China-U.S. relations are the most important bilateral relations in the world. Based on China-U.S. relations over Trump administration’s first two years and our exclusive sources, predictions have been made about the trend of China-U.S. relations in 2019.
The Trump administration’s policies towards China took shape in 2018. Following reports calling China a “strategic competitor” in late 2017, the Trump administration confirmed the “whole-government strategy on China” in 2018. As for economy and trade, the U.S. government introduced tariff sanctions of USD 50 billion and 200 billion against China successively, while increasing restrictions on China’s investments in the United States and its exports to China. The “Anti-Chinese Influence” campaign was gradually growing, several members from the “Thousand Talents Plan” were investigated by the law enforcement agencies of the United States.
Forecast: In 2019, the U.S. will move ahead with its strategic containment of China. Government agencies will continue to introduce hawkish policies against China, among which the Ministry of Finance, Department of Justice, Department of Homeland Security and the Office of the United States Trade Representatives will rise to the occasion. The Department of State and others will continue its previous contact with China in general. The trend of “decoupling” will intensify in the high-tech sector, and the two sides will primarily compete in chip development, 5G technology and other relevant fields, which will render a blow to relevant Chinese enterprises. “Anti-Chinese Influence” campaign will spread to more areas as well. Chinese students in the U.S., especially graduate students and students with sensitive majors, will find it harder to obtain U.S. visas. There will be more difficulties for Chinese-U.S. people-to-people exchanges and academic exchanges. Chinese media in the U.S. will be strictly controlled while more Confucius Institutes in the U.S. will be terminated. The Xinjiang issue will become another field of China-U.S. confrontation, and the United States will increase pressure on China through legislation, diplomacy, sanctions and other means. Globally speaking, the United States, along with its allies, will continue to restrain China’s Belt and Road Initiative. The “Indo-Pacific strategy” is expected to be refined and upgraded. Furthermore, the new foreign aid strategy of the U.S. is an attempt to block China’s influence in the Asia-Pacific region.
On the other hand, the Democrats are taking hold of the House of Representatives. Now that President Trump will be plagued by the “Russian Investigation”, the House of Representatives is likely to start impeachment proceedings. The U.S. economy will be growing at a slower pace starting from the second quarter of 2019, and stocks will continue to fall. As a result, Trump will hesitate to pressure China by utilizing tariffs, and in particular, the introduction and implementation of the USD 267-billion tariff sanction will be impeded. It has also been predicted that the China-U.S. economic and trade consultations will secure positive progress. A framework consensus is highly likely to be reached by the two sides by March 1st, 2019. It follows that there might be state visits or exchange visits between China and the U.S. within 2019.
The Chinese economy experienced turbulence in 2018, and is likely to face stronger challenge in 2019 as Beijing seeks to deepen economic structural reform. China will continue to adjust internal and external policies to avoid neck to neck conflicts with the U.S., to maintain “Co-opetition” and prevent decoupling between China and the U.S. Comprehensive reform and opening-up will demonstrate more highlights in 2019. Additionally, the Belt and Road Initiative will see in-depth adjustment, with greater emphasis on openness and transparency, risk avoidance and global participation. “Made in China 2025” will be revised to provide equal opportunities for U.S. companies. China's gestures will alleviate the structural contradictions between China and the U.S., in the short term.
In general, it is believed that the China-U.S. relations will feature “entanglement” in 2019, which means increased competition, decoupling in some areas especially in high tech industry, and intensified confrontations in some others like cyber security and South China sea. However, the interests of the two countries remain tightly connected. The two presidents have already realized the cost of confrontation and began to repair the overall relationship.
On December 1st, 2018, heads of China and the United States met at the G20 Summit in Argentina, after which a series of trade conflict relegation measures were taken by both sides. Washington announced a 90-day freeze on USD 200 billion tax cuts to China, and Beijing launched several economic reforms, while telephone consultations were carried out between the Chinese Vice Premier, Liu He, and the U.S. Secretary of Treasury, Steven Mnuchin, as well as Wang Shouwen, China’s Vice Finance Minister, and David Malpass, the U.S. Under Secretary at the U.S. Department of the Treasury. Notably, USTR Robert Lighthizer started playing a more important role, which Beijing believes may help develop more serious and effective negotiations. While trade negotiations intensify, Trump's trade team remains divided. While Lighthizer insists in a "complete win", which means Beijing needs to accept most of the 142 items demanded by Washington, Mnuchin suggests a model of "framework + further negotiations", which enables more follow-up talks after March 1 deadline. Trump's eagerness for a quick victory may mean that Mnuchin has the upper hand now, but the bottom line agreed across the board in Trump’s team is that Beijing needs to commit to a bigger concession on structural issues.
