China-US Relations

by | Dec 30, 2025 | Uncategorized | 0 comments

Case Study: The October 2025 Busan Trade Truce

Background

In October 2025, China and the United States reached a significant trade agreement in Busan, South Korea, marking a tactical pause in their prolonged economic competition. This agreement represents a strategic recalibration by both powers rather than a fundamental resolution of their differences.

Key Elements of the Agreement

US Gains:

  • Resumption of Chinese purchases of American soybeans, addressing agricultural sector concerns and political pressures from farming states
  • Restoration of rare-earth element flows, critical for defense and technology manufacturing
  • Progress toward resolution of TikTok’s US operations, addressing national security concerns

Chinese Gains:

  • American semiconductor companies (Nvidia, AMD, and others) permitted to resume sales to Chinese customers
  • Reduced immediate economic pressure, allowing time for domestic technology development
  • Diplomatic breathing room to pursue strategic objectives

Strategic Analysis

The Busan agreement exemplifies what international relations scholars might call “competitive coexistence.” Both nations recognize that complete decoupling would be economically devastating, yet neither is willing to compromise on core strategic interests. The agreement allows both sides to reduce mutual economic dependence gradually while maintaining essential commercial relationships.

The timing is particularly significant. With Trump returning to office and China facing economic headwinds, both nations had incentives to stabilize relations. The agreement provides political wins for domestic audiences while buying time for longer-term strategic positioning.

The Taiwan Paradox

Despite warming economic ties, the Taiwan issue remains the most dangerous flashpoint. China’s December 2025 live-fire drills following US arms sales demonstrate that Beijing views Taiwan as non-negotiable. This creates a fundamental tension: economic cooperation proceeds even as military posturing intensifies.

Wang Yi’s declaration that China “will not yield an inch” on Taiwan, combined with the commitment to “reunification,” signals that no amount of economic cooperation will alter this red line. The contradiction between expanding trade and military exercises around Taiwan represents the central paradox of current China-US relations.

Outlook for 2026-2027

Diplomatic Momentum

The planned diplomatic calendar suggests continued engagement:

  • April 2026: Trump visits China
  • Later 2026: Xi visits the United States
  • China hosts APEC summit
  • United States hosts G-20 summit

These high-level engagements indicate both nations see value in maintaining dialogue, even if fundamental disagreements persist.

Areas of Continued Tension

Technology Competition: While semiconductor sales have resumed, expect continued competition in artificial intelligence, quantum computing, 5G/6G networks, and biotechnology. The current détente likely represents a tactical pause rather than strategic acceptance.

Military Posturing: Taiwan Strait tensions will likely intensify periodically, particularly around:

  • US arms sales announcements
  • Taiwanese political events and elections
  • Domestic political pressures in either nation

Regional Alliances: The deterioration of China-Japan relations following Prime Minister Takaichi’s comments about defending Taiwan suggests China may apply increasing pressure on US allies. Economic coercion against Japan (seafood import restrictions, tourism discouragements) may preview tactics China could use against other nations.

Scenarios for the Next Two Years

Optimistic Scenario (30% probability): The trade truce deepens, leading to partial de-escalation. Both sides manage Taiwan tensions through backchannel communication. Economic interdependence increases in select sectors while strategic competition continues in others. No major incidents occur.

Base Case Scenario (50% probability): Relations remain in “managed competition” mode. Periodic flare-ups over Taiwan, technology, and regional influence occur but are contained. The trade agreement holds but doesn’t expand significantly. Military incidents are avoided through careful management. Both sides continue preparing for potential conflict while hoping to avoid it.

Pessimistic Scenario (20% probability): A crisis emerges over Taiwan, possibly triggered by military miscalculation, domestic political pressures, or an unexpected event. The trade agreement collapses. Regional nations are forced to choose sides more explicitly. Global supply chains face severe disruption.

Potential Solutions and Risk Mitigation

Diplomatic Mechanisms

Enhanced Crisis Communication: Establish robust military-to-military hotlines and protocols to prevent miscalculation in the Taiwan Strait. The current situation lacks sufficient safeguards against accidental escalation.

