There is little cause for optimism in the future relations of the world’s two largest economies: the US and China. About a year and a half ago, US President Donald Trump labelled China a “strategic competitor” while more recently, Kiron Skinner, the director of policy planning at the US State Department, talked of preparing for “a fight with a really different civilisation”. The wide differences and deep distrust between the two powers has been highlighted again with the latest abrupt turn in the bilateral trade negotiations. With or without a trade deal, the turbulence in economic ties, widely viewed as the ballast of China-US relations, heralds more choppy waters ahead. Beijing has shed little light on what exactly China will do to adapt to the changed conditions. A beaming Vice-Premier Liu He said he went to Washington with “sincerity” and despite “pressure” on Friday. But that followed a Thursday commentary in People’s Daily , the Communist Party’s mouthpiece: “We do not want to fight, but we are not afraid to fight and, given no choice, we will fight.” Analysts’ opinions varied on what cards China will play over the longer term. However, even to the most optimistic, it will be a difficult balancing act for Beijing to maintain an otherwise positive and stable relationship with the United States. In a sign of strong distrust, a Pentagon report last week said that many major initiatives by Beijing had posed security threats to the US, and not only its military modernisation. The report also found cause for concern in the “Made in China 2025” industrial upgrading programme, China’s growing interest in the Arctic region, even its cultural exchange programmes. This ‘may be start of long haul’ in crossing trade divide “Be it a deal or not, the US and China are negotiating a divorce,” Pang Zhongying, a Beijing-based international affairs expert, said. “China has been a beneficiary of globalisation amid a constructively cooperative relation with the US in the eras of Clinton, Bush and Obama. “Now, China has to adapt to deglobalisation, the theme set by Trump, amid antipathy stemming from the alleged subsidies to state-owned enterprises, technology theft, unfair trade practice, among other things.” Pang said that the many possible battlefronts on which the US had pressed China included a technology war, featuring the US boycott of China-developed 5G communications networks, and a currency war, with China forced to appreciate the yuan against the US dollar. In a worst-case scenario, he said, China faced a lost decade. “China is not prepared to cope with that. The only strategic solution to my knowledge is the Belt and Road Initiative, but that does not sound feasible,” he said. No resolution as US-China trade war talks end The initiative, also known as the New Silk Road strategy, is President Xi Jinping’s signature programme intended to connect Asia, Europe, Africa, Latin America and other regions through infrastructure and trade. Since the programme’s launch in 2013, it has attracted 126 partner countries and 29 global organisations. It is not clear to what extent China’s goals for the initiative have been or will be achieved. But the US and some European countries have criticised Beijing of neocolonialism, developing projects at the expense of the environment and saddling poor countries. “The future is impossible to predict, but if history is any guide, US-China competition is likely to intensify in coming years,” said Jonathan Hillman, a senior fellow of the Centre for Strategic and International Studies in Washington. Three decades ago, US officials worried about the rise of Japan – a democracy and US ally – and that anxiety did not really decline until Japan’s economy declined, Hillman said. Many analysts argue the Japan’s economic stagnation was in large part due to the Plaza Accord, a 1985 currency pact among developed nations to manipulate exchange rates by depreciating the US dollar against the yen (as well as the Deutschmark). Pang said the yuan could be the target of a similar agreement. Hillman agreed that the differences between the United States and China were bigger than those between the US and Japan, “and unlikely to be solved by any ceasefire in the US-China trade war”. But Tao Wenzhao, a researcher with the Institute of American Studies at the Chinese Academy of Social Sciences, said things would not be that bad. “Although there are more conservative opinions emerging in the US, no one is in favour of outright confrontation. After all, I believe there is a consensus that the huge size of the bilateral trade means the China-US relations are too important to collapse,” he said. Ships at sea safe from tariff rise but mood sours at docks That trade came at US$630 billion last year, up 5.7 per cent from a year earlier despite the friction. But China’s trade surplus, an issue Trump has vowed to tackle, rose last year more rapidly at 17 per cent year on year, to US$323 billion. “It’s true the relations have entered a new phase, with differences, competition and possible frequent frictions, and it will be the theme for the next 20 or 30 years,” Tao said. “The US is unable to contain China, because China is already powerful. China’s development will definitely continue, and it’s likely we can have a basically stable China-US relations as both countries cherish the economic ties, no matter how they differ in other areas,” he said. Shi Yinhong, an adviser to China’s State Council and a US affairs professor at Renmin University in Beijing, expected China to face brushfire confrontations across a wide landscape of politics to strategy to ideology in the coming years, as competition overwhelmed cooperation. Shi said Beijing would focus more on domestic affairs – maintaining domestic stability, deepening reforms, strengthening ideological controls, and continuing with innovations and technology upgrades, even though the Made in China 2025 strategy, designed to help it gain global leadership in core technologies, had been under attack. At the same time, he said, Beijing was expected to be more restrained in the belt and road programme and issues including the South China Sea and its territorial claims to the self-ruled island of Taiwan – because “it won’t have plenty of money”. China to implement countermeasures to tariff increase According to official data, China’s economy grew 6.6 per cent last year, the slowest pace since 1990, official data showed. Economist say much of the slowdown in growth was due to the trade war and the trend was likely to continue. According to Wang Tao, chief