Economic Security China Geoeconomic Briefing

Politics and the economy: Bedfellows of U.S.-China relations

2025.01.20

The United States has yet to come up with a viable strategy to deal with multipolarity in international relations. How will this affect its confrontation with China around Taiwan?

Given that the U.S.-China rivalry has become a long game, what is key here is how and when the intensity of Washington’s stance toward Beijing ebbs and flows.

America’s hard-line shift emerged with the first Trump administration’s 2017 National Security Strategy, which labeled China and Russia as “revisionist powers.” The following year, then-Vice President Mike Pence made a speech expressing disappointment in and strong opposition to China — reminiscent of wartime British Prime Minister Winston Churchill's “Iron Curtain” speech, which signaled the beginning of the Cold War.

While former President Joe Biden’s administration has advocated for “managing competition,” in practice, it has strengthened economic pressure on China, for example through the Inflation Reduction Act and semiconductor export restrictions.

In January 2023, the U.S. House of Representatives overwhelmingly approved the establishment of a select committee on strategic competition with China, which has focused on areas such as biotech and critical minerals.

As long as Washington believes that China’s strategic goal is to become a great power that can surpass the U.S., these deterrent measures are likely to continue. On the other hand, as long as the Chinese Communist Party, which emphasizes infallibility, remains in power, it is unlikely that Beijing will abandon its goal of building a “great modern socialist country.”

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Interplay with Taiwanese politics

One of the key issues for Japan is how the U.S.-China confrontation will impact the struggle over Taiwan. Since the 1990s, the island has seen the establishment of a democratic system and a process of “Taiwanization,” whereby political orientation is connected to Taiwan’s identity. Beijing views this as Taiwanese people distancing themselves from China over time, prompting the need for action.

Washington and Taipei have been coordinating deterrence efforts against China, with resilience as the overarching principle. The United States’ 2023 National Defense Authorization Act committed up to $10 billion in military aid to Taiwan over five years. And soon after taking office last May, Taiwanese President Lai Ching-te announced the establishment of the Whole-of-Society Defense Resilience Committee, aimed at expanding civilian training and improving medical and evacuation facilities as national security measures.

A potential shift in Washington’s policy toward Taiwan cannot be ruled out. President Donald Trump stated in July that the island should pay the U.S. for defense because the latter is “no different than an insurance company.”

From China’s perspective, political instability in Taiwan and the uncertainty following the U.S. election could be an opportunity to drive a wedge between Taipei and Washington.

Recently, Taiwanese experts have expressed concerns about America’s semiconductor policy and its defensive commitments to Taiwan. In response, Mike Pompeo, who served as secretary of state during the first Trump administration, emphasized the importance the U.S. places on Taiwan in a speech he delivered there earlier this month.

The ramifications of Trump’s presidency on Taiwan, particularly how Beijing interprets these developments, will require close observation.

Assertive economic security

The Taiwan issue remains a political card to be played in U.S.-China relations. In response to Lai’s inauguration on May 20, the Chinese government announced three consecutive days of sanctions against the U.S. and added three American defense companies to its list of “unreliable” entities.

The day following the inauguration, China also adopted sanctions against former Rep. Mike Gallagher, a central figure in the American select committee on strategic competition with China, and the day after that, Beijing sanctioned another dozen American defense companies and their executives — a tactic aimed at deterring U.S. support for Taiwan.

Since 2020, China has been developing and gradually intensifying its legal framework for sanctions and regulations. For example, in February 2023, shortly after the U.S. shot down a Chinese spy balloon, Beijing sanctioned two American companies — the first foreign firms to be added to its unreliable entity list. However, the targeted companies did not have deep ties to China, so the action did not inflict critical damage. Instead, Beijing sent a message that it did not want to clash with the United States, while striking a combative pose.

Yet China’s inclusion of gallium and germanium — critical raw materials whose production is almost entirely in its hands — in its export control measures, followed by graphite export restrictions, marked a significant escalation in the exercise of its economic leverage.

Last year, the country’s Ministry of Commerce launched several investigations into alleged dumping and subsidies related to brandy, pork and its by-products, and dairy products from the European Union — retaliatory measures against the EU’s additional tariffs on Chinese electric vehicles.

This shift indicates that China has started implementing aggressive economic security measures as part of its political signaling. In December, the government enacted the customs law, which stipulates countermeasures based on the principle of reciprocity for countries violating most-favored-nation or preferential tariff treatment.

Given these trends, China may adopt coercive steps that are stronger and combined, but based on its legal integrity, when taking aim at Taiwan and other fractious issues in its relations with the U.S. — an escalation that could trigger a broader power struggle involving surrounding countries.

Considering the potential for such an intensification, Washington’s lack of a cohesive strategic theory around multipolarity is even more consequential.

Japan must therefore build multilayered frameworks with regional partners such as Southeast Asian countries, South Korea, Australia, New Zealand, the EU and Canada to strengthen its bargaining power against both China and the U.S.

(Photo Credit: Reuters / Aflo)

[Note] This article was posted to the Japan Times on January 20, 2024:
https://www.japantimes.co.jp/commentary/2025/01/20/world/us-china-relations-politics-economy/

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Disclaimer: The opinions expressed in Geoeconomic Briefing do not necessarily reflect those of the International House of Japan, Asia Pacific Initiative (API), the Institute of Geoeconomics (IOG) or any other organizations to which the author belongs.

Naoko Eto Senior Fellow & Group Head, China

ETO Naoko is Professor at the Department of Political Science, Gakushuin University. Her main research interests include contemporary Chinese politics, Japan-China relations and East Asian affairs. Before taking up her current position, she was an associate senior research fellow at the Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO) and a research fellow at the Center for Area Studies, National Institutes for the Humanities (NIHU). She was also a visiting research fellow at the School of International Studies, Peking University and the East Asian Institute, Singapore National University. She holds an MA in international policy studies from Stanford University and a PhD in political science from Keio University. [Concurrent Position] Professor, Department of Political Science, Gakushuin University

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