Functional Cooperation Areas: Identify domains where cooperation serves mutual interests:

  • Climate change initiatives
  • Global health security (post-pandemic preparedness)
  • Nuclear non-proliferation
  • Arctic governance
  • Cybersecurity norms

Track II Diplomacy: Increase unofficial dialogue through academic, business, and civil society channels to maintain communication during periods of official tension.

Economic Frameworks

Selective Decoupling: Both nations should clearly delineate which sectors involve genuine security concerns versus those suitable for continued integration. Current ambiguity creates uncertainty that harms business planning and investment.

Third-Party Mediation: Regional organizations like ASEAN could play a more active role in facilitating dialogue and providing neutral forums for discussion.

Supply Chain Resilience: Rather than complete decoupling, develop redundancy in critical supply chains. This “China plus one” or “friendshoring” approach reduces vulnerability while maintaining economic relationships.

Taiwan-Specific Approaches

Status Quo Maintenance: Both sides have interest in avoiding near-term crisis. The US could provide private assurances about not supporting Taiwan independence while maintaining public ambiguity. China could slow military pressure while pursuing economic integration.

Confidence-Building Measures: Establish protocols around military exercises, including advance notification, distance from Taiwan’s shores, and limitations on scope.

Economic Incentives: Deepen cross-strait economic ties to raise the costs of conflict for all parties, though this strategy has limitations given Beijing’s willingness to prioritize political objectives.

Impact on Singapore

Strategic Positioning Challenges

Singapore faces its most delicate balancing act since the Cold War. As a Chinese-majority nation with deep economic ties to China but critical security relationships with the United States, Singapore cannot afford to be seen as tilting decisively toward either power.

The Fundamental Dilemma:

  • China is Singapore’s largest trading partner, accounting for substantial bilateral trade
  • The United States provides the security architecture that has guaranteed regional stability and freedom of navigation
  • Singapore’s economy depends on both relationships and on a stable, rules-based regional order

Economic Implications

Trade and Investment Flows: Singapore serves as a major financial and logistics hub connecting China with Southeast Asia and beyond. Any serious deterioration in China-US relations would directly impact:

  • Port volumes and transshipment revenues
  • Financial services tied to regional trade
  • Foreign direct investment flows from both nations
  • Supply chain operations of multinational corporations based in Singapore

Sector-Specific Impacts:

Manufacturing and Electronics: Singapore’s semiconductor and electronics manufacturing sectors face contradictory pressures. US export controls on advanced chips to China could force difficult choices for firms operating in Singapore. Companies may need to maintain separate production lines or choose which market to prioritize.

Financial Services: Singapore’s role as a regional financial center could be enhanced or threatened depending on how tensions evolve. If China-US financial decoupling accelerates, Singapore might attract more business as a neutral platform. However, severe sanctions regimes could force Singapore’s banks to choose compliance frameworks, potentially limiting business with one side or the other.

Aviation and Maritime: Singapore’s Changi Airport and port facilities depend on open regional trade and travel. Restrictions on Chinese tourism to certain countries (as currently imposed on Japan) could reduce passenger volumes. Military tensions in the Taiwan Strait could disrupt shipping routes, though Singapore might benefit from diversions.

Security Considerations

Military Neutrality: Singapore hosts US military facilities (including naval logistics) and conducts regular joint exercises with American forces. Simultaneously, Singapore maintains correct military relations with China. This balance becomes harder to maintain as tensions rise.

Taiwan Contingency: A military conflict over Taiwan would force Singapore into an impossible position. Singapore would face pressure to:

  • Support international law and oppose the use of force
  • Maintain economic access to China, its largest trading partner
  • Preserve security ties with the United States and regional partners
  • Protect its own interests in freedom of navigation

Cyber and Information Security: As a technologically advanced nation, Singapore must navigate Chinese and American technology ecosystems. Decisions about 5G infrastructure, cloud services, and digital payment systems carry geopolitical implications.

