Eurasia Group | Risk 3: US/China
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Risk 3: US/China

IAN BREMMER AND CLIFF KUPCHAN
6 January 2020
Eurasia Group's Top Risks 2020—Risk 3: US/China

AS THIS DECOUPLING OCCURS, US-CHINA TENSIONS WILL LEAD TO A MORE EXPLICIT CLASH OVER NATIONAL SECURITY, INFLUENCE, AND VALUES. The two sides will continue to use economic tools in this struggle—sanctions, export controls, and boycotts—with shorter fuses and goals that are more explicitly political. Companies and other governments will find it harder to avoid being caught in the crossfire. 

This struggle has hard-edged realism—great power rivalry—at its core. It's not yet as starkly ideological as the classic Cold War formulation of capitalism vs. socialism. But as tensions escalate, divergences between the two countries' political structures are bringing irreconcilable differences to the fore. The US-China rivalry will increasingly be waged as a clash of values and animated by patriotic fervor. The United States sees China as a repressive regime that will use its economic clout to punish its foes and limit criticism from overseas, as we saw in the snap NBA boycott in response to an executive's tweet in support of pro-democracy protesters in Hong Kong. China sees the United States as a hegemon that wants to stunt the growth of, and sow division within, its rival, a narrative that Xi has used to enhance the Communist Party's legitimacy and his own consolidation of power.
 
Divergences between the two countries' political structures are bringing irreconcilable differences to the fore. Thus, the US-China rivalry will increasingly be waged as a clash of values and animated by patriotic fervor.

The trade war has been fought to a standstill and won't go away, with a truce in place but little chance of a breakthrough. The US foreign policy establishment is focused on how to contain China rather than compete with it, amplifying bilateral tensions. China-bashing will feature prominently in the US presidential campaign, and an already China-skeptical Trump will have mixed intentions and limited capacity to stop his administration from taking tough action against China on national security and foreign policy issues.

Furthermore, Hong Kong's political crisis will persist, while Taiwan's January 2020 vote will likely see a reelection of Beijing's foe Tsai Ing-wen, bolstered by stronger nationalist sentiment within the population. The United States will emphasize military and diplomatic support for Tsai's regime and at least moral support for Hong Kong's protesters (driven by Congress), prompting angry objections from Beijing over interference in its domestic affairs.

Top Risks 2020: US turns to China's "core interests"

As a consequence, the US will take tough measures against China, including financial sanctions (over Xinjiang, Iran, Hong Kong), designation of officials, technology controls, and efforts to limit US capital flowing to Chinese firms. These actions will also create tail risks for an already softening Chinese economy. Meanwhile, China will punish US and other foreign firms viewed as supporting Washington's “containment agenda.” The “unreliable entities” list will grow longer, and China will continue to restrict space for foreigners by reducing their ability to get visas. The politicization of China's economic relationships will intensify as Beijing looks for ideological “outlets” to vent over an aggressive Washington and slowing economic growth at home.

Meanwhile, as Trump faces a challenging reelection campaign, Xi may test Trump's willingness to push back aggressively in areas such as Hong Kong and Taiwan, sensing that while trade matters for Trump, he is less interested in security questions. That's dangerous, because the US president is unpredictable.


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