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Will the world have to choose between US and China?

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USA China Trade War

As the US-China trade war heats up, more and more experts tend to believe that the world may be heading into a breakup again, just like it did during the years of the Cold War. This time – into two conflicting trade and economic camps, pro-US and pro-China, with almost every state apparently having to choose which side to join. How realistic such forecasts really are?

When the specter of an unfolding trade war between the United States and China loomed at the end of 2017, most analysts doubted that this rivalry could reach Cold War intensity. Still, a world split along economic lines poses a serious threat to global economy and finances and could bring about dramatic changes in relations between the world’s leading powers.

As a result, companies of countries representing the rival camps would find themselves largely isolated, if not entirely cut off, from sources of funding and new technologies available on the other side of this divide, thus sending  commercial enterprises’ revenues down and unemployment up.

In today’s world any country, which claims to be a sovereign one, faces the hard choice of either trying to establish its own order, integrate with other states and seek an adequate status as part of a certain collective order, or just refuse to change. At the same time, attempts to build a new world order are hampered by the increasingly inefficient and inflexible nature of many existing institutions of international politics. And, finally, no “world order,” either current or new, exists or emerges all by itself, without decision-making centers and mechanisms of implementing decisions.

Such an “order” should also meet the needs and requirements of the countries and their people as well as ensure efficient means of monitoring compliance with its fundamental principles. Since foreign policy and economy are all-important for any country, achieving a high degree of necessary cooperation is extremely difficult and fraught with conflict.

It looks like all of the world’s leading powers now anticipate a possible collapse of the modern world order and Donald Trump’s moves to destroy many international institutions only serve to exemplify this foreboding.

Whether new chaos, or even a war of all against all, is really what Trump is going for is hard to say, even though this is a conclusion one could make after reading his National Security Strategy, published in December 2017. Or, maybe, Trump is using such threats as blackmail meant to extract concessions from America’s rivals.

A new pyramidal system of global dominance with the United States at the top, would certainly suit both Donald Trump, his supporters and also many of his political opponents in Washington. However,common sense is prompting many rationally-minded politicians elsewhere in the world to realize that a new balance of power in the global economy, namely a dynamic equilibrium between the two financial and economic centers – the US and China – could be the lesser evil.

Ideological prerequisites for a new bipolarity are already there with the US political establishment already viewing China as a “strategic rival.”

The US Senate accused Beijing of “imposing” itself on the world “as an alternative model … without a democratic system of governance” and trying to “undermine the free and open order” based on the rules that the United States helped establish after World War II . Simultaneously, officials in Europe, Japan, Australia, Canada, and a number of other traditional US allies are worried by a lack of “clarity” about the true nature of China’s global initiatives.

The logic of the new economic bipolarity is already going beyond the realm of academic discourse. In November 2018, Brussels started considering a proposal for exercising coordinated control over foreign, primarily Chinese, investments in strategic sectors of the EU countries’ economy, as well as their logistical and technological infrastructure. During the second half of last year, the Western countries ramped up coordinated pressure on a number of major Chinese high-tech companies, primarily Huawei, which is the world’s largest maker of high-tech equipment. Despite the lack of direct evidence, a number of EU countries have significantly limited the import of Huawei products. The United States, for its part, has completely banned the purchase of Chinese-made equipment for public institutions, and is going to extend the ban to the private sector. This pressure culminated in the December 2018 arrest in Canada at Washington’s request of Huawei’s chief financial officer, Meng Wanzhou. In January 2019, a Huawei employee was arrested in Poland on suspicion of espionage.

In addition to the trade war, the US and China spent most of last year waging a diplomatic battle over bilateral trade issues. In autumn, Donald Trump initiated new trade talks with Japan, the EU and Britain. He also announced plans to ink new agreements with the Philippines and Vietnam as part of his policy of signing bilateral accords, which contain a provision preventing the signatories from concluding trade agreements with China.

