As 2019 drew to a close, the relationship between the United States and China experienced a brief respite following another bruising year of mutual disputes and recriminations. After 18 months of protracted difficult negotiations, the December “Phase 1” trade deal was indeed a welcome development for both sides—both in substantive terms, but also because it provides a temporary stabilization that could be built upon in the year ahead.
While this is hoped for, many analysts see this as a temporary respite, with more gyrations and acrimony anticipated in 2020. Several factors lead to such a forecast.
First, on the trade front, the consensus and narrative that has emerged in Washington since the conclusion of the Phase 1 deal is that the Chinese side “won.” This argument is based on analysts' claims that China's most important commitments (mainly concerning intellectual property protection, incremental further opening to foreign financial services, and foreign investment liberalization) were already planned by Beijing and thus not the result of hardnosed trade negotiations. These all do count as “structural reforms,” but American analysts see them as “low-hanging fruit” that the Chinese were prepared to undertake anyway (for example, the revised Foreign Investment Law takes effect on January 1) and, in any event, are just first steps of much more widely needed structural reforms of the Chinese economy.
If Washington did wring “new concessions” out of China, it was Beijing's promise not to engage in “forced technology transfers” (as part of contracted investments) or competitive currency devaluations, and to enter into a dispute management mechanism. These are welcome achievements—the first is significant, but the second will be hard to identify and enforce, while the third still remains ill-defined. Indeed, there remains a great deal of the agreement that remains unclear; only when there is a mutually agreed bilingual text will many lingering questions be clarified (and likely even not then). The two governments' respective announcement of the December deal left the distinct impression of “one document, two interpretations.”
For President Trump, the “topline” takeaway was China's apparent commitment to make large-scale purchases of products (mainly agricultural) and services: the American side claims—but the Chinese side has not confirmed—$200 billion over the next two years. Of course, both sides benefit by a temporary freeze—and possible rollback—of mutual tariffs. But, in the meantime, highly punitive tariffs (averaging 20 percent) remain in place.
So, even the recent “good news” on the trade front comes with significant caveats. The major next question is whether there will be a “Phase 2” agreement, or even negotiations? The Chinese side seems loathe to meet various U.S. demands for “structural reforms”—notably those that impinge on the state sector of the economy, subsidies for Chinese exports and outbound investment, and dismantling of state-owned enterprises (SOEs). Any Chinese willingness to even enter into such discussions is likely to come with the precondition that all U.S. tariffs be taken off first. For Beijing this is a question of fairness and equality. But that is likely a non-starter as far as President Trump and his trade negotiators are concerned. Even if the tariffs were removed, it is very questionable whether China would negotiate anything that they did not already intend to do. For example, China is engaged in a protracted revamping of its SOEs that Beijing could put on the table as part of further negotiations.
Thus, going into 2020, the economic dimension of Sino-American relations will likely remain fraught. The geostrategic, diplomatic, political, security, and counter-intelligence domains are equally—if not more—contested.
The United States and China are increasingly vying for position, power, and influence across the entire globe. Hardly a region of the world is unaffected. China's growing footholds in central Europe, Central and Latin America, the Middle East, Southeast Asia, and the Pacific islands are all of growing concern in Washington. China's sprawling Belt & Road project is interpreted by a significant segment of the U.S. strategic community as a thinly veiled geostrategic expansion of global power. Meanwhile, previous cooperation on areas of transnational “global governance” issues—including climate change, non-proliferation, economic stability, energy security, and illegal trafficking—has atrophied, if not ceased altogether. While the two powers differ in their approaches to all of these regions and issues, they have also essentially stopped high-level diplomatic communications about them.
Politically, the pervasive hard-edged American attitudes towards China can be expected to continue throughout 2020. If anything, they will increase as a consequence of the American presidential primaries and election campaigns. China will become a regular punching bag for candidates of both parties. Advocating for improved U.S.-China ties is a losing issue, as candidate Joe Biden has learned. Many aspects of China's behavior are seen as inimical to American interests by a wide majority of politicians and the electorate. Recent polls by the Pew Research Center indicate that 60% of Americans have “unfavorable” views of China. Meanwhile, in China, the United States also comes in for regular—and increasing—suspicion and criticism by the ruling regime and citizenry alike.
The military balance in the western Pacific and Indo-Pacific has also shifted substantially. The U.S. military no longer enjoys unfettered access or assured victory should a conflict erupt. There is also a great deal of fluidity and uncertainty about America's alliances in the region, with Beijing making steady inroads in the Philippines, South Korea, and Thailand. Both sides are planning and training for military contingencies against the other. A clear “security dilemma” exists.
In this context, the January 11 presidential election on Taiwan will only add to the brewing tensions, as incumbent Tsai Ying-wen is all but assured of reelection. The election campaign has taken place amidst widespread accusations of covert interference by the mainland and the resulting introduction of “anti-infiltration” legislation by the Tsai government. The outcome of Tsai's likely reelection is to anticipate increased cross-strait tensions in the year ahead.
Hong Kong has a similar dynamic in which continuing frictions—and likely a continuation of large-scale demonstrations—can also be anticipated (although hopefully not a return to the violence of recent months). The passage into law of the U.S. Hong Kong Human Rights and Democracy Act of 2019 enraged Beijing and further fueled bilateral frictions. Another piece of legislation, the Uighur Human Rights Policy Act, is awaiting adoption into law and will similarly aggravate the authorities in Beijing.
Finally, the related counter-intelligence issues of Chinese influence activities, espionage, and cyber hacking all also continue to be viewed very negatively in the United States. These are longstanding problems but have seemingly intensified over the past year.
Taken together, these issues all contribute to a very sour attitude towards China in the United States—at least in Washington DC. Seen from the American side, “good news” or productive relations are difficult to identify at present. Thus, the downward spiral of the past two years is likely to carry over into 2020—despite the recent Phase 1 trade agreement.
