February 23, 2019
A Trade Deal with China will require a more comprehensive approach, based on a fundamental shift in mindset, say Andrew Sheng and Xiao
In the ongoing US-China trade talks, considerable progress has been made on several key trade issues, such as intellectual-property rights protection. But to defuse tensions in any sustainable way will require a more comprehensive approach, based on a fundamental shift in mindset.
HONG KONG – Trade negotiations between the United States and China are closing in on the March 1 deadline, after which the bilateral tariff war will resume – beginning with an increase from 10% to 25% on $200 billion worth of Chinese products. While global financial markets are fluctuating wildly, investors seem to assume that too much is at stake for the US and China to fail to reach a deal. Their optimism could prove short-lived.
To be sure, there has been considerable progress on several key issues, such as technology transfer, protection of intellectual-property rights, non-tariff barriers, and implementation mechanisms. But to defuse tensions between the US and China in any sustainable way will require a more comprehensive approach, based on a fundamental shift in mindset.
Over the last 40 years, Sino-US engagement has been largely cooperative, reflecting a holistic approach that takes into account the interests of the entire global system. US President Donald Trump’s administration, however, does not seem to believe that engagement with China (or anyone else for that matter) can benefit both sides. As Trump’s “America First” agenda shows, the US is now playing a zero-sum game – and it is playing to win.
For example, the US has threatened to punish or desert its closest allies unless they increase their defense spending. Under pressure from the Trump administration, South Korea just agreed to increase its contributions to US forces in Korea by 8.2%, to $923 million, in 2019.
Similarly, Trump has repeatedly disparaged fellow NATO members for insufficient defense spending. Most recently, Trump has criticized Germany for spending only 1% of GDP for defense, compared to America’s 4.3%. German Chancellor Angela Merkel responded by condemning US isolationism at the Munich Security Conference, and calling for the revival of multilateral cooperation.
The Trump administration’s myopic approach is also apparent in its preoccupation with bilateral trade imbalances. Any US deficit with another economy is, from Trump’s perspective, a loss. Given this, if China agrees to cut its bilateral trade deficit with the US, other economies with bilateral surpluses vis-à-vis the US – including close allies, such as the European Union and Japan – may find themselves facing intensifying pressure to do the The weakening of trade that could result in this scenario would compound existing negative pressure on global growth, hurting everyone. A global economic downturn is the last thing the world needs at a time when it is already beset with risks, including a possible no-deal Brexit and populist gains in the European Parliament election in May.
Of course, while Trump does not spare his allies, his primary target remains China. After all, the competition between the US and China extends far beyond trade. Although the US maintains military, technological, financial, and soft-power superiority, China has been steadily catching up, leading to bipartisan support in the US for a more confrontational approach.
Last October, US Vice President Mike Pence bluntly accused China of technology theft, predatory economic expansion, and military aggression. Pence’s stance echoed the fears of the US national security community. As former US Defense Secretary Ashton Carter put it, “Because it is a Communist dictatorship, China is able to bring to bear on US companies and our trading partners a combination of political, military, and economic tools that a government such as ours cannot match. This puts us at an inherent disadvantage.”
And yet America’s tools are hardly useless. The US authorities have mobilized a broad range of domestic and international resources – from law and diplomacy to national security measures – to stop the overseas expansion of the Chinese telecommunications giant Huawei. If Western countries allow Huawei to build their 5G infrastructure, America’s hawks and their allies argue, they will be vulnerable to cyberattacks from China in some future war.
All of this has shaken business and market confidence to the core, wiping out trillions of dollars in market capitalization. And the Trump administration’s apparent insistence that countries choose sides in its dispute with China is further heightening fears. As the rest of the world’s trading countries understand, Trump’s approach will fragment business and reverse the globalization-enabled economies of scale that have fueled growth for decades.
“Ending the Sino-US trade war will require considerable statesmanship on the part of Trump and Chinese President Xi Jinping. But, beyond that, both sides need to recognize that supporting global peace and prosperity requires less ideology and more respect for diversity of political, social, and cultural systems. Failing that, the fault lines will continue to deepen – much as they did in the 1930s – potentially setting the stage for full-blown war”- .
More broadly, the Trump administration’s rejection of multilateralism undermines the global cooperation needed to confront a range of issues, including migration, poverty and inequality, climate change, and the challenges raised by new technologies. Trump’s focus on geopolitical rivalry – and the associated rise in security and defense spending – will dramatically reduce resources available for global public goods, such as infrastructure investment and poverty-reduction programs.