Forecast: In 2019, the tone of China-U.S. economic and trade relations will shift from pressure-laden to negotiations. Both President Trump and President Xi Jinping are highly motivated to push forward negotiations to reach a trade agreement and avoid a no-win situation caused by a full-swing trade war. We are cautiously optimistic that the two sides should reach more of a framework agreement within 90 days. But it is still hard for China and the United States to reach a comprehensive agreement such as the United States–Mexico–Canada Agreement. Lighthizer’s iron-clad style will present China with a huge challenge. If the negotiations encounter difficulties in a certain stage, it is very likely that the U.S. might threaten to restart the tax cuts, or re-launch new unilateral economic and trade operations, such as a new section 301 Investigation. If the negotiations go well, it is expected that the two economies will ease nervousness and may retain steady performance in 2019.
In 2019, China will expand procurement from the United States in agriculture, energy and other fields. The U.S. investment in finance, insurance, automotive and other industries will embrace new opportunities in China. Nonetheless, the trade imbalances between China and the United States are hard to address. The U.S. trade deficit is still likely to rise.
On the other hand, precautions and sanctions against China on economic and trade issues, for both Trump himself and the established faction, will continue to be implemented. As was clarified by the U.S. to China this year, in 2019, the United States will limit China’s investment in sensitive areas in the United States through the Committee on Foreign Investment in the United States (CFIUS), and the Export Control Reform Act will help the executive branch impose stronger restrictions on U.S. exporting sensitive technologies to China, particularly military-civilian technology.
The year 2019 will also be a year for U.S. multinational companies to pull the middle and low-end supply chain out of China. Even if China and the United States can reach a trade agreement, U.S. companies will remain strongly concerned about the Trump administration’s protectionism as well as economic and trade policy uncertainties. However, the fact that China remains highly competitive in global manufacturing will keep most U.S. companies put in China, especially those that rely on high-tech manufacturing.
It is also predicted that the U.S. in 2019 will increase its corporations and coordination with EU, Japan and other western countries to enhance international pressure upon China in multinational forums including WTO, G20 and G7. The issues where China will face challenges include overcapacity, cyber-attacks, tech-thieves, and WTO.
The year 2018 saw the turning point of the United States’ view of cyber security cooperation with China. Washington believed that China has completely violated the “five consensuses” on cyber security, signed by President Xi Jinping during his visit to the United States in Sep. 2015. According to Washington’s accusation, China’s cyber-attacks against the U.S., especially the hack of the United States’ commercial secrets have resulted in losses of hundreds of billions of dollars per year.
Two Chinese citizens were sued by the U.S. Department of Justice in December 2018. The U.S. claimed that the hacking group they were involved with had invaded dozens of U.S. high-tech companies over the years, stealing trade secrets and obtaining personal identity information of 100,000 U.S. Navy officers and soldiers. The U.S. handling of the case, however, is fairly modest compared with the U.S. prosecution of five Chinese military personnel for hacking in early 2015. The United States also claimed that Beijing is behind the massive theft of customer data of Marriott hotels in the United States.
Forecast: The cyber security issue may develop into a “black swan” of China-U.S. relations in 2019. U.S. retaliation against China in cyber security will intensify. More prosecutions against Chinese hacking organizations and individuals are inevitable. The United States will also strengthen law enforcement cooperation in this area with allies and partner countries, and continue extraditing Chinese suspects from its allies. What’s more, the United States will also pressure China via Chinese and American network security and law enforcement dialogue, G7, G20 and other platforms.
We urge China and the United States to negotiate the new cooperation framework through high-level dialogues in the field of cyber security. China needs to significantly increase crackdown on domestic hacking operations, especially those of various government departments targeting U.S. businesses, so as to avoid a more severe confrontation between the two sides.
