It’s Going to Be a Hot Summer for the U.S.-China Relationship

For all the economic turmoil stirred up by Russia’s invasion of Ukraine, there is one important step in the escalatory spiral that has been averted so far: China has gone out of its way to comply with the G-7-led sanctions regime. However, as the world moves into the next phase of the war and the U.S. administration’s China strategy, the uneasy detente between Beijing and Washington could break down, feeding a fresh cycle of U.S.-China tensions.

Blustery political rhetoric aside, both sides have exercised caution for good reason. Beijing, caught off guard by the nature of Russia’s aggression and the robustness of the G-7-led sanctions campaign, has prioritized access to dollar financing and critical technology at a time when the Chinese economy is facing headwinds at home. Washington, trying to avoid bruising allies with unilateral moves and aggravating trade tensions with China, has held back on expanding secondary sanctions while trying to tame inflationary pressures.

There are two big trends underway that could shake up this dynamic.

The first is the trajectory of Russia’s war in Ukraine and growing distress in the global economy. The war, now entering its third month, could congeal into a frozen conflict as Russia tries to consolidate a southeast land corridor. Russia could also attempt an “escalate to de-escalate” path to negotiation (for example, by broadening its cutoff of European energy supplies; targeting arms convoys in NATO territory; making a grab for the Ukrainian Black Sea port city of Odesa; or even using tactical nuclear weapons).

In this next phase of the war, the United States will be tempted to expand secondary sanctions in trying to force a Russian capitulation. But the longer the war drags out, the more likely it is that cracks in the G-7 sanctions coalition emerge. A combination of physical supply disruptions, financial sanctions, export bans of critical goods, and overall geopolitical volatility has sent food and energy prices soaring. The United States and Europe have not seen such high inflation levels in nearly four decades. More dire is a bubbling wave of political unrest in deeply fragile countries on the edge of Europe, from Tunisia to Yemen, where embattled governments don’t have the reserves to buffer their restive populations from a sudden drop in grain imports and surges in energy prices.

In the words of singer Bob Marley, “a hungry mob is an angry mob.” Countries outside of the G-7 bubble grappling with food and energy insecurity are in no mood for lectures from Washington and Brussels on getting on the “right side of history.” If the Ukraine war is a reminder to the United States of the difficulty of pivoting to Asia to focus on China containment, imagine the wave of foreign-policy diversions that will come from various parts of the world experiencing deep famine and political upheaval.

China understands this dynamic quite well. Beijing, no stranger to the political consequences of famine, has spent the past several years hoarding over half of the world’s food supply for existential moments like this. While keeping a safe distance from Russian President Vladimir Putin’s war in Ukraine, Beijing is anticipating a point at which the Russian military eventually stalls out and the economic blowback causes the G-7 sanctions coalition to lose its nerve.

China would then assert itself as a mediator and reinforce its narrative of a multipolar world order. Although China is probably too big and polarizing to draw bloc-wary countries like India and Brazil into its nominally “nonaligned” tent, it does appear to have ample company in the “mind your own business” camp to undermine long-arm sanctions and poke holes in U.S. coalition-building efforts.

As Beijing awaits an inflection point in the war, it will also be reactive to a series of upcoming U.S. policy measures on China. The Biden administration is under growing bipartisan pressure to move beyond a cleanup of the Trump administration’s policies to a more comprehensive containment strategy on China.

The contours of the strategy, at least in some key areas, are starting to take shape. A four-year review of Trump-era tariffs is due sometime between June and September, which could compel the U.S. Trade Representative Office to announce a new investigation into China’s alleged trade abuses. A monthslong investigation would allow the White House to recalibrate the tariffs, potentially exempting more products from duties while raising tariffs on more sensitive goods.

There are indications that a White House executive order could be issued in late summer marking the first of a series of steps toward building a screening mechanism for investment in China. Meanwhile, U.S. financial regulators are proceeding apace with a mandate to delist from U.S. stock exchanges any Chinese firms that are noncompliant with disclosure rules, with little prospect for compromise with Chinese regulators. Export controls targeting China may also be tightened further, especially as pressure grows on the Commerce Department’s Bureau of Industry and Security to clarify U.S. emerging and foundational technologies that should be restricted in U.S.-China trade flows. Washington will also likely try to ride the multilateral momentum from Russia’s war to coordinate technology export controls with its G-7 partners.

The White House will also be weighing whether to apply the foreign-direct product rule (FDPR)—a potent export control on any U.S.-origin technology—against additional targets. China’s Semiconductor Manufacturing International Corporation is one prime target for this tool. Chinese memory chip company Yangtze Memory Technologies is already under investigation for violating FDPR sanctions against Huawei.

On the security front, Indo-Pacific competition is escalating quickly. The Ukraine war is accelerating cross-strait tensions as Taiwan seizes the moment to lobby for security, economic, and political support. The Australia-United Kingdom-United States security alliance is ramping up coordination on hypersonic capabilities and may soon extend bloc membership to Japan. More recently, a security pact between China and the Solomon Islands appears to have blindsided Washington and Canberra.

The boomerang effects of Russia’s war, combined with the flurry of China policy measures underway, point to a hot political summer ahead for U.S.-China relations. This could be a combustible mix, fueled in part by the unavoidably narrow political calculations in Washington and Beijing that will be made in the lead-up to U.S. midterm elections and China’s 20th Party Congress in November. To be sure, China’s deepening economic vulnerabilities, compounded by its blundering COVID-19 containment policies, limit the degree to which Beijing can push back on sanctions irritants. However, political hawks in Beijing eyeing up stranded assets in Russia may be tempted to test the waters in some areas, especially if the U.S.-led sanctions coalition shows signs of duress and Beijing becomes more reactive to U.S. policy triggers.

The United States is about to face the next big test in its awkward adjustment to the new multipolar order: Will the U.S. administration reach for more punitive measures to target an economically vulnerable yet politically combative China? Or will it opt for restraint in dealing with China as the global economy teeters and political turmoil threatens to consume more vulnerable middle powers? Either way, a tempest looms.