US Presidential Election: Strategic Implications for US-China Relations.

The outcome of the US presidential election is poised to significantly influence the dynamics between the world’s two largest economies, the United States and China. However, in China, where election news is tightly controlled by state and social media censorship, the event is viewed with a degree of detachment. The general sentiment remains that regardless of who wins, underlying tensions will persist, with the US committed to containing China’s global ascent.

Current Landscape of US-China Relations

Over the past decade, the relationship between the US and China has transformed from strategic rivalry to outright competition, encompassing economic, technological, and military spheres.

China’s watching the US election – but doesn’t see much hope for better ties

Under President Biden, this rivalry has been characterized by strategic containment measures such as tariffs, export controls on critical technology, and support for Taiwan—each reinforcing the US stance on China as a national security threat. Although Biden’s administration has sought to stabilize communications, actions to curtail China’s technological and military growth signal continuity in US policy.

Navigating the Mirage: Analyzing the Challenges of US-China De-risking Amidst Lingering Tensions

China’s economy, meanwhile, has been challenged by internal issues, including a slow recovery from stringent pandemic restrictions, a property market crisis, and wider economic slowdown. Consequently, Chinese public opinion regarding the US election is subdued. Many believe that US-China relations will remain strained regardless of whether Vice President Kamala Harris or former President Donald Trump takes office.

Policy Analysis: Harris vs. Trump

1. Vice President Kamala Harris: Potential for Managed Tensions
   • A Harris administration is expected to maintain the current path established by Biden. This includes targeted export controls, cooperation with allies, and restrained support for Taiwan. Harris is seen in Beijing as a leader who would prioritize diplomatic exchanges and avoid escalating tensions unnecessarily.
   • Strategic continuity in trade and technology policy would ensure predictable, though tense, relations. Harris’ stance could allow for limited cooperation in areas like climate change and public health, areas where both nations share global responsibilities.

Navigating the Mirage: Analyzing the Challenges of US-China De-risking Amidst Lingering Tensions

1. Donald Trump: Unpredictable and High-Risk Approach
   • Trump’s previous term was marked by aggressive tariff policies, tech restrictions, and a strong anti-China rhetoric. His potential return introduces an element of unpredictability, as he has signaled the possibility of sharply increasing tariffs and taking drastic measures against Chinese enterprises.
   • While Trump’s policies may weaken U.S.-China ties, they could also create opportunities for China if Trump’s unilateral approach alienates U.S. allies. However, Trump’s lack of diplomatic conventions might result in heightened economic friction, risking broader global instability.

Economic Implications and Corporate Strategies

The election’s impact on multinationals and global markets is profound. For CEOs of multinational corporations, the key considerations are:

1. Supply Chain Resilience and Diversification
   • With a bipartisan US focus on reducing dependence on Chinese manufacturing, corporations are likely to accelerate shifts toward diversified supply chains. Investment in Southeast Asia, India, and Latin America could reduce vulnerabilities to trade restrictions.
   • Corporations should prioritize resilient, flexible supply chain strategies, anticipating potential tariffs and technology restrictions that could disrupt business continuity in sectors like electronics, automotive, and pharmaceuticals.
2. Market Access and Localization
   • Regardless of the winner, continued US-China rivalry suggests that multinational firms will face barriers to market access in both nations. A Harris administration might provide some regulatory predictability, while Trump’s return could increase the likelihood of new restrictions.
   • Multinationals should assess the viability of localized strategies, such as setting up China-based entities to serve the Chinese market independently, reducing exposure to US-China trade policies.

Geopolitical Ramifications for Asia-Pacific Stability

The Asia-Pacific region, central to both US and Chinese foreign policies, stands to see varying degrees of impact depending on the election outcome.

1. Regional Alliance Structures
   • Under Harris, the US is expected to continue bolstering alliances in Asia-Pacific, as seen with QUAD and AUKUS. This policy supports regional stability while positioning China as a counterbalance.
   • Trump’s more isolationist tendencies, including potential disengagement with allies, may lead to power vacuums, compelling regional powers like Japan, India, and Australia to fortify their own defenses, further escalating arms races and defense spending.
2. Taiwan and the South China Sea
   • Taiwan remains a critical flashpoint. Both Harris and Trump may uphold support for Taiwan but in different tones. Harris would likely maintain diplomatic ambiguity, while Trump’s approach might be more confrontational, increasing the risk of conflict.
   • Corporations with interests in the South China Sea or Taiwan should prepare for increased naval presence and potential conflicts in the region, with backup plans for alternative shipping routes and logistical contingencies.

Recommendations for Policymakers and Business Leaders

Policymakers:

• For the US: It is crucial to balance economic competitiveness with stability in US-China relations. Policies should continue to support domestic technological innovation while minimizing escalation in high-stakes areas such as military presence in the South China Sea.
• For China: Greater efforts to strengthen economic resilience, particularly in self-sufficiency in technology and energy, could mitigate the impacts of future US restrictions. Furthermore, fostering diplomatic ties with non-aligned nations can enhance China’s global influence.

For Multinational CEOs:

• Investment in R&D: Given potential restrictions on Chinese tech imports, CEOs should consider increasing R&D spending domestically or in friendly nations to develop alternative supply sources.
• Policy Monitoring: Engaging with policy analysts and local advisors will allow for proactive adjustments to evolving regulations, especially in sectors heavily regulated by both US and Chinese governments.

Conclusion: Prospects for the Future

As the US election looms, it’s clear that irrespective of who ascends to the presidency, US-China relations will remain fraught with tension. Both Harris and Trump would likely pursue policies that constrain China’s technological and economic ambitions, albeit through different methods. For China, a restrained but resilient approach will be key in navigating an international landscape where US-led alliances and containment strategies continue to evolve.

For think tanks, CEOs, and government leaders, the upcoming election underscores the importance of strategic foresight. Adaptability to regulatory shifts, investments in resilient supply chains, and diplomatic engagement in Asia-Pacific are essential measures to mitigate risks. Monitoring the US-China relationship post-election will remain critical to understanding the future balance of global economic and political power.