China-U.S. Relations
Some say the United States and China both need an enemy because fear of the enemy, or metus hostilis, would enhance domestic cohesion. In the first century BC, the Roman historian Sallust wrote that the republic had descended into internal strife because of the destruction of its enemy, Carthage, in the Third Punic War. Without an adversary, Romans turned their knives inward: “when the minds of the people were relieved of that dread [of Carthage], wantonness and arrogance naturally arose.”
"There is no doubt that China is indeed seen as the 'biggest adversary' in the eyes of those in the Trump team who are responsible for formulating foreign policy," Michael Klare, professor emeritus at Hampshire College, wrote in a recent article. "While they believe that many international challenges may affect their 'America First' strategy, they believe that only China poses a real threat to the United States' continued global dominance."
"Strategic ambiguity" has been one of the foundations of the U.S. Taiwan policy for decades. While President Biden has repeatedly made it clear that he will defend Taiwan, the new U.S. government is believed to be likely to touch another cornerstone of U.S.-China-Taiwan relations on this issue. "With Rubio and Waltz in charge of day-to-day policy, it is to be expected that discussions about 'strategic clarity' will arise," the Center for American Progress, an independent, nonpartisan policy research organization, said in a recent analysis.
The biggest variable and unfavorable factor for the Chinese economy in 2025 would be the tariff sanctions imposed by the incoming US President Donald Trump. According to a report released by a Hong Kong think tank, the trade restrictions of developed economies such as the United States and Europe on China's "new three things" will be comprehensively upgraded, extending from tariff barriers to technical standards, subsidy investigations and market access. In addition, the marginal effect of the large-scale stimulus policies that China may introduce may gradually decrease because residents' income has not yet stabilized. At the same time, the forced slowdown of the US interest rate cut cycle will also weaken the easing space of China's stimulus policies and increase capital outflow pressure.
Relations between the two countries could quickly fall to a new low during Trump's second term. For a long time, a basic judgment about the US-China relationship is that the relationship between the two countries can't get any worse. Looking forward to the new year, Trump will soon take over the White House with an unprecedentedly tough team of hawks against China. In addition, if the two wars in Ukraine and Gaza can achieve a ceasefire as Trump promised, the international security situation will once again undergo a huge change, and the strategic burden of the United States in Europe and the Middle East will be reduced, giving the United States the opportunity to focus more strategic resources in Asia.
Although the United States proposed to return to Asia as early as the Obama era, it was considered that it had never really achieved this major shift in national security strategy due to the constraints of conflicts in other regions for many years. However, with the two wars in Ukraine and Gaza likely to enter a ceasefire, the new US administration is expected to finally turn this long-term goal into reality.
Although Marco Rubio, the incoming Secretary of State, and new National Security Advisor Michael Waltz are both hardliners on Russia policy, Rubio was one of the 15 Republican senators who voted against the Ukraine military aid plan, and Waltz has been criticizing the Biden administration's Ukraine policy for being over-expanding militarily while ignoring the real threat to the United States.
Huang Zhihan said that Russia's aggression has dispelled the illusions of its Western European allies on defense spending, while the war has also highlighted the decline of Russia's conventional military power. "These two realities - increased European defense spending and the decline of the Russian conventional threat - pave the way for shifting some of the U.S. military power from Europe to the Indo-Pacific region without seriously weakening deterrence in the European theater."
Trump’s diplomacy is often criticized as being too transactional, but it is not clear what China can trade with the United States without sacrificing major interests. During Trump’s first term, China bargained with Trump by expanding US imports, but the current conflict between the two countries is far from being resolved by buying soybeans.
Trump may shift to a series of tough policies before the end of the year, including revoking China's most-favored-nation status, preventing Chinese citizens with ties to the People's Liberation Army from studying or working in sensitive technologies at American universities, approving the shipment of large weapons to Taiwan, deploying the U.S. Coast Guard to the Indo-Pacific region, and supporting the Philippines' new legal action against China in the South China Sea.
How China responds to Trump 2.0 became a focus of attention for China and many countries in the world that have close economic and trade relations with China. The Chinese official media tried to show that the 2024 US election was irrelevant to China, but this is by no means the case. During his first term as US President in 2017, Trump launched a trade war against China on the grounds of fighting against "unfair trade", which profoundly affected the global trade and supply chain pattern. After Trump launched a trade war against China last time, the Chinese authorities tried to confront the United States while showing goodwill to the European Union (reducing tariffs on EU countries), trying to unite Europe to resist the United States, but the effect was not satisfactory.
As Trump was about to be sworn in as US President again, he stated that he may escalate the trade war as part of his "Make America Great Again" agenda. During his first term as US President, Trump officially launched a trade war against China in 2019. The trade war has not only changed the global trade and supply chain landscape, making "decoupling" from China a hot topic and a real issue, but has also become one of the reasons why China's economy is in trouble.
From the beginning of Trump's re-election campaign for the US presidency, trade issues with China were one of the topics he is keen to promote and one of the focuses of attention of observers from all sides. There is still debate about the outcome of the trade war that Trump launched against China and whether the United States gained or lost more. But what is no longer debated is that the trade war is obviously detrimental to China, while China's loss is the gain of emerging countries such as Southeast Asian countries and India. When Trump was re-elected as the US president, what kind of situation China, as the world's second largest economy, will face has become the focus of attention of observers from all sides.
Along with the extremely lengthy 793-page annual report, the US-China Economic and Security Review Commission also published 19 November 2024 a separate nine-page Comprehensive List of Recommendations, with Item 18 calling for the revocation of China's Permanent Normal Trade Relations (PNTR) status, which has been in effect for more than two decades. "The PNTR status allows China to benefit from the same trade terms as US allies… repealing PNTR could reintroduce annual reviews of China's trade practices, giving the US more leverage to address unfair trade behaviors," the panel set up by the US Congress in October 2000 said in the report.
