Trump 2.0 and the PRC
Today’s newsletter is just my thoughts on what Trump’s decisive victory last night means for the US-China relationship. I will return to the regular format Thursday.
It is hard to predict what Trump 2.0 means for US-China relations but I expect we will likely see a more volatile and tense relationship, at least in the near term.
Not all the House of Representative results are in but it looks like the GOP will control the Presidency, the Senate and the House. That trifecta of control could increase US pressure on Beijing, as the chances rise that some or most of the “China Week” Senate bills from September would pass both chambers of Congress and Trump would sign them. If the GOP does retain control of the House then expect renewal of the China Select Committee for another term.
The PRC government has only officially reacted to Trump’s win with a brief Foreign Ministry statement that “we respect the choice of the American people and congratulate Mr. Trump on being elected as president of the United States”. I do wonder if they are disappointed that the vote was decisive and there is no unrest or credible allegations of voter fraud, issues that would have been useful additives to their anti-American propaganda efforts.
Having written this newsletter throughout the first Trump Administration I think we should believe that he means it when talks about tariffs, that he sees China as having reneged on his trade deal, that he thinks China and COVID cost him the 2020 election, and that Robert Lighthizer will have a meaningful role in his new administration. And if Lighthizer takes over the Department of Commerce as part of his role then the semiconductor controls will be more tightly enforced if not also expanded. Lighthizer published Donald Trump’s trade remedies reflect America’s troubled reality in the Financial Times last week and while not specifically about China it is worth reading.
There is little clarity as to who will staff China-related policy positions in the next Trump Administration, and PRC officials and “think tankers” have had a hard time getting meetings with China policy folks who might be up for jobs in that administration, whereas I believe they had much more familiarity with who might have gotten those roles in a Harris Administration. I would not be surprised if they send former Ambassador Cui Tiankai to Florida imminently, and maybe even bring Liu He out of retirement in some way after January 20 given he is probably the PRC official most experienced in negotiating with Trump and Lighthizer.
In the discussion I had with Chris Johnson last month we talked about some of these issues. Here is one relevant segment:
Various PRC proxies are signaling that they will not just take it like they did in his first term, and that they now have a much more robust toolkit to respond to US pressure and inflict costs on American interests, even as their economy may be more vulnerable in at least the short term to a deeper trade war with the US. Scott Kennedy of CSIS had a good piece in Foreign Policy last week - U.S.-China Economic War Is Likely if Trump Wins - in which he discusses the various ways the PRC might respond:
The first time around, China responded with proportionate tariff increases and did not directly counter any of the U.S. technology restrictions. The next time, China may very well call Trump’s bluff in the belief that he is a paper tiger. That’s because it likely would interpret sky-high tariffs, which could be combined with a more comprehensive technology boycott, as equivalent to starting an outright economic war. Chinese officials and analysts I’ve spoken to are tired of being the United States’ piñata. More confident about China’s economy than many international observers because of its progress in a range of technologies, and with significant fiscal and monetary space to provide support, they believe the country can weather any fallout if ties take a hit. Chinese leaders also likely believe such drastic steps are needed to keep the global economy from fully fragmenting, a position they could find sympathy for even among some of the United States’ staunchest allies.
Last time China faced U.S. tariffs, President Xi Jinping appointed Vice Premier Liu He to negotiate, but this time Xi might well authorize a disproportionate response. The first step would be to massively penalize a few Fortune 500 U.S. companies; most vulnerable are those in sectors with capable Chinese alternatives. China could expand restrictions on exports of critical minerals and move forward with other export controls. It also could sell off $100 billion or more of its $775 billion in U.S. Treasurys. And one might expect Beijing to act even more aggressively in the South China Sea and around Taiwan, raising anxieties about the prospects of a kinetic conflict.
Its biggest weapon, however, may be to allow its currency, the yuan, to fall from its current peg of 7.1 to the dollar to 10, 11, or 12 to the dollar, and if markets don’t cooperate, engineer a downward devaluation
The PRC will also use its roster of wealthy businessmen to try to influence Trump’s policies, including several who were recently in Beijing for a meeting of the Advisory Board of the School of Economics and Management at Tsinghua University. They may also be able to work through Elon Musk, the richest of them all, and probably the closest of them all now to Donald Trump, and the one with the most exposure to the PRC given Tesla’s reliance on China both for manufacturing and sales.
The PRC may find plenty of opportunities with Trump 2.0, from a possible “deal” with the US over Taiwan, taking credit for a now more likely peace initiative over Ukraine, US disruption of alliances and relationships, further positioning itself as the protector of the global multilateral system and the leader in addressing climate change, intensifying its efforts to delegitimize the US in the Global South, and increasing pressure on Chinese and Chinese-American scientists in the US that could lead to more brain drain from the US to the PRC, just as the PRC is ramping up its efforts to become a global science and technology hub by attracting talent from around the world, to name just a few areas. So while there may be more risks from a Trump 2.0 for China, there may also be more opportunities, and we have to assume they have been gaming out a Trump 2.0 administration since at least his selection as the GOP nominee.
That is a long-winded way of saying that we should be prepared for much more tension in the US-China relationship, but also be ready for something surprising from Trump, probably announced on X and Truth Social this time.
Thanks for reading.
I share much of your analysis Bill, as a Frenchman and a European, which is reassuring somehow to have a shared understanding on both sides of the Atlantic! Not about Sino-American mechanics - I'm too remote from DC - but about the level of confidence of the CCP's political elite in its ability to overcome any of Trump 2.0's new pitfalls, while expecting surprises that they will see as so many opportunities to exalt the transactional art of the new West Wing tenant.
The recent summits of the SCO in Pakistan and the BRICS+ in Kazan, Russia, further convince the CCP that they already have high ground and enough “market share” as ballast to keep their economy afloat, indeed.
I wonder about the future sacrificial victims of these upcoming trade and technology war games: will it be Europe first, and the 24-hour deal that the new Trump administration is about to unleash (if its yet-to-be-chosen team agrees to follow its architect)? Or Taiwan, which, while warmly welcoming his return, poorly conceals its permanent fear of being just a bargaining chip on this great chessboard whose rules Trump doesn't understand, but on which he plays as if he were playing on a golf green, stroke by stroke?
A European testimonial may shed some light on the situation: last February, at the Munich Security Conference, we witnessed a special China session, as China more than Europeans know how to arrange, even on European soil. It was a lively tit-for-tat duel between the unsinkable Fu Ying on the one hand, and Ben Cardin (D), Chairman of the Senate Foreign Affairs Committee, on the other. Here's what he said (verbatim perfectible): “China poses a threat to peace in the region (...). Our position on Taiwan is intentionally ambiguous and complex, but what we refuse to see is a takeover of Taiwan by force. We will do everything in our power to prevent a takeover of Taiwan by force”. By force only?
It's starting to look a lot like Christmas for, variously, theocracies and autocracies around the world. It's amazing what deals become possible when we're all on the same page and one big happy, global, billionaire/trillionaire family.