China economist at UBS Securities, a full-on trade war with the US would decelerate China’s GDP growth to below 6 per cent if Beijing did not ratchet up stimulus measures significantly. Beijing’s official growth target for this year is 6 to 6.5 per cent. “I do believe the Chinese government will increase policy stimulus if the trade war escalates, shifting its macro policy stance again to more of an easing bias,” Wang said. She said more stimulus could include more infrastructure investment, more cuts in the reserve requirement ratio, continued credit easing, and a less hawkish stance on the property sector In the longer term, China will rigorously seek to become more competitive globally in innovation and technology, according to analysts, and will thus have to reform and open up to attract international cooperation. I do believe the Chinese government will increase policy stimulus if the trade war escalates Wang Tao, chief China economist at UBS Securities Sourabh Gupta, a policy specialist at the Institute for China-America Studies in Washington, said China would not rely only on itself to innovate although Xi has called on scientists and researchers to depend mainly on themselves for breakthroughs. “China seeks to perpetuate a symbiotic high-technology trade and investment relationship with the US,” he said. “Crucially, the dynamism of China’s domestic innovation system is based in large part on US-owned core technologies.” China ‘puts Europe trade deal on back burner’ Gupta said Washington’s foreign acquisitions and export control rules did not exclude Chinese innovators from acquiring technology and those rules were expected to remain unchanged. As a result, China was likely to continue to level to trade and investment playing field to attract technology and investment from the US. Beijing was betting that the more liberal and reciprocal its foreign investment and mergers and acquisitions regime became, the more likely that under pressure from business groups Washington would narrow the definition of “national security” to encourage two-way flows in technology, he said. On the technology front, intellectual property protection will remain the crux of the conflicts, according to Chad Ohlandt, a senior engineer with the Rand Corporation, an American research group – even though China has banned forced technology transfer and vowed to protect intellectual property better. “Legal protections are enforced by courts,” he said. “While the US system believes in the ‘rule of law’, the Chinese system espouses the ‘rule by law’, meaning that the Communist Party governs through the execution of the legal system. “Even if Chinese ministries and industries accept that intellectual property rights and their enforcement are in their own best interests in the long term, accepting US review of their effectiveness essentially interferes with the Communist Party’s governance by law and their ability to select industrial winners and losers.” The trade negotiations had been so difficult because they were not only about finding a mutually acceptable deal, but also about linking the US and Chinese legal systems through trade agreements with implications that rippled through both systems, he said. China can keep calm and carry on, says state media Jude Blanchette, a specialist in Chinese politics at Crumpton Group, a US advisory and business development firm, said: “If we’re lucky, the future of US-China relations will entail a long, complicated, and messy process of managing conflict and competition across a range of crucial domains, while striving to find areas of cooperation that both governments see as positive-sum. “Unfortunately, there’s also the distinct possibility that the bilateral relationship continues to deteriorate into outright hostility, with diminishing economic, cultural, and diplomatic linkages, with the global order bifurcating into two distinct systems,” he said. A source of possible hostility remains China’s geopolitical ambitions. Many Western analysts maintain that China will not shift to a restrained mode even under US pressure. “China’s relative restraint over the past six months is tactical, not strategic,” Blanchette said. “It views itself as a linchpin of the global order, with an inherent right to occupy superpower status. Irrespective of the current US-China negotiations, China is on a course to dominate East Asia by design, while its domestic exigencies will demand that it reach further afield to ensure resource access,” he said. Steve Tsang, director of the SOAS China Institute at the University of London, said that moderation would not be the main theme as long as Xi remained in charge. “Xi does not buy into the wisdom of restraint, which Deng Xiaoping proclaimed. Having hoisted his colours high it will be very difficult for Xi to back off from asserting China, in East Asia and beyond.” Tariff rise may be difference between life and death for some firms Gupta, of the Institute for China-America Studies, expects US-China military, maritime and geopolitical competition in Asia to worsen, in some instances “worsen gravely”. Naval clashes between the US and China within the first and second island chains in the Western Pacific were destined to worsen appreciably, he said. “It is particularly at the intersection point at which a core Chinese territorial or sovereignty-based interest challenges US navigational pre-eminence and freedoms or implicates Washington’s forward-deployed military’s alliance obligations, which is the ripest for conflict,” he said. “Thankfully though, the disputed land features in the East China Sea and the South China Sea are too tiny to fight over. And thankfully, too, that while Taiwan remains unresolved business for Beijing since the 1950s and also a key psychological marker of Washington’s forward deployed deterrent and ‘values-based’ posture, the US’ formal obligations to defend the island are written in hazy language. “But that said, misperceptions in the asymmetry of motivation between the two sides to unite, from Beijing’s perspective, or, alternatively, to defend, from Washington’s perspective, the island could touch off a dangerously violent conflict. Taiwan will remain a powder keg for the foreseeable future,” he said. Tsang said the most important theme would be a contest of ideas, “between the American or democratic way of life” and “the Xi Jinping approach to supporting authoritarianism worldwide”. “This underpins the strategic competition between the US and China, be it in the military, economic, social or technological aspects,” he said.