2018 was an intense, turbulent, and unpredictable year for the world's most important bilateral relationship. The United States and China both came into 2019 worse off than they did last year on a number of fronts, as did the state of the relationship.
Trade and Economics
The ongoing trade war between the United States and China was by far the biggest flashpoint for the tense bilateral relationship in 2018. While the US and China agreed to a 90-day truce at the G20 Summit in Argentina in early December, a lot of damage has already been done. Last year, the Trump Administration imposed levies on a total of $253 billion of Chinese imports, the most recent tranche going into effect on September 24th, 2018. China retaliated with a total of $110 billion of tariffs on US goods.
President Trump has threatened to impose an additional $267 billion of new levies on Chinese goods. The cumulative effect of these prospective and previously-implemented tariffs would be to cover nearly all of Chinese exports to the US, which in 2017 were valued at over $500 billion. For comparison, in 2017 US exports to China stood at roughly $130 billion. President Trump has repeatedly asserted that the US can inflict more economic damage on China than it can on the US. The US president's primary justification is that China has a greater dependence on its exports to the US than the US does on its exports to China.
However, the vast majority of economists agree that trade wars and tariffs have a net negative impact on all participants, even third-party countries. Trump's own economic advisors have publicly acknowledged the damaging effects upon US companies. Nevertheless, President Trump moved forward in 2018 with his plan to apply punitive tariffs targeting Chinese intellectual property violations and currency manipulation. The impact on global markets has been profound; despite strong fundamentals such as employment figures, investors have been very wary of the long-term impact of trade barriers and President Trump's erratic, convoluted and contradictory statements on the issue.
Many analysts believe the fears of the impact of the trade war upon American businesses are now being realized, and markets are shaky entering 2019. The most serious impact of the trade war between the world's two largest economies has been the swift paradigm shift from normal trade partners to near-adversaries. The radical changes in the economic policy of the US and China towards one another will be very hard to reverse as the bureaucratic apparatus on both sides mobilize towards protectionism and pivot towards other markets.
Military and Security
The trade war has also seeped into national security affairs. The December 2018 arrest and detention of Huawei's Chief Financial Officer, Meng Wanzhou, in Canada and her planned extradition to the United States represent a major security and trade flashpoint. Huawei is the world's second-largest mobile phone manufacturer and a top competitor in the global race to offer consumer-oriented 5G services. Meng faces charges of fraud involving violation of the Iran sanctions, an unusually aggressive move. China's government was inflamed by President Donald Trump's statement declaring that he would be willing to use Meng's extradition and prosecution in the US as a bargaining chip in a potential trade deal. China has reciprocated by detaining at least two Canadians, including a former diplomat, but has not yet specified exact charges in their cases. The messy legal case will drag well into 2019 and hang heavily over any impending talks between Trump and Xi, particularly those dealing with trade or cybersecurity.
In other major security developments, China played a pivotal role in the unprecedented June summit between US President Donald Trump and North Korean leader Kim Jong-Un. Before and after the meeting in Singapore, President Xi Jinping met with the North Korean autocrat. American critics of the two-day meeting argue that it accomplished next to nothing, and surrendered too much control to North Korea and China over the denuclearization process of the Korean Peninsula. The suspension of a major summer military exercise between the US and South Korea represents a post-summit victory for China, which is keen to defend its regional military sovereignty. In the next highly-anticipated meeting slated for early 2019, China will continue to be the invisible third-party in the room.
China continued its trend of increasing defense spending in 2018 in which the Middle Kingdom spent roughly $200 billion on its military, with plans to escalate to over $240 billion by 2028. Notably, China has rapidly expanded its bomber program with the likely intent of striking US targets. In the South China Sea, China continued to develop man-made island bases in the disputed territories claimed by a number of regional neighbors, and went so far as to install cruise missiles and nuclear strike-capable bombers on the outposts. US then-Secretary of Defense, James Mattis, pushed back against what he called territorial aggression, and disinvited China from regional multilateral military drills.
In 2018, Taiwan remained an important point of tension between the US and China. In June, the US opened its de facto embassy in Taipei called the American Institute in Taiwan, an event attended by high-profile US officials without much fanfare; the US chose to not send senior officials. However, that didn't prevent China from issuing a stern warning to the US in October for sending warships through the Taiwan Strait - part of the US' so-called freedom of navigation missions. Expect Taiwan to be even more of a hot-button issue in 2019 following President Xi Jinping's recent provocative statement declaring that Taiwan will be unified with China and Taiwan's November 2018 local elections in which the Kuomintang, the former ruling party that now advocates friendly relations with Beijing, routed independence parties.
Public Affairs and Soft Power
In public affairs, the United States appears to be losing in its efforts to secure Chinese hearts and minds vis-a-vis China's monumentally successful Confucius Institutes . Earlier this winter, Chinese authorities from Henan Normal University prevented US Ambassador to China, Terry Branstad, from visiting an American cultural center run by Iowa State University. The denial of his request to visit the exchange program partially-funded by the US State Department was a sign of the times. From the beginning of his tenure, President Xi Jinping signaled that he would be a particularly hardline supporter of state-approved ideology, and would not allow it to be compromised by Western, democratic ideals. By the end of 2018, all of the US State Department-funded American cultural and language centers in China were shut down. The US, meanwhile, honoring its First Amendment rights to free speech, remains more tolerant of Chinese propaganda efforts.
Onwards in 2019: Trump and Xi
One crucial factor in the future of China-US relations is the interpersonal relationship between Trump and Xi. Despite Trump's December declarations of an “incredible” rapport their relationship will have to endure the stress of multiple ongoing low-grade crises weighing upon them. Expect President Trump's showmanship and ego, combined with a lack of clear strategy in the Pacific Rim, to further increase tensions and conflict across a number of spheres, likely in surprising ways. Anticipate President Xi Jinping will press forward methodically with China's nationalist agenda in economic, military, and cultural realms. 2019 will be a critical time for the US-China relationship, so stay tuned!
