The term “shortage” has been banished from mainstream society in the world for at least a few decades. Oftentimes, in the Second World War themed movies, we see emotionless, starving people scavenging for food near the ruins of war, or that they pay high prices for commodities that are in shortage. The dark shadow of shortage has not really gone away. In fact, it is now looming over the world again. One example of shortage happens in Russia, where it is said that there is an instinctive tendency for Russian households to stock up on sugar and buckwheat every time when there is likely to be severe inflation or supply shortages. In 1998, 2008, 2014 and 2020, every economic disaster in Russia has been accompanied by a rush on sugar by the people. Sugar is once again the commodity most difficult to obtain in Russia, following its President Vladimir Putin’s “Special Military Operation” on February 24 this year that completely cut the country’s economy off from the Western countries.
If commodity shortage becomes generalized, it would be the shortage of economy, and usually it will be accompanied by the rise of various commodity prices. Few economists around the world seemed to be talking about this right now, so let me take my point a step further here. It is actually a simple and straightforward judgment that the world will return to the era of shortage of economy.
Perhaps a lot of people, I mean the Europeans, Americans, Asians, especially those people in the OECD countries are now thinking that the war in Ukraine will eventually end through certain sensible negotiations, and Europe will be saved from war once again. In this scenario, while there would be all sorts of complaints, the world would once again be “peaceful”. This may be what most people imagine now for the end of the war. This situation may or may not happen, yet there will be a serious problem all the same. The gunfire may be stopped; however, the adjustment of the world economic structure will not be easily reversed. We will no longer see the hyper-rational prosperity scene which was based on ideological illusions in the past. Global economy has already been re-divided by a pair of super-geopolitical hands, revealing a new structure that is familiar yet completely unknown.
We can look at the logic of these impacts and the trends that the evidence shows.
Even in the early days of the war, the United States and Europe have jointly announced sanctions on the Nord Stream 2 gas pipeline. In fact, this major European energy pipeline was almost completed, but now lies in the ruins because it cannot be put into operation, and even the co-operating company has announced its dissolution. Germany, the United Kingdom, and other European countries that have relied heavily on Russian energy have announced that they will wean themselves off Russian energy and seek alternative sources of supply within a certain period of time. Among the European countries, the United Kingdom and Germany show the clearest stance, both declaring that they will basically end their “over-dependence” on the Russian energy by the end of 2020. For the Western countries, it is no doubt that this will be a huge reset of the energy structure, which will not only bring about obvious inflation, but also a significant risk that each country’s economy will fall into crisis.
Such reset is structural change, and it goes beyond merely about a gas pipeline. Many of the changes brought by it are permanent structural shifts. According to European Network of Transmission System Operators for Electricity (ENTSO-E)’s statement, Ukraine and Moldova have successfully connected to the European continent’s electricity system, paving the way for both countries to permanently cut their power links with Russia. In Belgium, the war in Ukraine has completely disrupted the country’s decision to shut down two nuclear power plants, and the Belgium’s ruling coalition has now decided to keep them operating for another 10 years. Belgian Prime Minister Alexander De Croo said that, “the federal government has decided to take the necessary steps to extend the lifetime of two nuclear power plants by ten years. This should strengthen our country’s independence from fossil fuels in these turbulent geopolitical times”. Belgium’s original plan was to switch to natural gas after the closure of its two nuclear power plants and build a gas plant north of Brussels. All these will change. In fact, it is not just Belgium that has decided to take contingency measures. According to a new proposal by the European Commission, the European Union as a whole, aims to reduce its dependence on Russian gas by two-thirds within this year and end its dependence on Russian gas by 2030.
In terms of global manufacturing, Bosch, the world’s largest auto parts supplier, has announced to halt deliveries of truck parts to Russian customers. As Ukraine discovered that the components of Bosch, a German engineering and electronics-focused business, were used in Russian infantry fighting vehicles. “Due to indications that Bosch products – contrary to local contractual agreements – may have been used in non-civilian applications, we have stopped the delivery of truck components in Russia and to Russian customers,” Bosch said in a statement. According to Der Spiegel, German authorities have asked local prosecutors to immediately investigate the Ukrainian government’s allegations. Under EU’s sanctions against Russia, EU companies are banned from supplying Russia with any “dual-use” products suitable for both civilian and military purposes.
