Dr. Yu Jie, Senior Research Fellow on China, Asia-Pacific Programme, Email Yu X, LinkedIn. The world awaits with anxiety the inauguration of Donald Trump on January 20th, and nowhere more so than in China. The expectations of China’s strategic community regarding the direction of U.S.-China relations over the next four years range from fatalism to extreme optimism. At one extreme, some commentators expect bilateral relations to head towards a free fall. At the other extreme, analysts argue that Trump, the negotiator, could strike deals with China on sensitive issues, including Taiwan. None of these outcomes is likely. China’s efforts to manage the former property developer will seek to maintain a precarious balance aimed at saving its declining economy and reversing the deterioration of relations with U.S.-led Western countries, while strengthening ties with large parts of the non-Western world. This balance is crucial for China’s economic future and global position. But how successful can it be?
The Beijing Dilemma
The ruling Communist Party has decisively shifted its tone in recent months in managing its economy, urging top economic planners to do everything possible to expand domestic consumption. A series of policies, including monetary easing, fiscal support for indebted local governments, and consumer subsidies on everyday items, have been introduced to stimulate the economy. However, many economists consider these measures to have been too slow to boost the necessary consumer confidence. Chinese policymakers believe that accelerating technological progress and achieving self-sufficiency is the only way for China to withstand U.S. efforts to contain it strategically. But this would require all national resources to be directed towards highly strategic sectors, with little room in fiscal policy for tax relief and consumer stimulus. Beijing faces a dilemma between using resources to restore consumer confidence or to bolster its technological power.
The Impending Trade War
Like the rest of the world, Beijing is preparing for another round of trade wars with the incoming Trump administration. China’s major trading partners and global investors are wondering how far China’s retaliations will go. Beijing’s tactics will be different from those of Trump’s first administration, as its macroeconomic situation is less favorable to greater retaliation on all fronts. Its punitive measures are likely to target sectors such as critical minerals, where Beijing enjoys a clear global monopoly. Fighting two trade wars simultaneously would be an additional blow to the Chinese economy. However, China needs to find the right balance. Washington is also capable of imposing extremely damaging export controls in high-tech industries, such as aviation engines and legacy chip manufacturing, or exploiting the exorbitant privilege of owning the international reserve currency, the U.S. dollar. Chinese policymakers must also recognize the unfavorable public opinion towards the U.S. and will seek to avoid being perceived as weak by their people. While a tariff war between the world’s two largest economies is most likely, Beijing is already deeply embroiled in several bitter trade conflicts with the European Union, its second-largest trading partner and a close ally of the U.S. Fighting two trade wars simultaneously would be an additional blow to the Chinese economy.
Trump 2.0 and China
In many ways, Trump’s transactional approach to U.S. leadership in international affairs could work in China’s geopolitical favor. China’s responses to Trump 2.0 will focus on presenting the country as a responsible and confident global power, in stark contrast to a potentially erratic and inward-looking U.S. under Trump. Some changes in China’s foreign policy are already evident with neighbors with whom it has had difficult relations, such as India, Japan, and South Korea. Both India and Japan, part of the U.S.-led Quad Security Dialogue, began to soften their tones and approaches towards China last year. With South Korea embroiled in a political crisis, a new government in Seoul could deal with China very differently from the ousted president Yoon Suk Yeol. It remains to be seen whether Beijing can tighten its belt while maintaining close relations with developing countries.
The Global South
The Global South encompasses many countries that have taken a neutral stance on the war in Ukraine while offering strong support to Palestine amid the Middle East conflict. These countries tend to view U.S.-led Western countries as hypocritical. Trump’s return has offered Beijing an additional opportunity to strengthen its ties with a broad swath of Global South countries. Beijing’s policies towards the Global South will focus on economic cooperation and development, as well as promoting global peace and stability. The Belt and Road Initiative, or BRI, is a key component in this effort. Since its launch in 2013, the BRI has connected China with dozens of countries in Asia, Africa, Europe, and Latin America through infrastructure and investment projects. The BRI has not only promoted economic growth but has also helped China expand its global influence. However, the BRI has also faced criticism for its high-debt approach and lack of transparency in many projects.
The future of relations between the U.S. and China remains uncertain. Trump 2.0’s policies towards China are still unclear, and his approach may vary depending on the internal political and economic conditions in the U.S. However, one thing is certain: China will not stand idly by. Beijing will continue to seek ways to strengthen its economy and global position, while navigating the complexities of international relations.
China’s ability to balance its relations with the U.S.-led West and the non-Western world will be crucial for its long-term success. Ultimately, the future of relations between the U.S. and China will depend on both powers’ ability to manage their differences and find common ground in a constantly changing world.