This is exactly the provision that already features in the new trilateral free trade agreements the US has signed with Canada and Mexico. What remains to be seen, however, is just how far Ottawa and Mexico City are ready to go to stick to these provisions in practice.

Beijing, in turn, is staking on multilateral trade deals in order to use the size and competitive edge of its economy to expand its foothold in the countries it is working with. Moreover, instead of trying to destroy the existing international and regional institutions of collective management, China is working hard to constructively reform them.

The result is a paradoxical situation where America blames China for threatening “freedom of trade” and “values of an open society,” while President Trump is accused by his opponents both at home and abroad of doing exactly the same thing.

As a result, the idea of geo-economic flexibility is now gaining traction in the world. In 2018, in response to Washington’s increasingly hostile policy, the EU came up with its own rules of the game whereby any two parties are free to conclude or reject virtually any agreement. It was intentional bluff on the part of European politicians and diplomats aimed at offsetting Donald Trump’s “escalation – getting concessions” tactic. When in Washington, European Commission officials supported the US against China, while in Beijing they sided with China against the United States. A graphic example of this tack was provided by Britain, which, while supporting the ban on the use of Chinese equipment in its IT infrastructure, still allows China’s CGN Company to participate in the construction of the Hinckley Point NPP.

This reflects a great deal of interest on the part of the European “West” in a multi-polar world order where, according to many European experts, the EU could lead the camp of supporters of liberal norms of international trade, which are embraced, one way or another, by all the leading nations of the world, with the notable exception of the current US leadership. With the economic potential of the EU being commensurate with that of the United States, it is exactly the area where the EU could implement its “strategic autonomy” plan where a united Europe is now able to act on a par with, and even independently, from the United States. In 2017, the European Union signed a raft of important trade agreements with Canada, Singapore and Vietnam. In the summer of 2018, it concluded a free trade zone deal with Japan and intensified similar parleys also with Mexico, the South American trade bloc MERCOSUR, Australia and New Zealand.

The Asian countries are equally eager to pursue a multi-vector economic policy. Following Trump’s withdrawal from the Trans-Pacific Partnership Agreement (TPP), the 11 remaining participants quickly revived the project. Moreover, the US exit gave them greater freedom of hand in choosing a strategy for further development of the trade pact. No longer instrumental in Washington’s policy of “deterring” China, the TPP can be more flexible in its relations with the world’s second largest economy, all the more so since almost all TPP members have close trade ties with the People’s Republic. Meanwhile, some European countries have been showing interest in the TPP, and negotiations on a 16-state Asian agreement on regional trade that will cover half of the global economy – the Regional Comprehensive Economic Partnership (RCEP), have also received a new boost. Unlike the United States, China is also involved here. At the same time, some of Washington’s traditional allies in Asia, such as Australia, New Zealand and Japan, are actively building up ties as part of both forums.

Finally, Donald Trump’s two-year tenure in the White House has significantly exacerbated the financial and economic differences between the leading Western economies. According to the Austrian newspaper Der Standard, by the mid-2018, direct cross-border investment in the world’s affluent countries had dropped by more than a third. Even if individual economies could benefit from restrictive measures, this won’t last long. Globalization as a whole is losing momentum. Although this may somewhat mitigate the countries’ discontent with developmental imbalances, it will not be enough to rectify the general structural problems the global economy is facing today. What is needed is a long-term strategy, and this can only be implemented through dialogue and multilateral interaction.

Meanwhile, economic multi-polarity is fast becoming a fait accompli. Wall Street and the London City are no longer the sole sources of investment as money could also come from China, the Persian Gulf countries and Europe even though there certainly are some nuances and conditions to have in mind here. Many countries are now openly playing on the contradictions existing between the world’s economic powerhouses, now counterweighing Beijing with Washington, now portraying both as powers others are wary of.  Central Asia is actively maneuvering inside the Moscow-Beijing-Washington triangle, and Canada announces plans to further develop trade and economic ties with China despite, and possibly, because of the stuttering negotiations with Washington about changes to the NAFTA treaty.