As a matter of fact, there are now profound structural changes in the global manufacturing and high-tech markets. Daimler Benz, Ford Motor Company, Toyota Motor, Volvo, Jaguar Land Rover, Volkswagen, General Motors, Mitsubishi and Renault have all announced their withdrawal from the Russian market. Apple, Microsoft and Samsung Electronics etc. have also suspended operations in Russia. In the field of semiconductor chips, ADM and Intel have both announced the suspension of deliveries to Russia. These withdrawals are even affecting the green energy sector. Orsted AS, the world’s largest offshore wind power developer has announced that it will stop buying Russian coals and biomasses.
The service sector was actually the first area of sanctions against Russia. The SWIFT system, touted as the “financial nuclear weapon”, was previously an untouchable realm, or so many of the world’s leading financial experts thought. Now, SWIFT has been used in geopolitics. This important financial transaction system has excluded all Russian banks and financiers. In addition, the British bank HSBC has announced the end of its relationship with a number of banks including Russia’s second largest bank. Financial firms such as Citigroup, JPMorgan Chase and Goldman Sachs etc. have also taken similar actions. The EU has banned its settlement system from trading stocks, bonds or derivatives in rubles, the only currency in which Russia can pay. Interestingly, the same Western investment banks and consultancies that used to actively push the global financial community to do business in Russia are now doing just the opposite, i.e., helping them to withdraw from the country, as if they have equally solid experience in this.
Even in civil aviation, which is closely related to transportation safety, Western companies have opted to cut ties with Russia. U.S. aviation manufacturer Boeing announced on March 1 that it would suspend parts, maintenance and technical support to Russian airlines following the invasion. Europe’s Airbus and Brazil’s Embraer have also announced the withdrawal of all services to Russia. As a result, nearly 1,000 Western-made aircrafts in Russia would face the supply interruption of spare parts and technical support. This move has left Russia contemplating a return to production of the notoriously unreliable domestically made large aircrafts that have long been ignored.
How Western companies have responded to the sanctions on Russia has been extraordinary, and even more efficient than the pace at which Western governments have acted. Although the Russian government tried to take countermeasures to prevent the formation and spread of the divestment waves, such as emphasizing the seizure of assets, disguised refusal to pay debits, nationalization and cancellation of joint ventures etc., the Western business community is unmoved and seems willing to pay a heavy price. For example, British Petroleum’s divestment could lose as much as USD 25 billion, but still insisted on giving up its 20% share in Rosneft. Shell announced to abandon all of its businesses in Russia, where it has 20% to 50% share in Russian gas, Siberian and other projects. Similarly, Exxon Mobil, which has as many as 1,000 employees in Russia, and Equinor ASA, Norway’s largest energy company, which has been operating in Russia for three decades, are also leaving.
From manufacturing to services and financial industries, the chain of negative impacts of the war in Ukraine has been expanding and extending.
The Russian central bank’s assets in Western countries are now being frozen. More than half of its total foreign exchange reserves of more than USD 630 billion were immediately rendered unusable overnight. The exchange rate of the Russian ruble plummeted by more than 40% on the same day, and has not recovered to its original level since then. In response to the situation, the Central Bank of Russia subsequently raised the key interest rate from 9.5% to 20%. Such a high cost of funds in Russia will obviously freeze all the country’s domestic economic activities. In financial trading, major rating agencies such as Moody’s, Standard & Poor’s and Fitch have downgraded Russia’s sovereign debt to junk status. The London Stock Exchange also suspended 27 Russian companies listed on Paternoster Square from trading.
Most importantly, food worldwide is affected as well.
