The Trump presidency presents China with unique opportunities and unique challenges. How China responds to these challenges and opportunities will have a huge impact on the shape of the global order and on the Asia-Pacific in particular. This paper will briefly analyse China’s current strategic position and then based on this analysis will attempt to outline likely Chinese strategy in the coming year. It needs to be stressed that the global strategic environment is constantly changing, now more than ever. A change in the environment next week, for example a new policy from the Trump administration, could easily make all the analysis in this paper redundant. This is an inherent risk that lies with any attempt at prediction in the international arena.

China’s strategic environment is currently in flux. American strategy in the Asia-Pacific had been fairly constant from 1945 until the end of the Obama administration. It has, for the most part, been based around maintaining freedom of navigation along maritime trade routes, maintaining a level of regional stability, and preventing any one power from dominating the region and becoming a peer competitor. It was this last goal that prompted the ‘rebalance to Asia’ under Obama that involved American military, economic, and political resources and activities in the Asia-Pacific being heightened. The rebalance had limited success and the Trump administration already appears to be dismantling the political and economic dimensions. This is evidenced by US withdrawal from the TPP, apparent lack of interest in regional institutions, and rhetoric suggesting that the US is no longer willing to support its regional allies and partners to the same extent that it previously would (although these last two assertions regarding institutions and allies and partners may change).

The Trump administration’s actions and rhetoric present China with opportunities and challenges. The opportunities stem from the global leadership vacuum as the US withdraws its engagement on many global issues, economic opportunities created by controversial US trade policies, and the damage to US reputation and credibility with its allies and partners. On the other hand, the challenges come in the form of a more confrontational, less predictable US.

Slogans such as “America First” present an image of a US that is no longer willing to be the primary stake holder in every global issue. Whether this is the case or not, the heads of states of countries from all around the world can be forgiven in wondering whether the US will continue to be the global leader they once were. Additionally, the Trump administration’s rhetoric have been decidedly protectionist. As Trump and his officials were making these statements Chinese President Xi Jinping was giving a speech at the World Economic Forum in Davos defending economic globalisation (which you can read here). At the same time as the US appears to be moving away from action on climate change China announced a $360 billion investment into renewable energy over the next four years. From a public relations point of view, these moves are brilliant, and it is natural that as the US begins to appear to be an unreliable global leader, China will begin to look more alluring.

This being said, it should not be assumed that China wants to be a global leader in the same way that the US was. As Ankit Panda of ‘The Diplomat’ points out, being a global leader is expensive and thankless. There is no reason China would want to inherit certain problems such as Syria or the Israeli-Palestinian conflict. Historically for controversial issues such as these, China will tend to stay in the background and make broad statements that no reasonable party disagrees with. It is unlikely that China will begin to expend political and economic capital on issues that, for the most part, don’t affect them. As Zhang Jun, the Director General of the Chinese Foreign Ministry’s international economics department said, “If anyone were to say China is playing a leadership role in the world, I would say it’s not China rushing to the front, but rather the front runners have stepped back, leaving the place to China.”

What China will want is to become a regional leader and a global economic leader. Both of these are possible to a certain degree. The US withdrawal from the TPP and statements that indicate potential tariffs aimed at a number of countries, from Mexico to German car manufacturers, there appears to be a void that China can begin to fill. It should however be stressed that, especially for a small economy, US and Chinese markets are not entirely interchangeable. The US has historically been willing to run trade deficits and its local economy has a huge source of consumer demand. China on the other hand runs trade surpluses and there is less consumer demand in local Chinese markets. This means that US trade deals cannot so easily be replaced with Chinese ones. It’s not impossible, but it’s also not easy.

The most significant area of opportunity for China is the erosion of US credibility in the Asia-Pacific. The US alliance and strategic partner network had been severely limiting to China. The US had several significant allies and partners, whilst China had no significant allies and very few security partners. However, pulling out of the TPP resulted in a huge loss of US credibility. The US wasn’t the only country in which the TPP was controversial, and the leaders of countries like Japan, Malaysia, and Vietnam put a huge amount of political capital on the line to push forward a controversial deal, with the expectation that closer ties with the US would reap long term economic and strategic benefits. Countries like Malaysia and Vietnam are now wondering whether the US is a serious partner; can they trust the US to follow through on future assurances? Regardless of other concerns they might have about China, at least geography dictates that the Asia-Pacific will always be guaranteed to be China’s top priority.

