The South China Sea and US-China Trade Policy: Are They Becoming Linked?

Joseph V. Micallef is a best-selling military history and world affairs author, and keynote speaker. Follow him on Twitter @JosephVMicallef.

On October 2, the Navy destroyer Decatur narrowly avoided a collision with a Chinese People's Liberation Army Navy (PLAN) ship in the South China Sea. The Decatur was conducting a Freedom of Navigation Operation (FONOP) adjacent to an artificial island constructed by China on the Gaven and Johnson reefs.

According to the Pentagon, the PLAN ship, a Luyang-class warship, approached within 45 yards of the bow of the Decatur and made a series of what were described as "aggressive maneuvers." Its actions forced the Decatur to make a sudden, drastic course correction to avoid a collision. This is simply the most recent example of the PLAN responding in what the United States Navy (USN) call, an "aggressive and unprofessional maneuver." It is also the closest that a PLAN ship has come to a Navy vessel.

The incident, which the Navy further described as "reckless harassment," prompted U.S. Vice President Mike Pence to declare that the U.S. "will not be intimidated" and "will not stand down." A number of intelligence analysts have suggested to this author that China's aggressiveness indicates a change to the rules of engagement by the Central Military Commission. Chinese President Xi Jinping is the chairman of the Commission.

Other U.S. allies conducting FONOPs in the South China Sea have had similar experiences. Most recently, the U.K.'s Royal Navy' amphibious assault ship Albion was closely shadowed by what the Admiralty called "irresponsibly close" Chinese warships and was subjected to repeated flyovers by Chinese People's Liberation Army Air Force (PLAAF) planes.

Recently, the Department of Defense disclosed that in November 2018, the U.S. would conduct military exercises in both the South China Sea and, in a possible expansion of U.S. FONOPs, in the Taiwan Strait as well. According to several sources, the U.S. has approached the U.K., Canada, France, Australia and Japan to participate in those exercises, although none have confirmed their intent to do so.

What exactly are FONOPs? Could they lead to an armed clash between the PLAN and American Navy ships? How do they fit into the broader U.S. strategy toward China?

Freedom of Navigation Operation

Freedom of Navigation Operations were first established by the U.S. in 1979, as a way of protesting attempts by other countries to limit innocent passage through international waters. Such passage was guaranteed under the UN Convention of the Law of the Sea (UNCLOS). The right of free passage in international waters is a long-standing principle in international maritime law and was reaffirmed by UNCLOS.

The U.S. is a signatory to UNCLOS. The U.S. Senate has not ratified ratified the treaty, but the U.S government has accepted UNCLOS as a codification of "customary international law." China is a signatory to UNCLOS, but threatened to withdraw from the agreement if the Permanent Court on Arbitration in The Hague ruled in favor of the Philippines over a complaint brought by Manila on whether China's "nine-dash line" claim was valid under UNCLOS. The court subsequently ruled against China. Beijing has ignored the ruling, but it has not withdrawn from the agreement.

In the South China Sea, the U.S. and its allies have used FONOPs as a way of underscoring the fact that they do not recognize China's declaration of sovereignty over seven artificial islands that Beijing constructed in the South China Sea. While China has not disclosed the cost of building these artificial islands, it has been estimated as being in the tens of billions of dollars.

The islands, all of which are in the Spratly Archipelago, a region that counter-claimed by several countries, have all been militarized with the addition of airfields, military support facilities and a range of defensive, and increasingly, offensive armament. Three of the islands, built atop Fiery Cross, Subi and Mischief reefs, have 10,000 foot runways capable of handling any aircraft in the PLAAF.

There are a total of 250 islands, atolls, cays, shoals, reefs and sandbars in the South China Sea. These geographic features are mostly organized into three archipelagos, plus the Scarborough Shoal and the Macclesfield Bank. The island groups consist of: the Spratly Islands, which are contested by China, Taiwan, Vietnam, Malaysia, the Philippines and Brunei; the Paracel Islands, disputed by China, Taiwan and Vietnam; and Pratas Island, which is disputed by China and Taiwan.