In the case of China, according to some statistics, from February 24 to March 8, when the war has just started, the contract price of foreign wheat rose by 44.98% in these two weeks, and the yearly increase has reached 66.24%. During the same period of time, the Zhengzhou Commodity Exchange’s strong wheat contract also rose 20.86% during the same time period. World Food Program (WFP) officials said on March 18 that the food supply chain in Ukraine, the world’s largest grain producer, is collapsing. Some of the country’s infrastructures are damaged, and many supermarkets stores and warehouses emptied. The WFP warned that with global food prices at all-time highs, UN agencies are concerned that the crisis in Ukraine will have an impact on global food security, especially in hunger hotspots. The UN revealed that due to inflation and the Ukraine crisis, WFP has to spend an extra USD 71 million a month on food this year, which could have fed 4 million people.
From the perspective of world geopolitics, this would be the first time ever after the Second World War that large-scale DIME (diplomacy, information, military and economics) state power tools were used to compete in and win a war. That said, consequences and impacts of the utilization of DIME tools in the sanctions against Russia, especially in terms of economic sanctions, remain unclear, as the action taken is not a geopolitical measure that has undergone meticulous research and planning. Such move could have a number of unknown, damaging possibilities. This involves in multiple fields, from manufacturing sector to the service industry, to major adjustments in finance and markets. Along with the turmoil and impacts of the world geopolitical situation, global economy may transit to the structural shift in re-division, redefinition, and reorganization of the global market from the shortage of certain commodities and market shock. This in turn may lead to a transition to a new economic era of product shortages and price shocks.
Perhaps aware of this unknown potential harm to the world economy, on March 18, a spokesman for the U.S. State Department emphasized that the sanctions imposed by the United States on Russia due to the situation in Ukraine were not intended to be permanent. Restrictions can be lifted after Ukraine regains its territorial integrity. The problem is that business relationships are not as simple as imagined by these officials. They are built on the basis of trust and credit, whether such businesses are financial services or commodity trading. Therefore, the subversion of commercial relations, the fait accompli of major losses, the unpredictable complex driving factors of geopolitics, and the powerful influence of social movements are bound to produce more profound impacts.
In just 72 hours, countries like Germany and France have changed their perception of peace and prosperity that has persisted for decades, a completely unimaginable feat in the past. For this reason, French President Emmanuel Macron said that the war in Ukraine was like a social “electric shock” for NATO.
Those who are used to peace will only remember peaceful environment in their memories, and would have a hard time to believe that the scenarios of starving people lining up for food handouts and the scenes of factories, towns and beautiful buildings in total ruins, common during the Second World War, are repeating themselves in the Europe they thought to be rational and refine. The dramatic fluctuations of commodity price, previously unimaginable, will go beyond traders’ psychological price levels, seriously challenging the living standards, income levels, and assets of people around the world. Unfortunately, all these changes and shocks may very well become a reality in the future world.
This will be a new era of product shortages and price shocks, caused by structural adjustments, supply chains, and various unpredictable factors. At the beginning, it may be a breakdown of the balance of supply and demand. We might see some products in excessive supply, while others in serious shortage. Yet, as time goes on, shortages and defects in the supply chain will spread, causing more and more products to be in shortage, and prices will soar irrationally. Eventually, the world economy as a whole will see serious structural imbalance, an aftermath of the Ukraine war. This war may further expand into a world war, or become a confrontational global arms race, or it may end temporarily with the return of short-term rationality, but all these possible results will not eliminate the reality of structural adjustment of the world economy. An era of economy shortage caused by the adjustment of product, asset and market structures has descended upon us.
This is a process of economic evolution. Every country, industry, and economy will face different situations, but they will all be bracing the structural adjustment of the market, assets, product supply and demand, as well as of the supply chain and major price fluctuations driven by geopolitics.
This in turn, causes more general economic difficulties and forms a shortage of economy. Such structural adjustment has broken the original supply system, and the markets of various countries will be facing reinvestment, redefinition and reorganization of production and market resetting. The efficiency of this process will be diverse, depending on the situation of different countries. The supply, the scale, and return too will be different. In the end, the final price and efficiency will become far from optimal, causing countries’ economies to gradually slide into disastrous situations.
