US-China relations in the year of living dangerously

Chinese New Year in the Middle Kingdom is a time for celebration and relaxation with family and friends. Yet this year, many of Beijing’s decision-makers begin the Year of the Rooster with a deep sense of unease about the future. This is in part the product of uncertainty about future policy directions of the new Trump administration. Indeed, 2017 is shaping up as what I call the ‘year of living dangerously’ in U.S.- China relations.

Uncertainty is something we understand as observers of and participants in global politics, but it is also borne out by more “objective” measures. According to the Global Uncertainty Index, which looks at the totality of political, economic and environmental risks on the planet, global uncertainty is at its highest level in 16 years. Globalization itself, of which most countries have been significant beneficiaries, is under intense challenge. And when it comes to questions of international cooperation on trade and economic policy, climate change and global governance, there is a deep sense of unknown.

At the heart of this uncertainty is the future policy direction of the Trump administration, and in particular its approach to US-Russia and USChina relations. Based on the early pronouncements of the new White House, it appears that the US is seeking to shift its stance towards China. But we simply do not yet know where it will settle, as much of it depends on how exactly the administration’s convictions will be reflected in actual policy. This lies in stark contrast to China’s deeply conservative approach to international politics. As a strategic culture, China abhors unpredictability.

What we should understand about the Trump administration above all is that its assertive stance towards China is motivated primarily by domestic factors. The consistent message both on the campaign trail and in the early days of the new administration has been that American jobs and industries have been stripped away and exported to China. Part of the remedy for this, at least as stated by Trump during the 2016 campaign, was to propose a 45-percent tariff barrier on Chinese imports. Whether the administration actually follows through on this threat or whether it is merely a negotiating position is an open question. But the 20-percent tariff on Mexican imports Trump proposed in January indicates that he is unlikely to walk away from the China tariff pledge altogether.

His views on China are framed in stark terms. He believes that under the previous administration, China won and the US lost. For the new White House, now is the time to get even and create a new “level playing field” for the future. This is the core argument that the US president has advanced in speaking to his domestic constituency.

Trump’s views on China should also be seen in a wider context. This will be an overwhelmingly domestic presidency. Domestic economic challenges will consume the vast majority of his time in power. This is also where he feels most comfortable. These are the issues most relevant to the extraordinary coalition of voters that swept him to victory in November. And China is core to his domestic message of “making America great again.”

It was these voters whom he was addressing during his inauguration speech when he said: “We must protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs” – a thinly-veiled reference to China, Mexico and other perceived economic adversaries. Protectionist and nationalist sentiments led to the US withdrawal from the Trans-Pacific Partnership (TPP), which Trump sees as yet another example of the Obama administration’s fundamental weakening of America’s economic power. However, data and analysis points to the contrary: the TPP would be a demonstrable geostrategic and geo-economic plus for the United States, its allies and its partners.

We therefore face the looming possibility of a US trade and currency war with China, despite what this may mean for American interests and the fact that such wars hurt everybody. Either form would come with major consequences for the global economy. It would result in lost growth and lower trade and investment flows between the largest and second largest economies in the world, as well as between them and the rest of the world. In particular, the establishment of tariff barriers would create ripple effects through global supply chains; according to Deutsche Bank, nearly 37 percent of China’s exports to the US in 2015 consisted of value-added imports from other countries. In short, the US would lose, China would lose, the world as a whole would lose.

A return to protectionism would destroy jobs and industries, weaken trade and global growth. We must therefore be honest about globalization’s shortcomings, yet defend and promote its basic virtues: increased economic output, poverty reduction and higher living standards. No country has enjoyed more of these benefits than China or the US.

While economic and trade policy challenges may frame the overarching narrative of US-China relations under Trump, Asia’s ongoing geopolitical and strategic challenges will also find their way into the presidential in-tray. Three will feature prominently over the coming year: North Korea, the South China Sea and Taiwan.

One of the new president’s first actions following his election in November was to speak with Taiwanese leader Tsai Ing-wen – an exceedingly provocative act. The Chinese response, across an historical comparison, was relatively muted. Trump then doubled down, continuing to question the utility of the One-China policy, which has served as the bedrock of stable US-China relations for nearly 60 years.