Policy Responses for Singapore

Diplomatic Approach:

Principled Pragmatism: Singapore should continue articulating clear principles (respect for international law, peaceful resolution of disputes, multilateralism) while avoiding rhetoric that appears to target either power. The focus should remain on systemic rules rather than bilateral disputes.

ASEAN Centrality: Work through ASEAN to maintain the organization’s relevance and provide collective diplomatic cover. Regional consensus offers more protection than isolated national positions.

Omni-Directional Engagement: Deepen relationships with middle powers (Japan, South Korea, India, Australia, European nations) to reduce dependence on either China or the United States exclusively.

Economic Strategy:

Diversification: Accelerate efforts to diversify economic partnerships beyond the China-US axis. Strengthen trade and investment ties with India, the European Union, and emerging markets.

Value Chain Positioning: Position Singapore as the location for functions that both Chinese and American companies need—high-end services, neutral jurisdiction for dispute resolution, regional headquarters that can oversee diverse markets.

Resilience Building: Ensure food, energy, and critical goods security through diversified supply sources. Singapore’s vulnerabilities as a small, resource-poor nation require constant attention.

Defense and Security:

Capability Development: Continue modernizing Singapore’s armed forces to ensure self-reliance in defending core interests, particularly maritime security and airspace control.

Strategic Clarity: Clearly communicate that Singapore’s security relationships serve defensive purposes and regional stability rather than targeting any specific nation.

Crisis Preparedness: Develop contingency plans for various scenarios, including supply chain disruptions, refugee flows, and economic sanctions regimes that might affect Singapore.

Opportunities for Singapore

Despite the challenges, China-US tensions also create opportunities:

Neutral Platform: Singapore can position itself as the preferred location for China-US dialogue and negotiations, enhancing its diplomatic relevance and potentially attracting related business activities.

Safe Haven: Political risk in the region may drive capital and talent toward Singapore’s stable, transparent system. Both Chinese and American companies might establish regional operations in Singapore as a hedging strategy.

Innovation Hub: As both powers compete in technology, Singapore can attract research, development, and commercialization activities that serve both markets without getting caught in export control regimes.

Mediation Role: Singapore’s leaders, particularly when chairing ASEAN or speaking at international forums, can articulate perspectives that resonate with middle powers concerned about great power competition.

Long-Term Considerations

Demographic and Social Dimensions: Singapore’s ethnic Chinese majority requires careful management of narratives around the China-US competition. The government must ensure that geopolitical tensions don’t create internal divisions or affect Singapore’s multiracial harmony.

Next Generation Leadership: As Singapore’s founding generation passes from the scene, new leaders will need to demonstrate the same diplomatic skill in navigating great power relations without the same historical relationships and personal credibility built over decades.

Regional Architecture: Singapore has a strong interest in strengthening regional institutions (ASEAN, RCEP, CPTPP) that can provide some autonomy from great power competition. These mechanisms work best when they include both China and the United States or their close allies.

Conclusion

The current phase of China-US relations represents managed competition rather than either cooperation or confrontation. The October 2025 Busan trade truce demonstrates both nations’ recognition that some level of engagement serves their interests, even as fundamental disagreements over Taiwan, technology, and regional influence persist.

For Singapore, this environment demands extraordinary diplomatic skill and strategic clarity. The nation must maintain relationships with both powers while preserving its autonomy and protecting its interests. Success requires clear principles, pragmatic flexibility, and constant attention to changing dynamics.

The greatest risk for Singapore is not taking sides in the China-US competition, but rather the competition itself intensifying to the point where neutrality becomes impossible. Singapore’s interests are best served by a stable, rules-based regional order where smaller nations can maintain relationships with multiple powers. Preserving this environment requires active diplomacy, economic resilience, and credible defense capabilities.

The period from 2026-2027 will test whether the current tactical détente can evolve into something more stable or whether tensions will escalate toward crisis. Singapore must prepare for multiple scenarios while working diplomatically to promote the most favorable outcomes for regional stability and prosperity.