In world today, the main factor that causes economic difficulties and potential major crises will not be capital as expected by Karl Marx. The most important driving factor of this would be geopolitics, and it is geopolitics that dominates the resetting process of global economy. The conflict in the world is no longer the clash of civilizations, but more of a conflict caused by differences in civilizations. It is not merely the conflict between religions and ethnic groups, rather it is more likely caused by ideologies, and the political ambition of expansion. Such conflict is more a crisis caused by irrational people’s misunderstanding and disdain for rationality. While numerous Nobel Prizes in economics have been awarded, the deficiency in rationality has caused it hard to prevent conflicts and wars from breaking out.
In the era of economic shortage, which countries and regions may become safe havens thanks to geopolitics?
The answer is that the relative re-emergence of the Anglo-American axis, the maritime states, and the economies of the American continent, will become a possibility for this. Global spatial patterns indicate that conflicts and competitions are most intense in the continental regions of the world, i.e., the continental regions where Europe, Russia, the Middle East, Central Asia and China and India are located, and it would be difficult to establish a buffer zone between them. In this region, direct conflicts and competitions, which have been in existence since time immemorial, are unavoidable. In contrast, the geographical location of the Anglo-American axis is in the middle of the maritime regions. The Atlantic and Pacific routes connect the American continent and a large number of island countries and regions of different sizes, often divided by the oceans. Historically and relatively speaking, there are lesser enmities between them, and they are mutually dependent in their trade relations. Therefore, while the continental regions are experiencing violent upheaval, the Anglo-American axis, the maritime states, and the Americas have more prominent opportunities for development and enjoy prosperity than ever before.
Thus, we have now come to the point where geopolitics is resetting our world, rendering everything else insignificant.
The Waning Supremacy of the Petrodollar Economy
Since the 1970s, the US dollar has been the undisputed reserve currency around the globe. Agreements with Saudi Arabia (and many other Middle Eastern countries) cemented the global oil trade in the greenback currency. Trading oil and gas futures denominated in the US dollar solidified the position of the United States as the hegemon of Global trade – a shift from the traditional gold standard. While the Euro surfaced as a strong contender in the 90s, the dollar-denominated finance still flourished. And economies like China and Russia had no choice but to hold US Treasury securities and accumulate massive dollar reserves. However, multiple geopolitical and economic factors are now turning the tide against the supremacy of the US dollar. Rapid globalization was already a ticking bomb situation for the greenback. But now, China’s rise as the next potential powerhouse and Russia’s exclusion from the dollar-embedded SWIFT system is catalyzing this historic transition.
The tread towards de-dollarisation is not exactly a novel phenomenon. The infamous drift to exclude the US dollar originally spurred in Latin America in the 90s. In response to US sanctions, Venezuela attempted to shift away from the status quo by opting for oil payments in yuan over the US dollar. Chile resorted to Consumer Price Index (CPI) indexation to attract foreign investments in local securities over US Treasuries in the secondary market. However, due to weak supplementary monetary policies and crippling economic crises, the trend of de-dollarisation steeply reversed during the 2008 financial crisis. Since then, no significant development has threatened to derail the dominance of the US dollar. Yet, the booming Asian markets and the implicit rift between the United States and Saudi Arabia could be the next bad omen.
Saudi Arabia is the world’s largest Crude exporter, amounting to about 17.2% of the Global Crude oil exports (by value). Over decades, Saudi Arabia has been one of the core allies of the United States in the Middle East. Economically, the kingdom has served as the largest Crude supplier to the United States. Moreover, as Saudi Arabia leads the Organization of Petroleum Exporting Countries (OPEC), the United States has enjoyed a sway over Global oil prices. Since the oil trade is denominated in the US dollar, it has allowed successive US governments to run massive trade deficits without any budgetary concern. Geopolitically, the Saudi kingdom has been a US proxy in the Middle East to counter its arch-rival Iran. After the landmark Iranian revolution in 1979, Saudi Arabia further climbed the ladder of US preference in the region. However, with a shift from Republicans to Democrats, the two allies have inched apart to a certain extent.
