U.S.-China Relations at Risk Amid Democratic Gains in Congress
- Democrats gained control of Congress, increasing tensions around Taiwan and tech competition with China.
- President Trump and Xi Jinping are set to meet twice before the new Congress begins.
- Analysts anticipate a potential shift towards a more aggressive U.S. policy on Taiwan and economic security issues.
BEIJING — The recent midterm elections in the U.S. saw Democrats gain control of both chambers of Congress, a shift expected to raise risks related to U.S.-China relations, particularly concerning Taiwan and tech competition, according to analysts. Democrats have secured majorities in the House and Senate, along with success in several gubernatorial races including Texas, Nevada, and Iowa, though these new officeholders will not assume their roles until January.
In the interim, U.S. President Donald Trump and Chinese President Xi Jinping are scheduled to meet in Shenzhen this month and in Miami, Florida, next month, maintaining a delicate truce.
Gabriel Wildau, managing director at Teneo, noted via email that Trump, as a lame duck more focused on his legacy than party concerns, might resist pressure for a confrontational stance with China, perhaps continuing his pursuit of “strategic stability.”
On the Democratic agenda is the potential removal of Trump-era tariffs as part of efforts to combat domestic inflation. Scott Kennedy, a senior advisor at the Center for Strategic and International Studies, indicated that the Democrats may push U.S. policy towards a more hawkish direction regarding China, especially on issues of economic security and Taiwan. However, he cautions that these endeavors will be limited by the executive branch’s authority and China’s increasing influence.
This year, Beijing has engaged with various global leaders while major economies have attempted to limit imports from China. China’s stronghold in the rare earths market has enhanced its bargaining power in discussions with the U.S. and the EU.
Taiwan: A Crucial Flashpoint
George Chen, partner at The Asia Group, characterized Taiwan as the most perilous issue in U.S.-China relations, suggesting that a Democratic Congress is positioned to confront Beijing on this matter. He emphasized Congress’s history of acting on Taiwan initiatives, even when the executive branch has taken a more cautious approach, complicating Trump’s diplomatic balancing act.
The visit of Nancy Pelosi to Taiwan in 2022 provoked significant irritation from Beijing, which regards the self-governed island as part of its territory. The U.S. adheres to a “One China” policy while maintaining unofficial relations with Taiwan. Notably, Minority Leader Hakeem Jeffries, poised to become the first Black Speaker of the House, met with Taiwanese President Tsai Ing-wen in New York in 2023.
During Trump’s visit to Beijing in May, Xi cautioned that mishandling issues related to Taiwan could jeopardize U.S.-China relations. Stability in the Taiwan Strait is increasingly vital due to the island’s role as the site of semiconductor manufacturer TSMC, a key supplier of chips for companies like Nvidia. Over recent years, the U.S. has tightened restrictions on Chinese firms’ access to advanced chips from Nvidia, accelerating China’s efforts to independently develop similar technologies.
Tech Competition Intensifies
On a related note, recent developments reveal an increased focus within Washington on ensuring that America’s technological advantages do not bolster China’s military capabilities. Chen mentioned that a Democratic-led Congress may be motivated to adopt a more assertive approach in this area.
In the aftermath of the elections, U.S. stocks experienced a surge, while oil prices dipped, as Trump accepted the election results. Despite declines in Nvidia‘s stock, other tech companies saw notable gains. Additionally, Chinese tech stocks rebounded on Thursday following a period of significant sell-offs.
Liqian Ren from WisdomTree commented that while recent regulatory measures have supported the Chinese market, the broader performance of Chinese tech stocks largely relies on global investor sentiment towards artificial intelligence, amid ongoing uncertainty about the technology’s potential impact in both the U.S. and China.
News Courtesy of CNBC
