The new year brings hope in business and liberal/establishment circles that tensions between the United States and the People's Republic of China are "de-escalating."  President Donald Trump will sign the Phase One trade agreement with China on January 15 and travel to Beijing to personally conduct Phase Two talks in the near future.  This kind of news was credited in the mainstream media for the end-of-the-year stock market rally.

However, the impact of a year-long "trade war" has been overrated.  Nervous market fluctuations have been subordinated to the larger trend based on the strength of the U.S. national economy, which is performing at levels not seen in decades.  The Dow Jones Industrial Average was up 22%, the S&P 500 was up 28%, and the Nasdaq was up 35% (boosted by 48% gains in high-tech stocks) for the year.  It is more plausible to credit the robust performance in December to recognition that the "impeachment" of President Trump by the Democrats in the House was a political stunt, not a constitutional crisis.  This means the economic policies that support continued economic growth will continue with the president's re-election chances enhanced.

International trade properly rests upon the larger strategic relations among countries.  On that basis, tensions between the U.S. and PRC are not dissipating because the expansive ambitions of the communist regime have not slackened.  One needs only to look at the events being celebrated in the Chinese state-controlled media to confirm that Great Power rivalry is driving events.

On December 29, Global Times, the outlet of the Communist Party, hailed the launching of "an additional Type 055 destroyer and a Type 052D destroyer right before the year draws to an end, a move Chinese experts called on Sunday an astounding achievement in shipbuilding."  These two warships brought to nine the number of destroyers launched in 2019, setting a world record for recent naval construction.  The previous record of six destroyers in one year was held by the U.S. for 1991, at the end of the Cold War.

The Type 055 is China's first 10,000 ton–class guided missile destroyer with a 112-cell vertical launch system.  The 7,500-ton Type 052D has 64 vertical launch cells.  By comparison, the U.S. Navy's Arleigh Burke–class destroyer, which is the mainstay of the fleet, is 9,800 tons with 96 vertical launch cells in its latest Flight III model.  The cells hold a mix of air defense, anti-ship, and land attack missiles.  Current U.S. plans are to build only two or three Burke-class destroyers per year, and even that rate of production has been questioned due to defense budget constraints.

China has been giving naval construction a high priority.  As the Global Times puts it, "the Navy will become significantly more powerful and capable of safeguarding China's sovereignty and overseas interests."  What that means can be deduced from where the People's Liberation Army Navy (PLAN) is operating.  Its second aircraft carrier — and the first of many to be built entirely in China — was commissioned on December 17.  It immediately sailed with its task force through the Taiwan Straits as part of a campaign of pressure on the de facto independent island, which Beijing considers a rebel province and has vowed to conquer.

President Xi Jinping has repeatedly declared that the PRC reserves the right to use force and "all necessary measures" to bring Taiwan under its control.  In October, he lumped the Hong Kong democracy protests, world reaction to the Uyghur concentration camps in East Turkistan, and Taiwan independence together as examples of "separatism" and declared, "Anyone who attempts to split any region from China will perish, with their bodies smashed and bones ground to powder," according to a statement released by the PRC Foreign Ministry.

Though largely ignored by the mainstream media, tensions have been rising across the straits as President Xi has shifted the focus of policy from preventing Taiwan from formally declaring independence and gaining international recognition to actively forcing the island to unify with the mainland.  Strategically, control of the island would break the "first island chain" along the Pacific Rim.  It would also guarantee Beijing's control of the South China Sea, which, contrary to international law, it has claimed to be part of its sovereign domain.  Thus, there are strategic as well as moral reasons for the U.S. to defend Taiwan.

Having visited Taiwan on several occasions, I can vouch for the spirit of its people and their high regard for America.  It should be remembered that Taiwan was ruled from Beijing only during four years (1945–1949) since 1895.  The Taiwanese people have developed their own identity and will not voluntarily trade their freedom for a communist yoke.  Taiwan will hold national elections on January 11, and the incumbent, President Tsai Ing-wen, and her party are expected to win, campaigning on the need to protect the island from Beijing's threats.