Over the years, the United States has relented its dependence on imported oil by building its own strategic reserves. For example, the US imported an estimated 2 million barrels per day of Saudi Crude in the 1990s. That figure fell to mere 500,000 barrels per day in 2021 – a drop of 75% in a couple of decades. On the political front, the Saudi royalty has been particularly dissatisfied with Biden’s policy in the Middle East. Biden’s decision to unilaterally withdraw support for Saudi Arabia in the Yemen war distanced the kingdom from the US administration. A subsequent spree of Houthi attacks on Saudi oil facilities has further incensed the royalty. To add oil to the fire, Biden’s desperation to salvage the outdated Nuclear Deal with Iran has virtually alienated the kingdom to the point of indifference.
The implications are not complex to spot. Since Russia launched its onslaught against Ukraine in February, Saudi Arabia has actively refused to pay heed to Biden’s calls to expand Crude supply quotas and suppress Global oil prices. Instead, the OPEC+ alliance – OPEC members, Russia, and other allied producers – stuck to its original plan to modestly raise the June output target by 432,000 barrels per day. The brutal indifference to the Western calls has an underlying reason besides the concurrent row with the United States. The reason is the growing China-Saudi cooperation. Over the past few years, Saudi’s structure of the international oil trade has undergone a fundamental change. That is predominantly due to increasing cooperation of China which is not just limited to the energy sector. Under the hood of its Belt and Road Initiative (BRI), China has also objectively expanded its potential presence in the kingdom through bilateral cooperation in infrastructure, trade, and investment.
According to the American Enterprise Institute’s China Global Investment Tracker, cumulative Chinese investments in Saudi Arabia reached $43.47 billion in 2021. According to data released by the Chinese General Administration of Customs (GACC), China imported an estimated 542.39 million tons of Crude oil in 2020 – comprising more than 25% of the kingdom’s total Global oil exports. Sources from Saudi Arabia’s top securities regulator suggest that the kingdom’s Sovereign Wealth Fund may soon start investing in Chinese companies after years of limiting its overseas holdings in the US and Europe. Official sources suggest that Saudi oil giant Aramco is in talks to strike a partnership with the Chinese petrochemical consortium. Recently Aramco also finalized a $10 billion deal with Chinese petroleum companies. All the factors unambiguously point in a single direction – Saudi Arabia is leaning away from the US to China. Naturally, the de-dollarisation of trade and investments would facilitate bilateral relations with China.
There are, however, some drawbacks to the petroyuan when compared to its counterpart. While China’s financial markets have exponentially grown over the past few decades, they are still relatively illiquid compared to the US capital markets. Moreover, the massive $13.4 trillion eurodollar market extensively facilitates trade in European markets. Meanwhile, trades in yuan would be limited to China and subject to manipulation from the People’s Bank of China. Thus, trades settled in yuan would be an inconvenience to the smooth operation of trade and short-term deposits. However, these problems could be resolved if petroyuan is used as a barter for investments in China.
Like Saudi Arabia, economies like Russia and Iran have also inched closer to Asia. Russia, for instance, has consistently voiced its propensity to shift toward the Cross-Border Interbank Payment System (CIPS) – a transaction system clearing international settlements and trade in the Renminbi – to trade its oil in Asia under western sanctions. India has openly defied the US pressure by purchasing roughly 15 million barrels of oil from Russia since the invasion of Ukraine. The Russian Crude now accounts for about 17% of Indian imports – up from less than 1% before invasion. The rudimentary reason is cheaper oil in Roubles, especially when Europe is still weighing an embargo on Russian oil. Even Iran has notoriously traded Crude with China under US sanctions by abandoning the US dollar for settlements.