The future of the ongoing trade wars will be determined by the world’s growing financial and economic interdependence on the one hand, and by most countries’ desire to guard against the dangerous impact a protracted, and, possibly, escalated US-China standoff could have on the global economy.

Amid the growing rivalry between Washington and Beijing, a sort of an economic nonaligned movement could become even more popular than its political counterpart of the Cold War era. After all, the liberal economic ideology was very popular even then, as neither the West nor the East was able to impose strict bloc trade discipline on its allies. Therefore, many countries of the so-called “golden billion” may eventually join the less affluent developing nations in such a nonaligned coalition.

If, in the foreseeable future, the global economy is bound to split into supporters of Washington and Beijing, this will most likely be about the choice of technologies and infrastructure projects vital for the security of states and societies, namely IT, artificial intelligence and payment systems. In most of the other, more traditional sectors of international trade, customary competition will continue, just like it has always done before.

First published in our partner International Affairs

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Biden Revises US Sanctions Policy

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Official White House Photo by Adam Schultz

In the United States, a revision of the sanctions policy is in full swing. Joe Biden’s administration strives to make sanctions instruments more effective in achieving his political goals and, at the same time, reducing political and economic costs. The coordination of restrictive measures with allies is also seen as an important task. Biden is cautiously but consistently abandoning the sanctions paradigm that emerged during Donald Trump’s presidency.

The US sanctions policy under Trump was characterised by several elements. First, Washington applied them quite harshly. In all key areas (China, Iran, Russia, Venezuela, etc.), the United States used economic and financial restrictions without hesitation, and sometimes in unprecedented volumes. Of course, the Trump administration acted rationally and rigidity was not an end in itself. In a number of episodes, the American authorities acted prudently (for example, regarding sanctions on Russian sovereign debt in 2019). The Trump-led executives stifled excess Congressional enthusiasm for “draconian sanctions” against Russia and even some initiatives against China. However, the harshness of other measures sometimes shocked allies and opponents alike. These include the 6 April 2014 sanctions against a group of Russian businessmen and their assets, or bans on some Chinese telecommunications services in the United States, or sanctions blocking the International Criminal Court.

Second, Trump clearly ignored the views of US allies. The unilateral withdrawal from the nuclear deal with Iran in 2018 forced European businesses to leave Iran, resulting in losses. Even some of the nation’s closest allies were annoyed. Another irritant was the tenacity with which Trump (with Congressional backing) threw a wrench in the wheels of the Nord Stream 2 pipeline project. Despite the complicated relations between Moscow and the European Union, the latter defended the right to independently determine what was in its interests and what was not.

Third, concerns about sanctions have emerged among American business as well. Fears have grown in financial circles that the excessive use of sanctions will provoke the unnecessary politicisation of the global financial system. In the short term, a radical decline in the global role of the dollar is hardly possible. But political risks are forcing many governments to seriously consider it. Both rivals (Moscow and Beijing) and allies (Brussels) have begun to implement corresponding plans. Trade sanctions against China have affected a number of US companies in the telecommunications and high-tech sectors.

Finally, on some issues, the Trump administration has been inconsistent or simply made mistakes. For example, Trump enthusiastically criticised China for human rights violations, supporting relevant legislative initiatives. But at the same time, it almost closed its eyes to the events in Belarus in 2020. Congress was also extremely unhappy with the delay in the reaction on the “Navalny case” in Russia. As for mistakes, the past administration missed the moment for humanitarian exemptions for sanctions regimes in connection with the COVID-19 epidemic. Even cosmetic indulgences could have won points for US “soft power”. Instead, the US Treasury has published a list of pre-existing exceptions.