US industries and think tanks have been warning about the potential costs of revoking the status to the US economy and its people. The Peterson Institute for International Economics (PIIE), a US think tank based in Washington DC, released a report in September, warning that "revoking China's PNTR status would cause higher inflation and a short-term decline in US gross domestic product relative to baseline from which the economy never fully recovers." "The loss of output and employment would be felt unevenly across the economy, with agriculture, durable manufacturing and mining taking the biggest hits. Stock market prices would fall, with agricultural, durable manufacturing and mining firms absorbing the biggest declines. All of these impacts would be magnified if China retaliates," read the report.
China's holdings of US Treasury debt fell to $772 billion in September 2024, a drop of $2.6 billion month-on-month, marking the third consecutive monthly decline, according to data released by the US Department of the Treasury. China remained the second-largest holder of US government debt. However, China's holding of US government debt has been below the $1 trillion mark since April 2022. According to data released by the State Administration of Foreign Exchange (SAFE) on November 7, China's foreign exchange reserves totaled $3.26 trillion at the end of October, a decline of $55.32 billion from the end of September.
Donald Trump said during the 2024 campaign that he would impose a high tariff of 60% on Chinese goods after taking office. At the same time, some foreign companies are reducing their investment in China and even planning to move their factories from China to countries such as Vietnam.
South Korea's Chosun Ilbo reported on November 15 that Samsung Electronics and SK Hynix, South Korean semiconductor companies with considerable investments in China, have completely canceled their plans to increase production in mainland China, considering the escalating US sanctions on China's semiconductor industry and concerns that Trump will impose large tariffs on Chinese exports to the US. The report quoted market research firm Omdia and industry insiders as saying that SK Hynix has halted its original plan to expand production capacity at its Wuxi plant in China and will instead expand production in Icheon and Cheongju, South Korea. In addition, Samsung Electronics' NAND flash memory plant in Xi'an will also significantly reduce its original production capacity of 600,000 wafers this quarter.
Some experts also believe that these companies' considerations of stopping expanding production capacity in China now may be related to Trump's tariff threats, although some restrictive mechanisms have been launched during the Biden administration in the name of national security and supply chain de-risking. "These companies reasonably expect the U.S. to tighten restrictions on imports from China," Thibault Denamiel, associate fellow for economics and international business at the Center for Strategic and International Studies (CSIS), told VOA via email. "These restrictions could take the form of expanding export control rules, implementing stronger outbound investment screening mechanisms to cover a wider range of activities related to the semiconductor supply chain, or imposing higher trade barriers on goods from China entering the U.S."
Some foreign companies are reducing their investments in China not only because of concerns about U.S. tariffs, but also because of negative economic factors in China. “While (China) remains a strong manufacturing superpower, it is experiencing an economic slowdown following a sluggish real estate market, weak consumer confidence, deteriorating local government finances and a recent crackdown on businesses,” DeNamir noted. “The situation can be even more challenging for foreign companies, who also face discriminatory treatment in the Chinese market and, in some cases, threats of detention of employees.”
Brian Tycangco, an analyst at Stansberry Research, an American investment research institution, told VOA: "President-elect Trump's hawkish stance on China and trade is just a continuation and acceleration of events since 2016. Many companies in the United States have been adapting to the changing global supply chain landscape. While a complete decoupling from China is neither reasonable nor realistic, further decoupling will occur when it comes to sensitive products, especially semiconductors, strategic metals and medical supplies."
US economists believe that US President-elect Trump's trade war with China may start as soon as he takes office, directly raising the tariff rate on imported Chinese products to around 40% and gradually increasing it to 60%. A 40% tariff may reduce GDP growth of China, the world's second largest economy, by about one percentage point. This is the view of most of the more than 50 economists surveyed by Reuters. These experts are from China and other countries. The survey was conducted from November 13 to 20. Reuters said that the vast majority of economists in China and abroad expect Trump to start imposing tariffs early next year, with the median estimated tariff rate reaching 38%. The forecast range of tariff rates is as low as 15% and as high as 60%.
In his "America First" plan, imposing tariffs on China is a very important part of this plan. He hopes to limit the influx of China's excess production capacity into the United States by imposing high tariffs, correct the imbalance in bilateral trade, and promote the return of manufacturing to the United States and revitalize the US economy. Trump's proposed tariff rate target for China is 60%, but if something unexpected happens, such as a Chinese military invasion of Taiwan, Trump said he would raise the rate to 100% or 200%. This strong practice of imposing tariffs threatens China's economic growth and has caused widespread unrest in China.
During his first term as president, Trump imposed tariffs on Chinese imports ranging from 7.5% to 25%. Today, China's economic situation is much worse than before. The real estate industry, a pillar of the economy, is in a serious recession, domestic industries and government debt pressures are huge, domestic demand continues to be weak, unemployment has soared, and the economic situation is more fragile.
Most respondents said they do not expect to impose 60% tariffs on Chinese goods in early 2025 because doing so could spur inflation in the United States. "We expect the new U.S. administration to revert to the original Trump 1.0 plan," said Raymond Yeung, chief economist at ANZ Bank. He expects the average tariff on Chinese goods could rise by 32% to 37%. Analysts said that since the end of September, Chinese policymakers have introduced a series of measures to stimulate economic growth, and China will face greater pressure next year to stimulate domestic demand to offset the expected decline in exports. Exports are the main growth driver of China's economy this year. As for how much impact a 40% tariff rate would have on China's economy, the survey found that it would reduce China's economic growth by about 0.5-1.0 percentage points in 2025.
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