Control of the Spratly Islands is currently divided between Taiwan (Taiping Island), Malaysia (three islands on its continental shelf), Philippines (eight islands) and Brunei (Louisa Reef and adjacent islands). In addition, Indonesia claims maritime rights in the South China Sea, but does not lay claim to any of the islands in the Spratly Archipelago.

The Paracel Islands are currently occupied by China. They were seized in 1974 from South Vietnam. A subsequent attempt by South Vietnamese forces to expel the Chinese, the Battle of the Paracel Islands on January 19, 1974, failed to dislodge Chinese forces on the island. They have been under Beijing's de facto control since then. Pratas Island is currently occupied by Taiwan.

In addition, Scarborough Shoal and the Macclesfield Bank are disputed between China, Taiwan and the Philippines. The Macclesfield Bank is completely submerged. Scarborough Shoal historically has had a few areas of rocks that can extend up to six feet above sea level. The shoal is currently under Chinese control and subject to continuous PLAN patrols. From time to time, depending on the current state of Chinese-Philippine relations, Beijing has restricted access by Filipino fisherman to the shoal.

Pursuant to UNCLOS, artificial islands are placed under the jurisdiction of the nearest coastal state within a 200-nautical mile limit. An artificial island is defined as an island that is the result man-made construction rather than the result of natural means. Such islands are not considered geographic entities for purposes of having their own territorial waters, and are not granted their own exclusive economic zones.

China's assertion that the artificial islands also grant it sovereignty over their adjacent waters has further complicated the overlapping territorial claims made by the countries that surround the South China Sea.

U.S. FONOPs in the South China Sea began in 2015, under the Obama Administration, in response to China's building and subsequent militarization of artificial islands in the region. There were six Navy FONOPs in the region under Obama. These operations involved Arleigh-Burke-class guided-missile destroyers from the U.S. Seventh Fleet. A complete list of all FONOPs since 1991 is available on this DOD website.

The Trump Administration has conducted a total of eight FONOPs since coming to office. The operation involving the Decatur is the most recent.

During a FONOP, Navy ships deliberately plot a course that brings them within 12 miles of a Chinese artificial island. In addition, since 2015, the U.S. Pacific Fleet has spent a combined total of more than 2,000 "ship days" in the South China Sea. This ongoing U.S. Navy presence in the region has also included Rim of the Pacific exercises (RIMAC), held biannually during even-numbered years in the months of June and July. The PLAN participated in RIMPAC in 2014 and 2016, but was disinvited from RIMPAC 2018 by the Trump Administration.

Although FONOPs are consistent with UNCLOS and are allowed under that agreement, such operations do not have any particular standing in international maritime law, beyond establishing the fact that the U.S. and other participating nations are publicly declaring that they do not recognize Chinese claims in the area.

Ultimately, the question of sovereignty in the South China Sea hinges on adjudicating existing conflicting territorial claims to the region. The building of an artificial island does not bestow sovereignty on an area. A country is free to build an artificial island in its own waters, and any country can construct an artificial island in international waters, but in either case, such actions do not convey sovereignty over an additional area.

China and the Nine-Dash Line

On December 1, 1947, the Republic of China, then still the recognized government of mainland China, published a map that delineated, in 11 dashes, the portion of the South China Sea claimed by China. The 11-dash line was later reduced to nine dashes when, at the behest of Chinese Premier Zhou Enlai, Beijing reduced its claim in the Gulf of Tonkin in deference to the government of North Vietnam. Later, a tenth dash was added to expand the territory being claimed to include portions of the East China Sea.

Beijing has asserted sovereignty based on a historical and long-standing Chinese presence and heritage in the region. It has not, however, ever published the specific historical evidence on which it has made that claim. Moreover, neither the nine-dash or ten-dash lines have ever been specifically defined geographically with precise measurements of latitude and longitude.