February 14, 2019
The Mekong region is caught in a tug-of-war
by Nguyen Khac Giang, VEPR
For the Mekong countries, including Thailand, Laos, Myanmar, Cambodia and Vietnam, 2018 was a big year both domestically and regionally. Key developments from last year will inevitably continue to shape the politics of the region in 2019. In terms of domestic affairs, the most worrying trend is the consolidation of autocratic power in almost all countries.
In Vietnam, the sudden death of president Tran Dai Quang in September 2018 created a huge power vacuum, which was filled by Vietnamese Communist Party chief Nguyen Phu Trong. By merging the two most powerful positions in Vietnamese politics, he has become the strongest Vietnamese leader since the death of Ho Chi Minh in 1969, edging the communist state towards the Chinese model of centralised rule.
Cambodia, in theory a multi-party democracy, has practically become a one-party regime after an election that saw Prime Minister Hun Sen’s Cambodian People’s Party win all parliamentary seats in July 2018. He is now one of the world’s longest-serving heads of government, having held the premiership for 33 years since 1985.
Things are no better in Thailand. Four years after seizing power, the military junta has made — and broken — five promises to hold a general election to establish a civilian government. Even if the sixth promise is fulfilled in February 2019, it will be difficult to sen Myanmar, the intensifying Rohingya crisis has not only created Southeast Asia’s biggest humanitarian concern but also exposed the reluctance of Aung San Suu Kyi and her National League for Democracy to complete the democratic transition that started in 2011.e swift change, as the junta will exploit all means available to dominate the electoral process.
In Myanmar, the intensifying Rohingya crisis has not only created Southeast Asia’s biggest humanitarian concern but also exposed the reluctance of Aung San Suu Kyi and her National League for Democracy to complete the democratic transition that started in 2011.
In Myanmar, the intensifying Rohingya crisis has not only created Southeast Asia’s biggest humanitarian concern but also exposed the reluctance of Aung San Suu Kyi and her National League for Democracy to complete the democratic transition that started in 2011.
The autocratisation of the Mekong region has significant implications at a time when its giant neighbour China continues a long march to the south. China has committed billions of US dollars in concessional loans and credit to Mekong countries via the Lancang-Mekong Cooperation (LMC), an ambitious initiative which was launched in 2016. But the LMC’s actual impact remains to be seen. While the LMC is ostensibly aimed at creating a ‘shared future of peace and prosperity’, China can use it as part of a carrot and stick strategy due to its largely opaque and non-binding frameworks.
It should be noted that Beijing has a record of working closely with autocracies. Beijing has helped leaders in Central Asia guard against ‘colour revolution’, provided African autocrats with an alternative model of development and has aided socialist Venezuela in crisis. A less democratic Mekong region will be more exposed to China’s strategy of buying influence, which often involves closed-door negotiations and dealings.
The LMC, as well as other established regional mechanisms such as the Mekong River Commission and Lower Mekong Initiative, have also failed to address the core issue which theoretically binds Mekong countries together: transnational water management. In July 2018, a section of the Xe-Pian Xe-Namnoy hydropower dam in southern Laos collapsed, reportedly killing 34 people, leaving 97 missing and displacing 6000 others. The collapsed part of the dam was only an auxiliary section and the whole project is built in one of the Mekong’s tributaries instead of the main stream. Needless to say, it could have been an even greater catastrophe.
In Vietnam, for example, hydro dams are considered to be time bombs ticking over the head of the Mekong Delta on which 90 per cent of Vietnam’s rice exports depend. Despite the incident, the Laos government resumed its dream of becoming ‘a battery for Asia’ by permitting work to continue on several hydro projects. Beneficiary countries of the hydropower boom such as Thailand and China gave condolences and support to Laos but continued building their own dams. China, for instance, has built 7 and has plans for a further 21 dams on the Mekong — plans formulated without consultation with lower-Mekong countries.
The ongoing trade war between China and the United States also has the potential to impact the Mekong region both economically and politically. If the trade war accelerates, investors will consider countries like Vietnam and Thailand, and to a lesser extent Cambodia, as shelters to circumvent higher tariffs and other technical barriers. Exports from the Mekong region to the United States, many of which are substitutes for Chinese goods, will also benefit from the trade dispute. On the other hand, the region also bears the risk of a flood of Chinese goods into domestic markets, which is already a big issue.
More broadly, the Mekong region will continue to be a battlefield for influence between the two global superpowers. The rumour that China seeks to build a military base in Cambodia, although dismissed by Hun Sen, should be a serious warning for Washington. Of the five Mekong countries, only Vietnam is wary of China’s charm offensive due to a lingering sovereignty dispute in the South China Sea. The superpowers’ tug-of-war will perhaps come to play a key role in shaping the region’s development trajectory.
