concerns and worries towards China will continue to exist,” Jie Dalei, assistant professor of international relations at Peking University, said in an interview.

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The personal relationship between Xi and Trump, initially through his inner circle, had previously played an instrumental role in stabilising the rocky start to bilateral relations, he said.

“But I don’t think anyone in China or in any country would be able to say for sure that he or she would be able to influence Trump’s decision-making.”

Other prominent analysts agree about the direction of US-China relations.

“President Trump’s approach to policy, not just to China but to the world, is very difficult to pin down from one moment to the next,” Elizabeth Economy, director for Asia Studies at Council on Foreign Relations, told the Post. “This is the first time China needs to step up to shape the relationship. Somebody has to take the lead,” she said.

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This is the first time China needs to step up to shape the relationship. Somebody has to take the lead
Elizabeth Economy, Council on Foreign Relations

And China is doing just that by engaging more closely with other countries on trade cooperation as bilateral cooperation with Washington withers.

For example, “Canada and China have made steady progress on exploring the potential for a free-trade agreement”, the New York-based Asia Society Policy Institute said in a report prepared by analysts including Wendy Cutler, its vice-president.

Cutler served for three decades as a diplomat and negotiator in the Office of the United States Trade Representative.

In 2017, China, Japan, and South Korea concluded a twelfth round of negotiations on a trilateral FTA, while China and New Zealand held three rounds of negotiations to upgrade their bilateral deal.

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Meanwhile, Tara Joseph, president of AmCham Hong Kong, said the US business community in Greater China was adopting a wait-and-see approach.

“We don’t have an exact sense of what policies we might see out of Washington yet. This administration is a different type of administration, so there’s no script to follow,” she said.

“[But] Nobody wants a slugfest, because that would be bad for business everywhere.”