The preconditions for a revision of the sanctions policy arose even before Joe Biden came to power. First of all, a lot of analytical work was done by American think tanks—nongovernmental research centers. They provided a completely sober and unbiased analysis of bothха! achievements and mistakes. In addition, the US Government Accountability Office has done serious work; in 2019 it prepared two reports for Congress on the institutions of the American sanctions policy. However, Joe Biden’s victory in the presidential election significantly accelerated the revision of the sanctions instruments. Both the ideological preferences of the Democrats (for example, the emphasis on human rights) and the political experience of Biden himself played a role.

The new guidelines for the US sanctions policy can be summarised as follows. First, the development of targeted sanctions and a more serious analysis of their economic costs for American business, as well as business from allied and partner countries. Second, closer coordination with allies. Here, Biden has already sent a number of encouraging signals by introducing temporary sanctions exemptions on Nord Stream 2. Although a number of Russian organisations and ships were included in the US sanctions lists, Nord Stream 2 itself and its leadership were not affected. Third, we are talking about closer attention to the subject of human rights. Biden has already reacted with sanctions both to the “Navalny case” and to the situation in Belarus. Human rights will be an irritant in relations with China. Fourth, the administration is working towards overturning Trump’s most controversial decisions. The 2020 decrees on Chinese telecoms were cancelled, the decree on sanctions against the International Criminal Court was cancelled, the decree on Chinese military-industrial companies was modified; negotiations are also underway with Iran.

The US Treasury, one of the key US sanctions agencies, will also undergo personnel updates. Elisabeth Rosenberg, a prominent sanctions expert who previously worked at the Center for a New American Security, may take the post of Assistant Treasury Secretary. She will oversee the subject of sanctions. Thus, the principle of “revolving doors”, which is familiar to Americans, is being implemented, when the civil service is replenished with personnel from the expert community and business, and then “returns” them back.

At the same time, the revision of the sanctions policy by the new administration cannot be called a revolution. The institutional arrangement will remain unchanged. It is a combination of the functions of various departments—the Treasury, the Department of Trade, the Department of Justice, the State Department, etc. The experience of their interagency coordination has accumulated over the years. The system worked flawlessly both under Trump and under his predecessors. Rather, it will be about changing the political directives.

For Russia, the revision is unlikely to bring radical changes. A withdrawal from the carpet bombing of Russian business, such as the incident on 6 April 2018 hint that good news can be considered a possibility. However, the legal mechanisms of sanctions against Russia will continue to operate. The emphasis on human rights will lead to an increase in sanctions against government structures. Against this background, regular political crises are possible in relations between the two countries.

From our partner RIAC

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Sea Breeze 2021: U.S. is worryingly heading closer to conflict with Russia in the Black Sea

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On July 10th, the 2021 iteration of the joint military exercise, Sea Breeze, concluded in the Black Sea. This exercise, which began on June 28th was co-hosted by the Ukrainian Navy and the United States Navy’s Sixth Fleet. According to the U.S. Navy, the annual Exercise Sea Breeze consists of joint naval, land, and air trainings and operations centered around building increased shared capabilities in the Black Sea.

This year’s Sea Breeze included participation from 32 countries, including NATO members and other countries that border the Black Sea, making it the largest Sea Breeze exercise since its inception in 1997. All other countries bordering the Black Sea were included in participating in the joint drills, except Russia.

Russia’s exclusion from these exercises is not unsurprising, due to its current tensions with Ukraine and its historical relationship with NATO. However, it signals to Moscow and the rest of the world that the NATO views Russia as an opponent in a future conflict. At the opening ceremony of Sea Breeze 2021 in Odessa, it was made clear that the intention of the exercise was to prepare for future conflict in the region when the Defense Minister of Ukraine, reported that the drills “contain a powerful message – support of stability and peace in our region.”

These exercises and provocations do anything but bring peace and stability to the region. In fact, they draw the United States and NATO dangerously close to the brink of conflict with Russia.