Some economists may argue that even combined, the effect of de-dollarisation would be gradual and uneconomical. But we need to understand that the historical context is skewed, and ground realities today are comparatively different. Firstly, the economies in Asia are significantly less dollarised than the emerging economies of Latin America discussed in the existing literature. Secondly, the Asian economies – particularly China and India – are much more significant in terms of size and monetary policy. Even a shift towards semi-dollarisation could upend the clout of the United States and significantly reduce the power of US sanctions.
The US lawmakers are understandably irked by the defiance of the OPEC+ alliance. Recently, a US Senate Judiciary Committee passed the No Oil Producing or Exporting Cartels (NOPEC) bill to amend the US antitrust law. If passed by the full Senate and House, the US Attorney General would gain the authority to expose OPEC+ countries to lawsuits for possible collusion, bypassing the sovereign immunity guaranteed to OPEC+ nations. While similar motions have been filed and failed over the past two decades, the notable highlight is the US desperation in the face of helplessness. Saudi Arabia already warned the US lawmakers in 2019 that such a bill, if passed, would force its move to trade oil in different currencies. Today, with Europe’s belated timeline to phase away from Russian Crude to China’s expanding influence in Eurasia, it seems the inevitable transition from the petrodollar may strike sooner than initially expected – if expected at all!
Chinese Maritime Strategy: Further Expansion and Progress
The Belt and Road Initiative represents a shift in China’s global perspective as well as an update to its role and status in the international system, as announced by Chinese President Xi Jinping. Reviving the Silk Road as a means of connecting China with the rest of the globe was the biggest initiative so far. This initiative will connect China with the Arab Gulf states and the Mediterranean through Central Asia. The maritime silk road will connect China’s coast with Europe by way of the South China Sea and the Indian Ocean. It will also connect China’s coast with the South Pacific by way of the South China Sea.
The “string of pearls” strategy, which refers to a network of Chinese military and commercial facilities and relations on the length of the sea lines of communication, which extend from the Chinese mainland to the Horn of Africa, was used to secure Beijing’s global vision of military protection, diplomatic networking, and economic cooperation.
Some scholars believe that this would be a major threat to Britain which relies on the Commonwealth, China is gaining more influence in South Asia through the China-Pakistan Economic Corridor and the loan diplomacy, which weakens British influence in the Indian ocean. It also challenges Britain in the strategically important Malacca channel.
Experts mention that a state may only be considered powerful when it completely dominates its geographical surroundings. Aside from its strategic location on the international trade route, where 40 percent of all trade passes through the South China Sea and 30 percent of all oil traded globally. Beijing places a high value on the security of China’s regional environment.
China has overtaken the United States to become the world’s largest naval force – but experts believe that the mere comparison of the number of ships neglects many crucial elements that define the efficacy of any naval power.
The United States maintains, so far at least, a huge edge in many naval capabilities, as it has 11 aircraft carriers compared to China’s two. It also excels in the numbers of submarines, destroyers, cruisers, and huge nuclear-powered vessels. But it is projected to considerably enhance the size of the Chinese fleet.
Former Chinese People’s Liberation Army colonel Zhou Bo, currently at Tsinghua University in Beijing, says it is “extremely necessary” for China to build its navy in order to confront the maritime dangers it faces. He particularly says that “the largest challenge we are experiencing is what we regard as US provocations in Chinese territorial seas.” The US Navy expects that the total number of warships owned by the Chinese Navy would expand by 40 percent between 2020 and 2040.
Controlling waterways is a priority for Beijing. Attempts will be made to broaden its maritime presence outside the Indian Ocean, if possible. It is clear from this that China is interested in building strategic fulcrums around the world, such as huge ports equipped with sea cables and digital networks, as well as superior logistics services that might be used for military purposes if necessary.
China and the Indo Pacific Economic Framework
The Indo Pacific Economic Framework (IPEF) signed by a total of 13 countries, on May 23, 2022, in Tokyo is being dubbed by many as a means of checking China’s economic clout in Asia and sending out a message that the US is keen to bolster economic ties with its allies and partners in the Indo-Pacific.
