Four ways Trump could tangle with China

When Donald Trump accepted a phone call from Taiwan’s president, he signaled to China that he is prepared not only to break with longtime U.S. policy, but also to launch U.S.-China relations on a more confrontational course.

The conversation with President Tsai Ing-wen was the first by a U.S. president or president-elect since 1979, when Jimmy Carter ended official relations with Taiwan after recognizing Beijing’s communist government as the only representative of China. Beijing considers the island of Taiwan a breakaway province that it plans someday to unify with the mainland.

Beyond upsetting Beijing with his phone call, Trump has accused China of unfair trade practices and exerting new military muscle in Asia.

Here are four areas where President Trump and China are likely to tangle:

TAIWAN

Taiwan: Trump call was not China 'policy shift'

Trump's conversation with Taiwan's democratically elected president is too important for China's communist leaders to ignore, said Michael Auslin, author of the soon-to-be published book The End of the Asian Century.

China's “One China” policy is “all about separatism,” Auslin said. If Taiwan can move toward independence, as many on the island want, then so can Tibet and Xinjiang, he said, referring to Tibetan- and Muslim-majority regions in China with separatist movements.

China can show its displeasure with the U.S. in areas such as economics, anti-terrorism cooperation and North Korean nuclear proliferation, said Cheng Li, director of the China program at the Brookings Institution, a Washington think tank. China can also ratchet up its military activities in the South China Sea, where the U.S. seeks to maintain freedom of navigation for commercial and U.S. Navy ships. Other nations in the region are resisting China's territorial claims, as well.

Bonnie Glaser, a China expert at the Center for Strategic and International Studies in Washington, D.C., said Trump’s advisers are trying “to show China that things won’t be conducted business as usual.”

“Trump seems to have bought into this,” she said.

Subsequent to his phone call with Taiwan's leader, Trump tweeted: "Did China ask us if it was OK to devalue their currency (making it hard for our companies to compete), heavily tax our products going into ... their country (the U.S. doesn't tax them) or to build a massive military complex in the middle of the South China Sea?  I don't think so!"

SOUTH CHINA SEA

Trump’s tweet shows that he’s linking separate areas of conflict with China in a way that hasn’t been done in the past, but China can play that game, too.

In the South China Sea, China has built islands on small atolls and rocks, and loaded them with hardened aircraft hangars and shipping piers. U.S. allies in the area have protested, and the U.S. has used its ships and military aircraft to enforce free access for all.

“Until now (the Chinese) have said these aren’t military bases,” Auslin said. “To show Trump he’s going down the wrong road, I wouldn’t be surprised if they say these are bases, and base fighter planes on them.”

China could also deploy radar and anti-ship and anti-aircraft missiles, demand that foreign aircraft and vessels identify themselves and respect Chinese sovereignty in the area, and bar access to military craft and ships from the U.S. and other nations.

“Are these small countries going to risk an encounter with Chinese fighter jets?” Auslin said. “It makes China the regional (superpower) and forces the U.S. to decide whether they’re going to challenge China.”

NORTH KOREA

China signed on to international sanctions imposed by the United Nations Security Council last week in response to North Korea's nuclear weapons tests, but could walk away from them, too, Auslin said. It  also could increase economic and military aid to North Korea, an ally wholly dependent on its neighbor, and declare an end to international talks aimed at ending the North’s nuclear program.

“They could use it as a stick to beat Trump with,” Auslin said.

If Trump were to respond, he could ramp up pressure on China, by imposing more sanctions on Chinese companies that support North Korea and its nuclear activities. President Obama issued the first such sanctions in September.

“Trump could do more,” Glaser said.

U.S. targets attempts to evade North Korea sanctions

Here's why North Korea sanctions won't work

TRADE

Trump has accused China of dumping steel and other imports at low prices to put competitors out of business, violating intellectual property rights and manipulating the Chinese currency to lower the cost of its products and make U.S. goods more expensive in China.

This is one area where the Chinese “are more vulnerable than we are,” Auslin said. “We can find other markets. They are less able to find other markets the size of the USA.”

Trump also has threatened to declare China a currency manipulator. Such a determination could result in tariffs on Chinese imports and a trade war, Auslin said.

The result: China's economy would suffer and the cost of goods would go up for U.S. consumers. China could respond by refusing to buy U.S. Treasury bonds. That would raise the cost of U.S. government borrowing, raise interest rates on U.S. consumers and businesses, and spook the stock market.

Economist Phillip Swagel of the University of Maryland sees both a trade war and a currency war with China on the horizon because China's currency will continue to fall while Trump's plan to cut taxes and increase spending will make the dollar stronger.

Swagel said that would also open opportunities for Trump to expand trade elsewhere in Asia: "I wonder if the China bashing produces gains in other places," he said. "He could portray it as shoring up Japan against China."