The above paints a picture of potential opportunity for China, opportunity with caveats, but opportunity nonetheless. The change in international environment does however present some significant challenges for China. These challenges come in the form of more aggressive and unpredictable US policy, namely in the areas of trade, the South China Sea, and the Taiwan issue.

Whilst it is too early to try and predict what it would look like, it is likely that there will be some kind of US action to crack down on Chinese trade practices. We know this both from Trump’s rhetoric and the people he has chosen to surround him. For example he has chosen Peter Navarro, the author of Death by China (a book largely acknowledged by economics to be on the fringe) as the director of the newly created White House Trade Council. This being said, there certainly are questionable Chinese trade practices. These range from steel dumping (selling huge amounts of steel in other countries at a loss to drive competition out of business and to gain a larger share of the market), to massive government subsidies to firms so that they can buy out competitors in key industries, to currency manipulation (artificially raising and lowering the value of their currency as it suits them). These are not new problems and the Obama administration noted them as well and had policies in place to try and combat these. These policies tended to be nuanced, long-term and industry specific. Trump has proposed a more radical approach that frankly could result in a trade war. A trade war would negatively affect both countries in different ways. The US is Chinas largest trading partner, and China is one of the US’s largest, but is also the largest foreign owner of US debt, owning over $1.3 trillion (around 7%) of US debt. What these mean in practice is complicated, but the bottom line is that both countries can hurt each other economically. In China this is particularly troubling, as regime security largely rests on economic success. A damaging enough trade war not only has the potential to hurt China, but could lead to the undermining of the Chinese Communist Parties power base.

The South China Sea and Taiwan are other areas that will prove to be challenging for China. These are difficult to comment on as besides for a string of tough-talk comments from officials, the Trump administration has yet to put out an official policy concerning these areas. What is somewhat clear, is that it is likely that Chinese strategies that were successful in the face of the Obama administration’s policies, may not be successful against a Trump administration. A Trump administration is likely to be more confrontational and less likely to apply nuance to its China policies. As of the moment China cannot afford a war against the US. But on the other hand, they cannot afford to be seen to back down in the face of US threats. This would hurt their credibility on both domestic and international fronts. China must avoid being forced into a position where they need to choose between war and extreme loss of face. This will need to involve delicate manoeuvring, strategic diplomacy, and quickly learning to read the Trump administration’s intentions. It is this last task that will be the most difficult. It is likely that the Trump administration is still developing their policy, and after it is developed there is no promise it will be consistent. The security of China’s national interests will lie in their ability to work out how far the US can be pushed, and what actions are likely to trigger positive or negative US reactions. Another difference is that if China is forced into a limited conflict with the US, the gut reaction of the international community will likely place the blame on foreign policy blunders by Trump. This is a new development as just six months ago the gut reaction would have been to blame ‘an aggressive China.’

This strategic environment is likely to result in the following action by China in the next year.

The continued growth of economic influence and attempts to shore up the Chinese economy so as to mitigate any potential trade war with the US. This will involve continued investment into their One Belt One Road policy as they expand their trade influence west into Central Asia and Europe. There may also be attempts to use the vacuum left by the TPP to create an economic framework for the Asia-Pacific that allows China to use their economic influence to achieve strategic objectives. A global charm offensive that routinely displays China as a responsible, reliable global stakeholder in direct contrast to the US. This will involve China selectively involving itself in issues that were previously beyond its scope. China will take care not to overreach and will constantly emphasize a ‘rules based order,’ negotiation, and ‘win-win scenarios.’ This will have the intended effect of reassuring the world as to their intentions. China will focus on taking advantage of the loss of US credibility in the Asia-Pacific to create new regional security architecture. This is already beginning as can be seen in the speech of Lui Zhenmin, China’s Vice Foreign Minister, at the Xiangshan forum in which he outlined five organizing principles for China’s vision of a new security framework (can be read here). This new security architecture will seek to supplant the US alliance network as the primary security guarantor for the region. Finally China will attempt to navigate between provoking the Trump administration into a detrimental war and appearing to give in to an aggressive Trump. One can expect a mix between strong rhetoric on the domestic front, an emphasis on international law, dialogue, and negotiation on the international front, and a steady build-up of Chinese military assets so as to deter hasty US action.

Once again it needs to be stressed that, as with all predictions, these are liable to change as new information comes to the fore. US-China relations is likely to be one of the major potential flashpoints during the Trump administration and whether Trump’s first term ends with China in a much stronger or much weaker position is not up to any on side, but will depend on the competing strategies, and the action-reaction dynamics of both the US and China.