Even though Sea Breeze 2021 has only recently concluded, it has already had a marked impact on tensions between NATO countries and Moscow. U.S. Navy Commander Daniel Marzluff recently explained that the Sea Breeze drills in the Black Sea are essential deterrents to Russian assertions in region. However, these drills have consisted of increasingly provocative maneuvers that ultimately provoke conflict in the region.

These drills have done anything but act as a deterrent for conflict in the Black Sea. In response to the Sea Breeze drills, Russia conducted its own drills in the Black Sea, including the simulation of firing advanced missile systems against enemy aircraft. As the Black Sea is of utmost importance to Russia’s trade and military stature, it follows that Russia would signal its displacement if it perceives its claims are being threatened.   

Sea Breeze followed another rise in tensions in the Black Sea, when just a week prior to the beginning of the exercise, a clash occurred between Russia and Britain. In response to the British destroyer ship, the HMS Defender, patrolling inside Crimean territorial waters, Russia claimed it fired warning shots and ordered two bombers to drop bombs in the path of the ship. When asked about the HMS Defender, Russian President Vladimir Putin described the ship’s actions as a “provocation” that was a “blatant violation” of the 1982 UN Convention on the Law of the Sea. Putin also went on to claim that Moscow believes U.S. reconnaissance aircraft were a part of the operation as well. Despite this, British Prime Minister Boris Johnson responded with a denial of any wrongdoing.

Russia’s actions to provocations by the United States-led Sea Breeze and interaction with the HMS Defender in the Black Sea signal its resolve to retaliate if it feels as its sovereignty and its territorial claim on Crimea is being impeded on. Despite Russia signaling its commitment to defending its territorial claims in the Black Sea, the United States still willingly took actions during Sea Breeze that would bring the United States closer to a clash with Russia.  

Provoking conflict in the Black Sea does not align with the national security interests of the United States. In fact, it only puts the United States in the position to be involved in a costly clash that only would harm its diplomatic relationships.  

As Russia has signaled its commitment to its resolve and scope of its military response in a possible conflict, any potential conflict in the Black Sea would be costly for the United States. Over the past few years, Russia has increased the size and capabilities of its fleet in the Black Sea. Two of these improvements would especially pose a challenging threat to the U.S. and NATO – Russia’s drastically improved anti-access/area-denial capabilities and its new Tsirkon hypersonic cruise missile. This would mean any conflict in the Black Sea would not be a quick and decisive victory for U.S. and NATO forces, and would instead likely become costly and extensive.  

A conflict with Russia in the Black Sea would not only be costly for the U.S. and its allies in the region, but could irreparably damage its fragile, but strategically valuable relationship with Russia. If the United States continues to escalate tensions in the Black Sea, it risks closing the limited window for bilateral cooperation with Russia that was opened through increased willingness to collaborate on areas of common interests, as evidenced by the recent summit that took place in Geneva. After a period of the highest levels of tension between the U.S. and Russia since the Cold War, this progress made towards improving bilateral relations must not be taken for granted. Even if the U.S. and NATO’s maneuvers in the Black Sea do not ultimately materialize into a full-scale conflict with Russia, they will most likely damage not just recent diplomatic momentum, but future opportunities for a relationship between the two powers.

In such a critical time for the relationship between the United States and Russia, it is counterproductive for the United States to take actions that it can predict will drive Russia even further away. Entering into a conflict with Russia in the Black Sea would not only engage the U.S. in a costly conflict but would damage its security and diplomatic interests.  

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Maximizing Biden’s Plan to Combat Corruption and Promote Good Governance in Central America

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Authors: Lauren Mooney and Eguiar Lizundia*

To tackle enduring political, economic and security challenges in the Northern Triangle countries of El Salvador, Guatemala and Honduras, the Biden administration is attempting to revitalize its commitment to the region, including through a four-year, $4 billion plan submitted in a bill to Congress.

