Throughout 2018, much of Asia has been shaken by the new and increasingly unpredictable dynamics in Sino-American relations. One year ago, US President Donald Trump returned from Beijing after his “state-plus” visit, which China hoped had finally laid his anti-Chinese campaign rhetoric to rest. Twelve months later, China and the United States are caught in an unresolved trade war, and Trump’s administration has replaced US “strategic engagement” with China with “strategic competition.”
So what are the prospects for US-China relations in 2019? It’s probable that by March there will be an agreement on reducing the bilateral trade deficit and the import decisions that China will make to see it through. An agreement on tariff reductions by then is also possible, although its complexity may lengthen the timeline. A tariff-by-tariff approach could take a year. But if Chinese economic reformers take a more dramatic approach, by committing to zero tariffs over time and challenging the Americans to reciprocate, it could be concluded more rapidly. But this would run counter to decades of Chinese trade bureaucrats’ training to give away little.
Intellectual property protection is deeply problematic. Previous agreements reached under President Barack Obama’s administration could be reconstituted. But the jurisdictional enforcement of breaches is still hopeless. One possible mechanism is to subject relevant contracts between Chinese and foreign firms to international commercial arbitration bodies located in Singapore or Switzerland, designed to deal specifically with the enforcement of IP protection.
If China objected, it might be possible to develop China’s own domestically based international commercial arbitration system. But the country would need to appoint qualified foreigners to its panel of arbitrators to build international credibility.
American concerns about Chinese state subsidies under the country’s Made in China 2025 strategy will be almost impossible to resolve. The reality is that all countries use degrees of government support for their indigenous technology industries. Even if we mandated a maximum level of state support for a given firm, compliance would be difficult to measure. America may simply need to outcompete China by increasing public investment in research and development across the information technology and biotechnology sectors.
We should also not rule out the possibility of China pitching tariff reforms to the wider international community as well. For example, China could make a dramatic commitment to zero tariffs over time not just to the US, but to all World Trade Organization member states. This would represent an almost irresistible opportunity for China to champion global free trade and arrest the trend toward protectionism.
On the wider foreign policy and security front, China in 2019 is likely to “de-conflict” itself in its relations with other countries. There is already some normalization in relations with Japan. Recent data from the Japan Coast Guard indicate a drastic reduction in Chinese incursions into the Senkaku/Diaoyu area in the East China Sea.
China also wants to de-escalate tensions with the Association of Southeast Asian Nations over the South China Sea through the accelerated negotiation of a “code of conduct.” China is also likely to enjoy a calmer relationship with India, following the bilateral summit in Wuhan in April. And China may begin to moderate its stance on Taiwan, given the poor results of Taiwanese President Tsai Ing-wen’s pro-independence Democratic Progressive Party in last month’s local government elections. This would, of course, change radically if the US proceeds with further significant arms sales to Taiwan. Maritime incidents with the US in the South China Sea have continued, and the conflict may sharpen if the US pursues its Freedom of Navigation program more vigorously next year.
Across Eurasia, China will continue to roll out its Belt and Road Initiative. However, in recent months, the BRI has attracted less domestic political fanfare. There is already debate among Chinese officials about revising certain BRI modalities, following negative reaction to Sri Lanka’s handover to China of the Hambantota Port, and concerns over the BRI’s long-term affordability. We may therefore see less Chinese BRI triumphalism in 2019.
Moreover, China is likely to consolidate and expand its role within the existing United Nations and Bretton Woods institutions. It will likely continue to be the WTO’s new champion, and to sustain its posture on global climate change as agreed under the 2015 Paris climate agreement. To the sober minds in China’s foreign policy establishment, it is better to focus on the existing machinery of the global rules-based system, particularly when the US is demonstrating systematic contempt for it.
As China seeks to restabilize its relationship with the US, its leaders are likely to use 2019 to form a deeper judgment about the future of US politics: the impact of the Mueller investigation on Trump and his administration, and whether a new president in 2020 (or sooner) would change the emerging new US strategy. While they have already concluded that a deep shift in American attitudes to China has occurred, they remain uncertain about what precise form that shift is taking, and whether a fundamental shift in their strategy is warranted.
Kevin Rudd, a former prime minister of Australia, is president of the Asia Society Policy Institute in New York. -- Ed.