In 2018, the United States significantly enhanced its defense against China in the high-tech field. “Made in China 2025” was regarded as a serious threat by the United States. Huawei and other Chinese 5G technology forerunners consequently received a heavy thump by U.S. law enforcement agencies. ZTE was once shut out by the United States. The United States also extradited Chinese government officials, suspected of stealing U.S. technology, from Europe. In the second half of the year, a Bloomberg report triggered a shock in the U.S. tech industry, which stated that China installed “spy chips” on computer motherboards exported to the United States.
Forecast: It is believed that the U.S. will continue its confrontations against China and decoupling with China in the high-tech field. The United States will impose stricter restrictions on military-civilian exports to China. The anti-China action launched by the “Five-Eyes-alliance” in 2018 will spread to more countries in 2019. In industries such as computer chips, U.S.-to-China export restrictions may cause severe difficulties for Chinese companies, and China’s 5G communication deployment will be affected. China’s exportation of ICT (Information and Communication Technology) products to the U.S. will be limited as well. The United States will impose sanctions or enforcement actions against some Chinese companies and executives on the grounds of national security or suspected violations of human rights in Xinjiang and other places. There will be more cases like the Meng Wanzhou incident.
It is believed that China should turn to attract more U.S. companies to invest in China. China should also respond to the decoupling attempt by the Trump administration in the high-tech field with “China-U.S. integration”. China must also speed up its high-tech cooperation with other members of the Western camp, such as Japan, Europe, and South Korea, and take precautions against the China-U.S. decoupling in the field of high-tech.
The North Korea nuclear issue is one of few cooperation areas between China and the United States. In 2018, President Trump altered the “maximum pressure” policy abruptly and promoted a meeting with North Korean Chairman Kim Jong-un at the Singapore summit held in June, which contributed to the ongoing easing-up of the situation in the Korean Peninsula. In spite of that, the improvement of U.S.-North Korea relations was on dubious ground and the outcome of the Singapore summit was quite ambiguous. Communication between the two sides suffered setbacks afterwards. The meeting between Mike Pompeo, U.S. Secretary of State, and North Korean leaders failed to lay a solid foundation for the second “Trump-Kim” meeting. President Trump may have claimed that he would meet with Chairman Kim in early 2019; however, U.S.-North Korea bilateral relations have not produced any remarkable progress and North Korea currently seems to be less enthusiastic about denuclearization.
China has arranged successive Kim Jong-un state visits since March 2018, warming the China-North Korea relations rapidly. At present, China and North Korea enjoy stronger mutual trust than that between North Korea and the U.S. President Trump, who when upset by the current situation, once claimed that China was jeopardizing U.S.-North Korea relations. However, it is known that the U.S. identified with China’s policies towards North Korea in bilateral contacts, suggesting that China complied with sanctions against North Korea imposed by the UN Security Council. China-North Korea relations did not get in the way of U.S.-North Korea relations. During the 2018 G20 Buenos Aires summit on December 1st, 2018, U.S.-North Korea relations constituted one of few international issues discussed by heads of China and the U. S. The U.S. reiterated its expectations at the summit that China could support the denuclearization of the Korean Peninsula.
Forecast: In 2019, Donald Trump will step up preparations for the 2020 United States presidential election. Hence, it is assumed that the White House will try to make breakthroughs in the North Korean nuclear issue – a key regional concern. Accordingly, the U.S. will have more expectations of China: first, it hopes China will continue to execute Security Council’s resolution on sanctions; second, it hopes China will help mediate U.S.-North Korea tensions in order to reach reconciliation.
With that being mentioned, the foreign policy of the Trump administration remains highly unpredictable. If U.S.-North Korea engagement does not go well and the latter takes a tough stance, President Trump may turn to the “maximum pressure” strategy again; the U.S. and South Korea may resume massive military exercises. Sanctions against North Korea may be stepped up. North Korea may take tough stance in response as well. Hence it is not impossible that a new round of nuclear missile tests will set in. China will be put under pressure by then. China and the U.S. may engage in mutual accusations over the North Korean nuclear issue again.
