Five Flashpoints to Watch as U.S.-China Relations Worsen

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After a brief period of apparent calm with the signing of a trade deal in January, the U.S.-China relationship has worsened dramatically in the past few months, with the Covid-19 pandemic adding a new and deadly edge to an increasingly bitter and fiery competition.

Many of the flashpoints were active this week, and observers will be watching China’s week-long annual parliament, which starts Friday, for Premier Li Keqiang and other senior officials to deliver their plans on defense, diplomacy, and a range of other issues — including relations with the U.S.

Virus Revives Worst-Case Scenarios for U.S.-China Relationship

23,285 in U.S.Most new cases today

-14% Change in MSCI World Index of global stocks since Wuhan lockdown, Jan. 23

-1.​085 Change in U.S. treasury bond yield since Wuhan lockdown, Jan. 23

-4.​8% Global GDP Tracker (annualized), April


Here are five main areas where the two countries are in conflict:

Trade

The signing of a deal on trade and economic relations in January was meant to be a new start for the two nations, with President Donald Trump declaring that “our relationship with China is the best it’s ever been.” To implement the deal, China has lifted restrictions on a variety of U.S. agricultural imports including beef and poultry, continued opening up its financial sector and published a guideline on intellectual property protection.

The centerpiece of the agreement was China’s promises to buy more U.S. goods and services, but even before the coronavirus hit analysts were questioning whether those targets were realistic. Now, with both Chinese demand and U.S. manufacturing and transport capacity down due to the virus -- and prices falling for energy and other goods -- those promises look even further out of reach. China is behind where it needs to be to achieve the 2020 targets.

Kevin Hassett, an aide to Trump, told CNBC Monday that while China seemed to be adhering to the trade deal before the virus, the pandemic has brought a reboot in relations with the U.S. and “tensions are high with China right now.” If those tensions increase, a failure to reach the deal’s terms could cause it to collapse.

Taiwan, Hong Kong

The long-standing disagreement over Taiwan between the U.S. and China has heated up in recent weeks. The two sides fought over whether Taiwan could attend a recent World Health Organization meeting, and China criticized U.S. Secretary of State Michael Pompeo for issuing a statement congratulating Taiwanese President Tsai-Ing Wen as she was inaugurated for a second term in office -- a break with past U.S practice. China’s defense ministry this week denounced Pompeo’s act as “wrong and very dangerous,” and said the military would “take all necessary measures to firmly safeguard” China’s sovereignty. The Chinese foreign ministry separately threatened retaliation. China considers the democratically-ruled island a province.

Meantime, opposition lawmakers in Hong Kong warned its status as an international financial center was in jeopardy after China announced dramatic plans to rein in dissent by writing a new national security law into the city’s charter. The National People’s Congress confirmed plans to pass a bill establishing “an enforcement mechanism for ensuring national security” for Hong Kong, without providing details.

Earlier this month, Pompeo delayed an upcoming report on Hong Kong’s autonomy, the basis for special trade privileges that have long helped cement its status as a premier financial center. The city is bracing for another potential summer of unrest amid resurgent protests opposing China’s increasing influence.

Technology

Over the past few years the U.S. administration has repeatedly sanctioned Chinese technology companies such as Huawei Technologies Co. and ZTE Corp. for breaking U.S. sanctions, blacklisted them and accused them of being a threat to U.S. security.

In the latest move, the U.S. Commerce Department said last Friday it would require any foreign chipmaker that uses American technology to get a license before it can sell to companies including Huawei and other prominent Chinese tech firms, including SenseTime Group Ltd. and Megvii Technology Ltd.

In turn, China’s Ministry of Commerce said it opposed the new rules and will take all necessary measures to defend the rights and interests of Chinese companies. Huawei separately warned the latest curbs will inflict a “terrible price” on the global technology industry.

Coronavirus

The two nations have been exchanging increasingly bitter accusations over the handling of the coronavirus outbreak. The latest salvo is Trump’s finger-pointing at Chinese President Xi Jinping, after a letter on Monday to the World Health Organization which Trump accused of being too close to China.

Trump Points Finger at China’s Xi, Escalating Fight Over Virus

Trump’s tweets are part of a recent barrage of U.S. attacks, which included suggestions that the virus escaped from a laboratory in the central city of Wuhan. Chinese diplomats and state media have waged their own campaign pushing back against the claims that Beijing is responsible for the global pandemic for misleading the world, attempting to raise doubts about whether the virus first infected humans in Wuhan and even insinuating that the U.S. military brought the virus to the city.

Financial Ties

Even as the trade deal has secured increased access to China for American companies, the U.S. is looking to increase control over financial and economic ties between the two nations. The U.S. is “turbo-charging” it’s efforts to reduce the reliance of its supply chains on China, an official told Reuters earlier this month.

This week the Senate overwhelmingly approved legislation that could lead to the delisting of Chinese companies trading on U.S. stock exchanges, and a retirement-savings scheme for federal workers last week deferred a plan to include Chinese stocks in its investments due to pressure from the Trump administration and some lawmakers in Congress.

— With assistance by Sharon Chen, and Miao Han

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