Expect more turbulence for US and China in 2024

[December 20, 2023]  By Don Durfee and Antoni Slodkowski

WASHINGTON/BEIJING (Reuters) - After a year that brought panic over spy balloons, a fight over semiconductors and an intensifying military rivalry, China and the U.S. are ending the year with an uneasy detente.

This follows a November meeting between U.S. President Joe Biden and Chinese President Xi Jinping where both men signaled a desire to stop the free fall in their countries' relations.

2024 could bring new turbulence. From presidential elections in Taiwan and the U.S. to continued U.S.-China trade fights, Biden and Xi face no shortage of problems that could cause a stumble in the new year.

CROSS-STRAIT TROUBLE

First up will be Taiwan's Jan. 13 presidential and legislative elections. How China reacts could determine whether the relationship between the world’s largest economies becomes recharged with mutual suspicion.

Vice President Lai Ching-te and running mate Hsiao Bi-khim from the ruling Democratic Progressive Party are leading in the polls. China has labeled them as the "independence double-act" and rebuffed Lai's offers of talks.

Elections on the island, which China considers its own territory, have previously escalated tensions, most notably in 1996 when China's military exercises and missile tests ahead of the voting prompted the U.S. to send an aircraft carrier task force to the area.

This time Beijing has again ramped up military and political pressure, framing the elections as a choice between "peace and war," calling the ruling party dangerous separatists and urging Taiwanese to make the "right choice."

Some analysts believe Xi, hoping to avoid conflict, will moderate China's military response if Lai wins. But Taiwan is on high alert for Chinese activities, both military and political, ahead of the election.

TRUMP 2.0?

The 2024 U.S. presidential election could be even more consequential. Barring last-minute surprises, the election will likely be a rematch between Biden and former President Donald Trump.

While the contest is sure to feature heated rhetoric about China, Xi will be more focused on one question: Will Trump return to office?

"When the Chinese think about the election next year, Trump coming back would be their worst nightmare," said Yun Sun, director at the Stimson Center in Washington.

A tense U.S.-China relationship during former President Barack Obama's term gave way to an all-out trade war under his successor's, accusations over the origin of COVID-19 and new tensions over the status of Taiwan.

U.S. President Joe Biden and Chinese President Xi Jinping attend a bilateral meeting at Filoli estate on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit, in Woodside, California, U.S., November 15, 2023. REUTERS/Kevin Lamarque/File Photo

In one respect, a return of Trump could be a geopolitical boon for China. Biden has skillfully increased the pressure on Beijing - maintaining Trump-era tariffs, adding new export controls and strengthening U.S. alliances.

If Trump's isolationist instincts mean a U.S. pullback from alliances, that could be in the interests of China's rulers, who feel hemmed in by American power.

But as unhappy with Biden as they may be, said Sun, China's rulers see a leader who follows the rules of engagement and a semi-functional U.S.-China relationship. Trump means unpredictability.

"Under Trump there was no meaningful conversation about pretty much anything," she said. "Instead, there was an unstoppable escalation of tension."

CHIPS CONFLICT

U.S. export controls meant to keep the most advanced semiconductors out China's hands will likely only intensify next year.

This past October, the U.S. tightened existing restrictions, halting additional high-end chips and closing loopholes. And another update is likely in 2024 - U.S. Commerce Secretary Gina Raimondo has said to expect one "at least annually."

Though there is debate about how well the export controls have kept this technology from reaching China, Beijing has struggled to push back against the restrictions, particularly since retaliating against U.S. businesses could drive away the foreign capital Beijing needs as economic growth slows.

One lever Beijing has is its dominant position as a supplier of rare earth metals needed for chips production. In July, China unveiled restrictions on exports of certain gallium and germanium products - exports have fallen off sharply since then.

The tension the U.S. policy has generated will only increase as U.S. authorities crack down on violations of its new rules. The Biden administration launched a task force in 2023 to counter efforts to illegally acquire sensitive U.S. technology.

Investigations into apparent violations involving exports of technology to China are underway and "we anticipate those efforts to result in significant export enforcement actions in 2024," Assistant Secretary of Commerce for Export Enforcement Matthew S. Axelrod said in a statement to Reuters.

(Additional reporting by Karen Freifeld in New York; Editing by Josie Kao)

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