Nguyen Khac Giang is the lead political researcher at the Vietnam Institute for Economic and Policy Research (VEPR) at the Vietnam National University in Hanoi.
This article is part of an EAF special feature series on 2018 in review and the year ahead.
February 13, 2019
Foreign Policy–Dealing with the US and EU : Cambodia’s strategic option(s)
‘Shopping diplomacy’, arms purchases, and good military cooperation with the US and EU canld help thwart Western criticism of Cambodia’s human rights record. But Soun Nimeth questions whether these are worth the risks, given Cambodia’s bad experiences in the 1970s when it fell into the abyss of a geo-political war.
With the looming geopolitical war, Cambodia is trapped in the center of a power rivalry between China and the US as well as the latter’s ally, the EU. This is both in terms of strategic contest and economic rivalry.
To recall the 1970s when Cambodia fell in the abyss of a geo-political war, the country now has no reason to feel flattered once again when it is in the cross hairs of the superpowers.
Despite several attempts, through a direct response to US Vice President Mike Pence’s letter as well as a face-to-face meeting with US Deputy Assistant Secretary of Defence for South and Southeast Asia Joseph H. Felter, to assure the US that Cambodia would not allow Koh Kong to be used as a Chinese naval base, the efforts seem to have fallen on deaf ears.
READ ON: http//www.phnompenhpost.com/national/trump-rein-your-embassy-hun-sen-calls-us-president-warn-diplomats-about-interference
The determination to project Cambodia as China’s proxy state seems to have already been carved in stone in America’s regional strategy. Unjustified concern was expressed in the latest “Worldwide Threat Assessment of the US Intelligence Community” that went all the way to allege that Cambodia might amend its constitution to cater for foreign military bases.
Cambodia is cautiously mindful of its dark past and it is in the interests of the Kingdom to dispel the paranoia of the US and EU. The question is, how can Cambodia go about it.
Looking in the region, Cambodia can find some clues from countries like Thailand, Vietnam and Singapore.
Neither the US nor the EU has ever demanded the reinstatement of the Thaksin government like they did vis-à-vis the dissolved CNRP. There is no public condemnation for the repeated election delays.
In contrast, Thai Prime Minister Prayut Chan-o-cha was welcomed to the White House by President Donald Trump in October 2017 as the Prime minister embarked on what Pongphisoot Busbarat called “shopping diplomacy”. The “shopping list” was aimed to reduce the US trade deficit with Thailand that amounted to $19 billion (2016). It included the lifting of the import ban on American pork and poultry products, the purchase of Boeing aircraft by Thai Airways, the purchase of American coal by Siam Cement Group, the boosting of investment in the US worth $6 billion to create more than 8,000 jobs, the agreement for Thai petroleum company PTT to invest in shale gas factories in Ohio and the $261 million arms purchase.
Thai Prime Minister Prayut Chan-o-cha was also received by British Prime Minister Theresa May and French President Emmanuel Macron in June 2018. In the latter meeting, Thailand’s space agency signed an agreement to buy an observation satellite worth $215 million from French manufacturer AirBus.
In the recent article entitled “ASEAN must make EU a strategic partner”, veteran journalist Kavi Chongkittavorn wrote that “Thailand sacrificed blood, sweat and tears to overcome the stringent criteria outlined by the EU, which would not have been possible without its military rulers’ vigorous use of the much-condemned Section 44.”
One would question what did he imply when referring to “blood, sweat and tears” to secure the EU’s lifting of the yellow card? This may hold the key on how the current Thai government could please Western countries despite being a military junta born from a coup.
In October 2018, when General Secretary Nguyen Phu Trong became the first Vietnamese leader to hold a dual role as central committee general secretary and president, no Western nation raised any alarm or condemnation.
Vietnam is a single-party state by all accounts but it enjoys excellent relations with the US and the EU. This is attributed to two factors; one being that they all share a common geopolitical arch-rival, China; and another one is the usage of Vietnam’s shopping diplomacy.
During the visit of French Prime Minister Edouard Philippe to Hanoi in November 2018, France and Vietnam signed two business deals worth over $10 billion. The deals included the purchase by Vietjet Air of 50 AirBus A321 neo planes worth $6.5 billion and CFM Leap engines worth $5.3 billion.
The recent Khmer Times opinion by Doung Bosba titled “Is everything about China bad?” has excerpted the Naval Time’s article on the decades-long lease of Singapore port to the US navy for the operation of the Logistics Group Western Pacific (COMLOG WESTPAC) and Navy Region Center Singapore (NRCS) among others.