China-U.S. people-to-people exchange declined in 2018. The bilateral exchange on tourism and education between the two countries, although vibrant, is still being affected after the U.S. considers China as its competitor in all respects. The “anti-China Influence” campaign has been explicitly discussed in Washington and interfered with China’s Thousand Talents Program and Confucius Institutes. Several Chinese American scientists involved in the Thousand Talents Program were either placed under arrest or prosecuted. Many Chinese Americans were subject to face-to-face interviews and investigations. Senior U.S. senators like Marco Antonio Rubio spoke out against Confucius Institutes in public, which led to the closure of several institutes, including the one in the University of North Florida. President Trump accused the normal commercials of Chinese media of meddling in U.S. elections. Chinese students studying in the U.S. were faced with stringent investigations, especially graduate students and those engaging in sensitive disciplines. The application for the B visa (the 10-year multiple-entry U.S. visa) for Chinese citizens was subject to scrutiny. Rumor had it that the visas of Chinese scholars were constantly revoked. The U.S. media reports said the White House advisers proposed a ban on visas for all Chinese students. FBI Director, Christopher Wray, publicly claimed that Chinese students studying in the U.S. were all spies. Chinese-U.S. academic exchanges were challenged as well. A cooperation project between a Texas-based university and its counterpart in China was cancelled. The regular cooperation between Huawei and Brookings Institution was slammed by the U.S. media as well.
Since the first round of China-U.S. social and cultural dialogue in 2017, the two sides failed to hold the second round that was scheduled in 2018, which indicates that the White House is not highly motivated in promoting China-U.S. people-to-people and cultural cooperation.
Forecast: President Trump does not demonstrate strong interest in people-to-people exchanges and the established faction holds deep-rooted prejudices in this respect. It is predicted that China-U.S. people-to-people exchanges will continue to decline in 2019. Chinese students studying in the U.S., especially those enrolled in STEM (science, technology, engineering and math) subjects will face more barriers in the application for a U.S. student visa. More Chinese people will see their B visa cancelled, which is particularly true of Chinese scholars. More U.S. universities will suspend cooperation with Confucius Institutes under political pressure. Chinese Americans in close communication and cooperation with China may be placed under investigation. Chinese students, scholars and organizations in different universities may be reduced to hard conditions by the United States.
The South China Sea was an acute issue in China-U.S. relations during the second term of the Obama Administration. After President Trump took office, he continued to take heed of the South China Sea. The U.S. military forces patrolled the South China Sea more frequently and challenged China’s artificial islands and reefs, which incurred close confrontation and military risks. The U.S. Indo-Pacific Strategy incorporates the South China Sea as an important area and seeks to step up Australian and Japanese patrolling of the area. At the same time, the U.S. urges China to sign the “Code of Conduct” (COC) with ASEAN claimants as soon as possible.
However, the situation of the South China Sea was not derailed in 2018. When Rodrigo Duterte became the President of the Philippines – a major claimant of the South China Sea, he patched things up with China by rendering significant changes to the country’s foreign strategy, while U.S.-Philippines relations remained tepid. Moreover, Vietnam adopted a more realistic strategy in the region trying to balance US and China. The U.S. could hardly take any provocative move in the South China Sea under the disguise of the two countries. The Indo-Pacific Strategy has barely achieved any substantial outcomes, as expected since, as India is less enthusiastic about the issue than the U.S. is, and Japan does not intend to continuously provoke China in the area.
More efforts were made by China to construct islands and reefs in the South China Sea. In particular, military deployment was stepped up in the Nansha Islands (Splatly Islands). The Chinese government was not actively involved in the implementation of “The South China Sea Code of Conduct”. However, Beijing continued advancing joint energy exploitations with claimants in the area, trying to ease the tensions.
Forecast: It is believed that as strategic competition aggravates, China-U.S. confrontations in the South China Sea will intensify in 2019 and the situation in the region will become more complex. The U.S. will work harder to freely navigate the area and push forward joint U.S.-Japan-India-Australia Quad in the area, thus triggering a more precarious situation between China and the U.S. in the South China Sea. The U.S. will prompt claimants to sign “The South China Sea Code of Conduct” with China, while strengthening military cooperation with ASEAN, especially regarding maritime security.