In its plan, the White House has rightly identified the root causes of migration, including limited economic opportunity, climate change, inequality, and violence. Systemic corruption resulting from the weak rule of law connects and entrenches the root causes of migration, while the increased devastation brought about by climate change exacerbates economic hardship and citizen insecurity. 

The renewed investment holds promise: previous foreign assistance in the Northern Triangle has shown results, including by contributing to a reduction in the expected level of violence. As the Biden Administration finalizes and begins implementing its Central America strategy, it should include three pillars—rooted in lessons learned from within and outside the region—to maximize the probability that the proposed spending in U.S. taxpayer funds has its intended impact. 

First, the Biden administration should deliver on its promise to make the fight against corruption its number one priority in Central America by supporting local anti-graft actors. The sanctions against officials which the United States is considering  are a step in the right direction, but lasting reform is best accomplished through a partnership involving regional or multilateral organizations. Guatemala’s international commission against impunity (CICIG) model was relatively successful until internal pushback and dwindling U.S. advocacy resulted in its dismantlement in 2019. Though Honduras’ equivalent was largely ineffective, and El Salvador’s recently launched version is marred by President Bukele’s campaign against judicial independence, there is room for learning from past mistakes and propose a more robust and mutually beneficial arrangement. The experience of Ukraine shows that while external engagement is no silver bullet in eliminating corruption, the role of foreign actors can lead to tangible improvements in the anti-corruption ecosystem, including more transparent public procurement and increased accountability for corrupt politicians.

In tandem with direct diplomatic pressure and helping stand up CICIG-like structures, the U.S. can harness lessons from prior anticorruption efforts to fund programs that address other aspects of graft in each country. This should involve empowering civil society in each country to monitor government compliance with anti-corruption laws and putting pressure on elected officials to uphold their commitments. While reducing impunity and improving transparency might not automatically persuade Central Americans to stay, better democratic governance will allow the three Northern Triangle nations to pursue policies that will end up expanding economic opportunities for residents. As Vice President Harris recently noted, any progress on addressing violence or food insecurity would be undermined if the environment for enabling corruption remains unchanged.

Second, the United States should support local initiatives to help reverse the deterioration of the social fabric in the region by expanding access to community decision-making. Given the high levels of mistrust of government institutions, any efforts to support reform-minded actors and stamp out corruption at the national level must be paired with efforts to promote social cohesion and revitalize confidence in subnational leaders and opportunities. In the Northern Triangle countries, violence and economic deprivation erode social cohesion and undermine trust in democratic institutions. The U.S. government and practitioners should support civic efforts to build trust among community members and open opportunities for collective action, particularly in marginalized areas. A key component of this is expanding sociopolitical reintegration opportunities for returning migrants. In so doing, it is possible to help improve perceptions of quality of life, sense of belonging, and vision for the future. While evidence should underpin all elements of a U.S. Strategy for Central America, it is particularly important to ensure social cohesion initiatives are locally-owned, respond to the most salient issues, and are systematically evaluated in order to understand their effects on migration.

Lastly, the U.S. should take a human-rights based approach to managing migration and learn from the pitfalls associated with hardline approaches to stem migration. Policies rooted in a securitized vision have a demonstrable bad record. For example, since 2015, the European Union undertook significant measures to prevent irregular migration from Niger, including by criminalizing many previously legitimate businesses associated with migration and enforced the imposition of legal restrictions to dissuade open and legal migration. Not only did this violate freedom of movement and create adverse economic consequences, but it also pushed migration underground, with individuals still making the journey and encountering significant threats to their lives, security and human rights.

A welcome realignment

Acknowledging the role of push factors is key to responding to migration effectively. Most importantly, putting political inclusion and responsive governance at the center is critical for ensuring vulnerable populations feel rooted in their community. A more secure, prosperous, and democratic Central America will pay dividends to the United States not only in terms of border security, but also in the form of improved cooperation to tackle global challenges, from climate change to the rise of China. 

*Eguiar Lizundia is the Deputy Director for Technical Advancement and Governance Advisor at IRI

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