As currently portrayed by Beijing, the claimed region would include approximately 90 percent of the South China Sea and would conflict with claims made by other countries that ring the region. UNCLOS lays out on what basis such overlapping claims of sovereignty are to be resolved, including considering the continental shelf that extends from each county's mainland. It calls for an equitable resolution to overlapping claims.

The 9-dash line is at the core of what Beijing has defined as a series of defensive perimeters in the western Pacific Ocean. The two perimeters, dubbed the first and second island chains, define the areas that the Chinese military believes it needs to secure to protect itself from a preemptive attack.

In January 2013, in response to the seizure of Scarborough Shoal by China and the denial of access to the fishing grounds surrounding it to Filipino fishermen, the government of the Philippines formally initiated arbitration proceedings against China's territorial claims laid out in the nine-dash line. According to Manila's claim, the claim was unlawful under UNCLOS. The complaint was referred to an arbitration tribunal, which agreed that the Permanent Court of Arbitration in The Hague would function as registry for the proceedings.

On July 12, 2016, the five arbitrators of the tribunal issued a unanimous opinion upholding the Philippines' position. In their ruling, the tribunal noted that "there was no legal basis for China to claim historic rights to the nine-dash line," and that there was no evidence that "China had historically exercised exclusive control over the waters or maritime resources of the claimed region."

In addition, the court ruled that Beijing was obligated to pay damages to the Philippines for causing "severe harm to the coral reef environment and the destruction of portions of the coral reefs that surround the shoal."

China did not participate in the arbitration and refused to accept the ruling of the tribunal, calling it "ill-founded." Chinese president Xi Jinping defiantly reaffirmed Chinese claims, declaring that "China's territorial sovereignty and marine rights in the South China Sea will not be affected by the so-called Philippines South China Sea ruling in any way." He did add, however, that "China was still committed to resolving disputes with its neighbors."

To be fair, it should also be noted that both the U.S. and the U.K. have in the past also rejected the jurisdiction of the Permanent Court of Arbitration and have ignored rulings that they did not agree with. Article 298 of the UNCLOS treaty allows countries to accept or reject arbitration procedures. To date, a total of 30 countries have rejected arbitration under UNCLOS.

While FONOPs operations preserve the legal ability of the U.S. and its allies to object to Chinese claims in the South China Sea, it's clear that a legal framework will not lead to a resolution of the dispute over Chinese claims in the region.

China has continued its artificial island-building activity and has steadily militarized the artificial islands it controls. Moreover, China's claims to the South China Sea as delineated under the nine-dash line map have already been adjudicated by the Permanent Court of Arbitration. The rejection of those claims by the court have not had any discernible impact on Chinese policy.

The continuation of FONOPs by the U.S. and its allies and the increasingly aggressive Chinese response toward them, however, does raise the risk of a military incident between the U.S. and China. While such an incident would not necessarily lead to a more general conflict, and while it would be expected that in that instance both sides would move quickly to de-escalate tensions in the region, no one can predict with certainty the fallout from such an incident. In that sense, continued FONOPs do risk a military clash in the region, while at the same time do not offer a road to an eventual resolution of the territorial dispute in the South China Sea.

US Trade policy as leverage

There are growing signs that the Trump Administration is going to use U.S. trade policy toward China as a way of constraining the economic growth of China, and by extension, its ability to continue to fund an aggressive military expansion.

As a candidate, Donald Trump cited repeatedly what he called "unfair Chinese trade practices." These practices included currency manipulation, widespread theft of proprietary intellectual property and forced technology transfer from American and international firms to Chinese firms as a precondition of doing business in China, and promised to "get tough on China" and its trade practices. Peter Navarro, a well-known critic of China's trade practices, was appointed as an assistant to the President, director of Trade and Industrial Policy and director of the White House National Trade Council.

Initially, the ongoing crisis over North Korea's development and testing of nuclear tipped missiles forced the White House to defer taking action against China's trade policy. Washington was dependent, in part, on Beijing's willingness to enforce the economic sanctions imposed on North Korea by the UN Security Council. The U.S. is still dependent on China's willingness to enforce those sanctions but presumably the White House now feels it is making sufficient progress in its negotiations with North Korea to turn its attention to China's trade policy.