The PLAN ended the year with provocative actions elsewhere as well.  On December 27, China, Russia, and Iran started joint naval exercises in the Gulf of Oman, which links the Persian Gulf to the Arabian Sea and the Indian Ocean through the Strait of Hormuz.  The exercises took place just off the Iranian coast in a heavily trafficked trade route that carries one third of the world's maritime oil shipments.  The Global Times reported against whom this action was aimed: "[t]he joint drill shows China and Russia, two major responsible world powers, are supporting Iran in the Iran nuclear deal after the US' withdrawal in mid-2018.  The trilateral drill is the first of its kind at a time when Iran is facing unprecedented sanctions from the US."  The article quotes Song Zhongping, a Chinese military expert, who believes that "the joint drill will de-escalate the regional tension as two influential countries are standing together to safeguard peace and stability of the Persian Gulf.  Such a gesture urges the US not to launch military actions unilaterally or put more pressure on Iran."  During the exercises, Iranian foreign minister Mohammad Javad Zarif visited Beijing to further cooperation between the two countries.

No wonder Tehran thought its proxies could step up attacks in Iraq.  The Kataeb Hezb'allah launched rockets that killed an American.  The U.S. retaliated with air strikes against the headquarters of two of the group's "brigades."  The K.H. militia then led an attack on the U.S. embassy in Baghdad that set part of the compound on fire.  The embassy itself was not breached, and there were no American casualties. But in anticipation of further violence, the U.S. did three things: the embassy was reinforced with 100 Marines, some 4,000 additional troops were readied for deployment to the region, and Iran's Maj. Gen. Qassem Suleimani was killed by a drone strike.

Suleimani commanded the Quds Force, Tehran's spearhead for terrorism and war across the region.  He had long been on the U.S. terrorist list for past attacks that had killed scores of Americans.  He was on Iraqi soil near Baghdad.  Also killed was the deputy commander of the Popular Mobilization Forces, an official Iraqi umbrella organization for Iran-backed militia groups.  It was thought they were planning more attacks on the embassy or other American targets.  Beijing's reaction was to call for restraint on all sides but "especially by the United States," with Foreign Ministry spokesman Geng Shuang saying: "China has always opposed the use of force in international relations."  He managed to say this with a straight face!

U.S.-PRC trade relations continue to reflect these tensions.  The Section 301 tariffs imposed on Chinese goods were meant to pressure Beijing to change an array of policies that have been used to shift the balance of power to China at the expensive of the American economy.  The U.S. trade representative has described "a Phase One trade deal that requires structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange."  Tariff policy will be tied to whether China actually implements the concessions it has made.  The U.S. economic offensive has been based firmly on national security policy.

Beijing's attempt to retaliate by targeting Midwest farmers who are part of President Trump's political base has collapsed because of severe problems in Chinese agriculture.  A swine flu epidemic has killed a third of Chinese pigs.  The Chinese have to import more pork, soybeans, and other products to feed their people.  America's vibrant economy translates into diplomatic leverage.  The core duties on $250 billion of imports will remain at 25%, along with 7.5% on approximately $120 billion of other Chinese imports.  These are hopefully high enough to induce firms to shift at least some of the their production out of China due to costs and the signal of increased risk.  A redistribution of capital will provide strategic benefits to the U.S. even if not all of the jobs and capacity involved come to America.  Trade should be conducted with countries that do not use their gains to build weapons aimed at us.

The business community must understand the larger strategic situation, which is clearly in view, and align operations accordingly.  Clinging to the delusional wishful thinking that empowered Beijing and created today's dangerous world will not protect their assets or bless their reputations with honor.

William R. Hawkins is a consultant specializing in international economic and national security issues.  He is a former economics professor who has served on the staff of the U.S. House Foreign Affairs Committee.