Kevin Rudd on U.S.-China Relations: What Happens Next?

The United States and China emerged from last week’s G20 summit in Buenos Aires with a deal that may end the ongoing trade conflict between the two countries. U.S. President Donald Trump announced that he would delay by 90 days a 25 percent tariff on most Chinese goods and that, in return, Chinese President Xi Jinping would designate the synthetic opioid Fentanyl a controlled substance, subjecting those selling it to the maximum penalty under Chinese law. The news of this truce reassured the global community, if just for a moment: The arrest of Meng Wanzhou, chief financial officer of the Chinese tech giant Huawei, has again strained Sino-American ties.

On Wednesday, Asia Society Policy Institute President Kevin Rudd — a former Australian prime minister and Sinologist — delivered a comprehensive speech at Asia Society providing a tour d’horizon of U.S.-China relations in 2019. Broadly speaking, Rudd described the relationship as a “strategic competition,” a contrast to the “strategic engagement” of the first 40 years following the launch of Deng Xiaoping’s market reforms. Economic imbalances — such as the current $370 billion bilateral trade deficit or China’s average tariff rate of 9.8 percent — were once seen as a necessary price to pay for Beijing’s inclusion into the global economy. Now, the Trump administration wants them gone — as well as perennial sticking points like intellectual property theft, forced technology transfers, and China’s nationalist industrial plan.

Can the U.S. and China sort out these issues in the next 90 days? Rudd said that by March it’s possible that “there will be an agreement between China and the United States on the quantum of bilateral trade deficit reduction and the import decisions that China will make to bring that about over time,” but was less certain that the two sides could work out a satisfactory arrangement on tariffs. Reform regarding intellectual property and technology transfers are even more problematic, he said and added that “it’s difficult to identify any readily available solution” to the issue of the “Made in China 2025” plan.

More broadly, Rudd believes that China will adopt a “wait-and-see” approach during the next two years, as President Trump faces an uncertain political future at home. The results of Robert Mueller’s investigation into the president’s relationship with Russia, for instance, or action from the Federal Reserve could force Trump to adjust his posture toward China. In the meantime, Rudd predicted that Beijing will position itself as a champion of globalization and free trade — something Xi Jinping alluded to during a noteworthy speech at the World Economic Forum in Davos in 2017 — thereby bucking an international trend toward nationalist politics and protectionist economics.

“It would turn out to be supremely ironic that a Trans-Pacific Partnership (TPP) originally designed by the Obama administration as part of its ‘pivot to Asia’ ended up including China but not the U.S. itself,” Rudd said.

Even a tidy resolution to the current U.S.-China trade disagreement, though, does not change the underlying trajectory between the two global superpowers: Washington is no longer inclined to accept Beijing’s rise on its own terms — a change that could have significant consequences for the rest of the world.