China has picked a fight with its US drone seizure – but what will Beijing do next?

China and the US were locked in talks Monday after a Chinese naval vessel seized an unmanned underwater vehicle (UUV) off the coast of the Philippines. China has tried to underplay the move – the first of its kind in recent history – but it has been seen as a reaction to Donald Trump's war of words with Beijing over Taiwan.

President-elect Trump leaped on the issue over the weekend in a series of tweets that accused China of stealing the drone, but the Pentagon and Beijing have been far more restrained. In a briefing to the media, foreign ministry spokeswoman Hua Chunying said: "If you pick something up from the street you have to examine it."

Meanwhile, Manila has responded to the issue by calling its presence "very troubling". "It increase[s] the likelihood of miscalculations that could lead to open confrontation very near the Philippine mainland," said Defence Minister Delfin Lorenzana in a statement to Reuters.

But in the tinderbox that is the South China Sea, the ownership of which is disputed by five Asian nations, the seizure has been controversial. Chinese state media speculated that the drone – which the Pentagon says was monitoring water quality – was actually part of US espionage in the sea, through which 40% of all global shipping passes.

"The downplaying of the actions of the drone cannot cover up the real intentions in the background," said an editorial in the People's Daily. "This drone which floated to the surface in the South China Sea is the tip of the iceberg of U.S. military strategy, including toward China."

China-US relations were fractious under President Barack Obama and Chinese leader Xi Jinping, and the election of Trump in November was believed to be welcomed in Beijing. Despite his anti-Chinese rhetoric during his campaign, many Chinese admired Trump's perceived business savvy and hands-off attitude towards foreign affairs.

But soon after his election, Trump spoke to Taiwanese President Tsai Ing-wen over the phone, a move that was seen as a clear breach of protocol regarding US support for Beijing's "One China" policy, under which it sees Taiwan as Chinese territory. Following the call and widespread criticism of his actions, Trump hit out with a vitriolic anti-Chinese Twitter rant.

Back in September, IBTimesUK reported on the possibilities of conflict between China and the US in the South China Sea. Now, with Beijing and the next US president at loggerheads and this latest perceived provocation over the seizure of an American drone, we look at five ways China could escalate the situation – and whether it has the potential to spill over into all-out war.

China could flex its muscles in the South China Sea

China claims a 200-nautical mile Exclusive Economic Zone outside its borders, cutting well into the South China Sea and into waters that the US classifies as "international". In June, China started carrying out sea and air patrols in the EEZ, which is already patrolled by US war ships. It also overlaps with Japanese-claimed waters. Back in 2001, the Chinese seized a US spy plane when it was forced to land in China's Hainan Island and held 24 US crew members for 11 days. They were eventually released, but the incident seriously damaged relations between President George Bush and China at the very beginning of his term of office.

China could make life difficult for American companies

Back in January 2016, the Wall Street Journal carried the results of a survey that found that of 500 American companies based in China, 57% said they wrestled with inconsistent regulatory challenges and murky laws. One in ten said that they planned to move out of China. Doing business in China has never been easy for US firms – just ask Google – particularly when they run up against local rivals – just ask Uber – and it would be relatively easy for Beijing to turn to the screw. Everything from securing visas to banking regulations are controlled from the top down, and US firms face serious issues with data security. China could also use its buying power to its advantage: when it next buys planes, Air China may opt to choose Airbus over Boeing.

China could seize more US equipment

Writing in IBTimesUK, columnist Shaun Rein pointed out that in seizing an unmanned drone from an unarmed vessel, China is signalling it cannot be bullied while at the same time showing it does not want to risk armed conflict or death of any sailors. Doing so before Trump actually becomes president on January 20th also allows for a cooling-off period by both sides. But he also warned that the US should expect similar incidents over the next few months.

China could hit out at US allies like Taiwan

At first glance, Trump's willingness to reverse decades of US policy and engage with Taiwan may be seen as positive for the island nation, but in reality China could be a dangerous foe. Bilateral trade between China and Taiwan has jumped from US$8 billion in 1991 to almost US$200 billion in 2014, and Taiwanese companies have significant holdings in the mainland. By contrast, US-Taiwan trade is worth half that, around US$86 billion in 2015. Taiwan may gain greater political independence in its ties with Trump, but at what cost?

China could start a war

The line on whether China and the US could actually go to war is that it is unlikely, but not impossible. In September, IBTimesUK crunched the numbers, which suggested that the US was better armed at present but that within five years China's huge investment in its military would level the playing field. Experts ruled out either side actually wanting a conflict, but warned that the tension in the South China Sea presented numerous possibilities for small scale skirmishes that could spiral out of control. Donald Trump has used Twitter to make policy, slam his critics, announce his senior advisers and – arguably win an election: could he be the first US president to use it to start a war?