King's College London

The status of Taiwan and its decades-old diplomatic framework has “never looked more unstable”, according to a new paper examining the prospects for US-China relations under Donald Trump’s second presidency.

Published by the Lau China Institute and the Policy Institute at King’s College London, the report warns that the combination of an unpredictable Trump administration, China's nationalist leadership, and Taiwan’s pro-independence government creates unprecedented risks in what they identify as “perhaps the world's greatest security challenge”.

The study looks at the shifting military balance between the two major powers, noting that while China's official military budget is only a quarter of America's $800 billion, when adjusted for purchasing power parity, it reaches approximately two-thirds of US spending, at $541 billion.

This growing military capability, combined with increased tensions in the South China Sea, adds another layer of complexity to the relationship, the paper argues.

The authors say that while Trump is largely regarded as a leader who dislikes the costs and bloodshed of wars, he is also highly transactional. They argue that, in the event of the US and China striking an economic deal, it is extremely unlikely that the US would agree to renounce its posture of “strategic ambiguity” on the Taiwan issue – where it neither commits to defending the island nor denies the prospect of such an action – but it cannot be fully ruled out.

Trump’s desire for a more balanced trading and economic relationship with China, and one brought about by more aggressive investment and market access measures, is not fanciful, and may well achieve a more sustainable, pragmatic relationship, the paper argues.

It says where Trump might achieve something is in helping to raise Chinese levels of consumption, which have remained stuck at one-third of GDP for decades – far lower than that of developed countries, despite failed campaigns by the Chinese government to get the country to consume more.

If the US does devise a negotiating approach whereby it can offer ways in which its products, services and economic assets are seen by the Chinese government as assisting in this battle to raise consumption, then the likelihood of a new deal becomes possible, the authors conclude.

The paper says that precisely because China has never had an easy relationship with the US, it is in fact better placed than most to deal with Trump 2.0, suggesting China may prefer Trump's focus on deal-making to what they view as lecturing from other US administrations about political values and human rights.

The report, titled US-China relations under Trump 2.0: reset or restart?, also makes the following conclusions:

• The recent success of AI app DeepSeek is a “wake-up call” demonstrating that Chinese technology and innovation can be as effective and disruptive as Western alternatives. This is a sign of what the authors call “a new paradigm – a world in which China no longer imitates but innovates”.
• China’s research and development capabilities are rapidly advancing, with Chinese institutions now holding seven of the top ten positions in natural and health sciences research globally.
• Economic ties remain robust despite political tensions, with China exporting $48.8 billion in goods to the US in December 2024, a 35.6% increase from the previous year.

Kerry Brown, Professor of Chinese Studies and Director of the Lau China Institute at King’s College London, said:

“Trump’s latest round of tariffs aimed at China, this time on its steel industry – which is largely state-run in the People's Republic, are yet another indication that we look likely to be heading into a second trade war. Whether this is a strategic move by the Trump administration to garner a new deal with China or game playing is yet to be seen. What is clear is that the continued uncertainty of America’s relationship with China is a concern for us all, and in this game, there are few more dangerous bargaining chips than the status on Taiwan and the ways this might figure either side as something to throw into this terrifying mix.”