Starting in January 2018, the U.S. began to impose tariffs on a variety of Chinese goods. Initially, the tariffs only covered solar panels and the first 1.2 million washing machines exported by China to the U.S. In March, the list was expanded to over 1,300 categories of Chinese goods, representing about 50 to 60 billion dollars of imports. China responded with its own tariffs on April 2, prompting the White House to announce that it was considering tariffs on an additional 100 billion dollars' worth of imports.

In July, the White House announced that it would impose ten percent tariffs, eventually rising to 25 percent, by the end of 2018, on an additional 200 billion dollars of Chinese exports to the U.S. In the meantime, it also announced restrictions on Chinese investments in technologically sensitive areas and enhanced export controls to prevent Chinese entities from acquitting U.S. technology deemed to be sensitive or strategic.

An additional 267 billion dollars of imports were also threatened with tariffs if China retaliated with its own tariffs on U.S. goods. As of October 2018, as a result of this tit-for-tat escalation, the U.S. and China had either implemented or threatened tariffs on goods covering almost the entirety of U.S.-China trade.

More significantly, the recently announced trade agreements between the U.S., Canada and Mexico (United States-Mexico-Canada Agreement or USMCA), stipulates that any member who launches trade talks with a "non-market economy" must notify the other parties three months in advance before the start of such talks. If the talks lead to a trade agreement, then that party can be effectively expelled from the USMCA by the other two parties. The clause effectively freezes China from pursuing a free trade agreement with either Canada or Mexico.

The U.S. and China have held a series of on-again-off-again trade talks over the spring and summer of 2018. Currently, the talks have been suspended and there are no further talks scheduled. As part of those negotiations Washington submitted to Beijing a list of 140 changes that it would like to see made to China's trade policy and practices.

According to informed sources, Chinese officials have indicated that they could accept roughly one-third of the proposed changes and were willing to negotiate over another one-third, but that the remaining one-third were unacceptable. Significantly, a number of European and Asian countries have informally told the White House that they support the Trump administration's policy on China trade and will align themselves with it.

There is no question that China's impressive economic expansion over the last several decades has played a critical role in financing the equally impressive growth of its military. There is little that the U.S. can do, from a military standpoint, to prevent China's continued militarization of its South China Sea artificial islands. While the Pentagon has expressed confidence in its ability to "take out" those islands in the event of a military conflict with China, neither side wants such a conflict or the potentially ruinous consequences for both countries.

Using trade policy to respond to China's militarization of the South China Sea has the advantage of both raising the economic cost to Beijing of pursuing this policy, while at the same time constraining China's ability to keep growing its economy and, by extension, its ability to continue to fund its aggressive military expansion. Trade policy, however, can only be one part of a much broader strategy of engagement both politically and economically with the countries surrounding the South China Sea.

On that point, the Trump Administration's abandonment of the TransPacific Partnership (TPP) was a mistake as the TPP would have brought together 11 Pacific rim countries with the U.S. and pointedly excluded China. Significantly, there have been reports that the Trump Administration is considering U.S. participation in a TPP provided that the U.S. was able to get "substantially better terms" than the ones negotiated by the Obama Administration.

The timing for such a move is ideal as there has been growing evidence that many of the countries that initially signed up for China's Belt and Road initiative are having second thoughts. Many of the infrastructure development projects are funded through Chinese credit facilities. Several countries, including Laos, Malaysia, Sri Lanka and Pakistan, among others, have complained about what they see as increasingly onerous Chinese credit terms, describing them as an example of "debt imperialism" and have announced the cancellation of previously agreed upon infrastructure projects.

What is clear, however, is that using trade policy both as a way of responding to aggressive Chinese moves in the South China Sea and as a way of constraining Chinese economic growth and the expansion of Beijing's military power means that the trade dispute between the U.S. and China is going to involve more than just trade. It's unlikely that a quick resolution is in the offing. An ongoing U.S.-China trade war will likely be a permanent feature of U.S.-China relations for the foreseeable future.

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