The Xinjiang issue arose as a new area of confrontation between China and the U.S. in 2018. In the past, the U.S. repeatedly criticized China for concerns over human rights in Xinjiang. However, as there were a limited number of cases, it was not a major issue of conflict. Yet, since China began to extensively set up “re-education” and training centers in Xinjiang in late 2017, the U.S. and the west have demonstrated ongoing concern in the region. Both the U.S. Congress and political leaders, such as Vice-President Mike Pence and Mike Pompeo, the U.S. Secretary of State, have criticized the Chinese government in public for the campaign. Human rights organizations and the public have expressed more concerns over the issue. Besides, there are skeptical views from Europe and Southeast Asia.
Forecast: The Xinjiang issue will develop into an explicit concern in the increasingly fiercer China-U.S. confrontation in 2019. China will not give up the model of re-education and training centers, therefore bickering over the issue with the west will continue. The U.S. Congress is likely to pass more severe acts on the Xinjiang issue, and roll out sanctions against Chinese and United States’ enterprises accused of involvement in the “crackdown campaign” in Xinjiang. Therefore, enterprises concerned with this situation should keep an eye on it. Meanwhile, the U.S. may add several Xinjiang officials involved in these re-education and training centers to the sanction list of the Global Magnitsky Human Rights Accountability Act. It may also seek to make Ilham Tohti a winner of the Nobel Prize or other prestigious awards. Washington will also deepen cooperation with Europe and Muslim countries in Southeast Asia over Xinjiang issue and try to pressure China through well-established institutions, including the UN.
The Tibet issue was more or less marginalized in 2018. Since President Trump took office, he did not meet with the Dalai Lama over two consecutive years, which sparkled public criticism. The Dalai Lama did not visit the U.S. either. Nonetheless, Lobsany Sangey, “President” of the “Tibetan Government in Exile” visited Washington on several occasions. Not only did he meet with important congressmen and congresswomen, including Nancy Patricia Pelosi, but also engaged in talks with officials from the White House and the U.S. Department of State. It should be noted that the “government in exile” posted the news and pictures of his meetings with U.S. government officials on its official website for the first time ever, which symbolized subtle changes of the United States’ attitude towards Dharmsala.
Forecast: The U.S. will continue to push for negations between Beijing and the Dalai Lama over the Tibet issue and impose pressure on China in terms of the self-immolations of Tibetan people as well as other human rights issues, though Tibet will not be a major concern in China-U.S. relations. The Chinese government will only have to concern itself with how the U.S. government will intervene in the reincarnation of the Dalai Lama, though the issue will not be settled in 2019. The Dalai Lama may not take the advice of the U.S. government as a decisive factor, either. Still, President Trump is more likely to meet with The Dalai Lama in 2019 under the pressure of the U.S. Congress and public opinion. Apart from that, the U.S. Department of State may reinstall the post of Special Coordinator for Tibetan Issues, which is likely to trigger denouncement from the Chinese government.
On the U.S. side, despite President Trump’s congratulatory call to Tsai Ing-wen after the election, he has since upheld a cautious policy towards Taiwan since he was sworn in. Highlights of the Trump Administration’s policy towards Taiwan include: the adoption of the Taiwan Travel Act in coordination with the U.S. Congress, the institutionalization of arms sales to Taiwan and the sailing of guided missile destroyers through the Taiwan Strait. However, there were no breaking events like the visit of Lee Teng-hui to the United States in 1996. It is known that President Trump holds a prudent attitude towards the Taiwan issue, even his administration consists of some pro-Taiwan officials, including John Robert Bolton, Assistant to the President for National Security Affairs and Randall Schriver, Assistant Secretary of Defense.
Forecast: U.S.-Taiwan relations will continue within an “unofficial” framework in 2019. Attention should be drawn to the following areas: the United States’ attempts to have Taiwan involved in the Indo-Pacific Strategy, its support for Taiwan to join the International Civil Aviation Organization (ICAO) and International Criminal Police Organization (INTERPOL), and the possibilities that U.S. warships may visit Taiwan ports, leaders of Taiwan visiting the United States and U.S. arms sales to Taiwan may break new ground. Still, according to our forecast, President Trump has no intention to challenge China’s bottom line regarding the Taiwan issue, so it is unlikely to cause any major risks in 2019.
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