Many Chinese analysts themselves have referred to the IPEF as ‘Economic NATO’. China has also been uncomfortable with the Quadrilateral Security Dialogue (Quad) which consists of US, Australia, Japan and India , and has referred to Quad as an ‘Asian NATO’ – though members of the grouping have categorically denied that Quad is an ‘Asian NATO’.
Countries which joined the US led IPEF are Australia, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. These countries together account for 40% of the global GDP. The four key pillars of the IPEF framework are; supply-chain resilience; clean energy, decarbonisation and infrastructure; taxation and anti-corruption; and fair and resilient trade.
While launching the plan, US President, Joe Biden said:
‘We’re here today for one simple purpose: the future of the 21st Century economy is going to be largely written in the Indo-Pacific. Our region,’
US Commerce Secretary Gina Raimondo while commenting on the IPEF said that it was important because it provided Asian countries an alternative to China’s economic model.
A few points need to be borne in mind. First, many of the countries — Australia, Brunei, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam – which have signed the IPEF are also part of the 15 nation Region Comprehensive Economic Partnership (RCEP) trade agreement of which China is a key driver (Indonesia, Phillipines and Myanmar have not ratified RCEP). RCEP accounts for 30% of the world’s GDP. Trade between China and other member countries has witnessed a significant rise, year on year in Q1 of 2022.
Second, many of the countries, which are part of the IPEF, have repeatedly said that they would not like to choose between China and US. The Singapore PM, Lee Hsien Loong who was amongst the first to hail the IPEF, has emphatically stated this point on a number of occasions. In an interview to Nikkei Asian Review on May 20, 2022, Lee Hsien Loong reiterated this point. In fact, Lee Hsien Loong even pitched for making China a part of the Comprehensive and Progressive Partnership for Trans Pacific Partnership (CPTPP) (TPP the precursor to the CPTPP was a brain child of the US). Said the Singapore PM:
‘We welcome China to join the CPTPP,’.
Here it would be pertinent to point out, that China had submitted an application for joining the CPTPPIN September 2021. In the interview, Lee Hsieng Loong did state that countries in Asia needed to have good relations with US, Japan and Europe.
Indonesia’s Trade Minister Muhammad Lutfi who attended the signing of the IPEF on behalf of the President Joko Widodo stated that he did not want to see IPEF as a tool to contain other countries.
One of the reasons why many countries are skeptical about the IPEF is the fact that it does not have any trade component. A number of ASEAN member states have pointed to the IPEF making no mention of tariffs and market access as one of its major draw backs. At the US-ASEAN Summit, held earlier this month Malaysian Foreign Minister, Ismail Sabri Yaakob had referred to this point. Like many other countries, Malaysia has welcomed the IPEF, but in the immediate future sees RCEP as a far greater opportunity.
US President Joe Biden has not deviated significantly from the policies of his predecessor, Donald Trump, with regard to trade and the US is unlikely to return to the CPTPP at least in the immediate future. Biden and Senior officials in his administration have spoken about the need to check China’s growing economic influence, specifically in Asia, and to provide an alternative model. While the US along with some of its Indo Pacific partners has taken some steps in this direction (only recently, leaders of Quad countries during their meeting at Tokyo announced that they would spend USD 50 billion, in infrastructural aid and investment, in the Indo Pacific.
Given his low approval ratings, and diminishing political capital it is unlikely that he is likely to change his approach towards trade significantly. US Trade Representative Katherine Tai said the TPP was ‘fragile’, and that there was no domestic support for the same.
In conclusion, while the IPEF does have symbolic importance it is important to bear in mind that many signatories themselves have close economic relations with China and would not like to get trapped in competition between US and China. Unless the US re-examines its approach towards trade, which is highly unlikely, and unless countries which are part of the Indo-Pacific vision are able to strengthen economic cooperation, China is likely to dominate Asia’s economic landscape – even though there is growing skepticism with regard to the same.
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