The One-China policy is a matter of fundamental ideology and identity for the Chinese Communist Party. Without it, the US-China relationship at a government-togovernment level would cease to exist. Yet President Trump has stated he sees the One-China policy as simply one of a number of bargaining chips to use against the Chinese to secure a better overall deal for America.

Some have argued that his administration’s strategy of provocation and unpredictability is a deliberate one. By keeping his position hidden and wrong-footing his adversary, Trump gains the upper hand in any negotiation in pursuit of the “deal.” Yet as political scientist and sinologist Alastair Iain Johnston has pointed out, while deception may have its applications in a zero-sum conflict, it does not function well in relationships based on multiple levels of cooperation. No matter the sometimes loud political differences between the US and China, the fact is that the post-1979 relationship has been based on cooperation in many policy areas, including but not limited to trade, investment, global governance and climate change.

The second major challenge in US-China relations concerns the South China Sea. We have seen mixed messages from the administration on this issue. The White House has said that in this arena the US will “defend international territories from being taken over by one country.” This followed the testimony of Secretary of State Rex Tillerson, who said during his confirmation hearing that “we’re going to have to send China a clear signal that, first, the islandbuilding stops and, second, your access to those islands also is not going to be allowed.” It is not clear whether this means China would be prevented from accessing the islands in international waters, where it has built runways and other structures that may have military uses. But what is clear is that the White House is prepared to raise the stakes, and is open to the possibility of confrontation.

The problem with the South China Sea, as the Obama administration realized, is that there are very few escalatory options available to the US that would not lead to a military conflict. Moreover, raising tensions further will also complicate US relations with its regional allies and partners, who up until now have avoided having to make an outright choice between the US and China, either on the South China Sea or more broadly.

Given these complications on the South China Sea question, diplomatic mechanisms will need to be robust enough to defuse any possible escalation of tensions. Both the US and China must continue to strengthen confidencebuilding measures and protocols in their military-to-military relationship, such as those negotiated since 2015 and designed to manage accidental air and maritime encounters.

The assertive stance of the Trump administration towards China is motivated primarily by domestic factors.

By far the biggest and most immediate security challenge facing both the US and China in 2017 is North Korea. This is foremost for technical reasons: in January of this year the US government stated that North Korea had made a “qualitative improvement” in its missile capabilities, reflecting a growing concern in Washington that critical thresholds have been crossed in terms of the country’s capacity to directly threaten US territory and most of its Pacific allies. As part of his New Year’s Day address, leader Kim Jong-Un said North Korea had reached the “final stage” of testing an intercontinental ballistic missile. Regardless of the outcome of the US election last November, these developments in and of themselves make a change in US policy towards the country a matter of urgency.

The number one national security priority for President Trump is therefore to come to a strategic agreement with Chinese President Xi Jinping to arrest and retard North Korea’s nuclear ambitions. This may involve reopening direct talks, something that hardliners in the administration may oppose. More importantly, it could entail a grand bargain with Beijing, Moscow, Tokyo, Seoul and Pyongyang on the future of the peninsula more generally.

But the existing strategy of steadily increasing UN and US sanctions has not been able to reign in Kim’s nuclear ambitions.

While 2017 may be the year of living dangerously, policy options are available to leaders on all of these questions. Wise minds will have to be employed between Washington and Beijing to try to overcome their governments’ disagreements. Most issues between the two powers, with the exception of the One- China policy, can be negotiated. These include trade, investment rules, currency, the South China Sea and North Korea’s nuclear program. Achieving these ends requires experienced, quiet diplomacy on both sides. Megaphone diplomacy from Washington will not work, but nor will it be possible for Beijing to assume that its own policy settings on contentious issues concerning US interests can remain static. Creative engagement from both sides is the order of the day, albeit at a time when public rhetoric appears to be taking the two countries in the reverse direction.

A version of this article appeared in print in February, 2017, with the headline “Mega phone diplomacy won’t work”.

Kevin Rudd served as prime minister of Australia (2007–2010, 2013) and as foreign minister (2010–2012). He is currently the president of the Asia Society Policy Institute in New York.