Good military cooperation and being a strategic ally with the US has helped Singapore to navigate away from any storm of criticism over the nature of its government, which has been dominated by the People’s Action Party since the 1959 general elections.
From the cases of Thailand, Vietnam and Singapore, various options and lessons can be drawn such as cutting trade deficit, detaching from China or making China an enemy, conducting “shopping diplomacy” or leasing facilities to the US military. Whether such options are viable, considering Cambodia’s strategic predicament and its resources, is the question. Even more important, would there be assurances that the US and EU would not antagonize the Cambodian government, should Cambodia choose to please them? Who would guarantee that after pleasing the Western countries, Cambodia would not become the backyard of Thailand and Vietnam both politically and economically?
Without a clear answer to these questions, it is very much likely that Cambodia will continue to navigate in the dark and both the US and EU will continue to antagonize the Cambodian government for their own geo-political interests. Castigating Cambodia for its record on democracy and human rights is just a sideshow. The issue is greater than that if we consider why the US and EU coddle Thailand, Vietnam and Singapore– whose levels of democracy are far from the level demanded from Cambodia.
Soun Nimeth is a Cambodian analyst based in Phnom Penh
December 22, 2018
The United States under President Donald Trump is on a mission to add economic policy to the armoury of national security policy to deal with a rising China. The approach holds the global economic order hostage to the attempt to put China back in its box. The stakes are as high as they get. But how should middle powers like Australia and its neighbours like Japan or Indonesia respond to the hard choices they now confront?
Using economic instruments for geopolitical objectives is nothing new. Between the two world wars the practice ended in wholesale military conflict. But the US inspired post war rules-based international regime extended US political influence through the spread of open markets at the same time as it constrained the use of trade sanctions for political security objectives (although not completely as United Nations-based economic sanctions became a feature of the geopolitical action).
‘Geoeconomics’ — conventionally defined as the use of restrictions on international commercial transactions to achieve political objectives — is now being touted as a new force in international and security relations that should be brought into active play.
Without understanding the economic implications of international economic policies, alongside their political and security implications, however, the ill-considered use of economic policy for geopolitical objectives will produce misguided policies that damage both economic and national security.
That’s exactly what the United States is doing with tariffs on Chinese imports, increased barriers to investment and bilateral economic coercion in the name of national security. China is the main target but other countries, the WTO system and multilateral institutions are also under threat. These policies will make the United States poorer and weaker, and damage its status as a global leader. If other countries follow suit, they will make themselves and the world poorer, weaker, and less secure.
How should a country like Australia navigate a world in which its primary security ally and its largest economic partner are descending into destructive rivalry while still themselves being deeply economically integrated?
For some, the answer is to follow the United States further down this track and reframe foreign policy in security terms. In this conception, the only option is total alignment with US decoupling strategy, and every economic exposure to China is cast as an all-or-nothing risk to national security. No understanding of the economic costs or the security options enters this calculus. Nor are third countries assumed to be an effective object of policy engagement on an alternative, multilateral course with or without the United States.
For others, the answer is to add a geoeconomic approach to foreign policy. That might sound like a good idea but what exactly does that entail?
The intellectual origins of ideas about geoeconomics are twofold. The first is simply about the analysis of spatial, temporal, and political aspects of economies and resources. The second is a branch of geopolitics that interrogates international politics, security and economics and commonly insists that the same logic that underlies military conflict also applies to international commerce. The first idea is of interest, though marginal, to the big issues today. The second is the way of thinking about international commerce, that prominently undergirds that of Peter Narravo, US President Trump’s trade advisor, as an instrument of warfare. That idea has been hijacked by those focussed on security issues, absent hard economic calculation and comprehensive consideration of economic as well as political security that is ostensibly its purpose. Especially for small and middle powers such as Australia it’s a strategy that will sap both economic strength and national security.
The securitisation of all national interests reduces the policy space and instruments that can be deployed to enhance both economic and national security. Soundly framed international economic policies are central to reducing the costs of broader economic and political engagement, both in dollar and in policy terms.
Economic policy and engagement reinforce and habituate a rules-based international order and, significantly, they create a bigger, broader plurality of interests in countries that reduces the costs of national security.
If geoeconomics is the answer, it had better be informed by the agencies of hard economic analysis, not left to the agencies of diplomacy or security, else it too will be a security strategy bereft of judgment about national economic interest.
Take the large economic relationship that Australia has with China. A third of Australia’s exports go to China, led by education, natural resources and tourism. No economist would sensibly advocate deliberately reducing trade dependence on China, even if they consistently argue for broadening Australia’s range of economic relationships. Many in the political and security community do. It may be doable, but the question is at what cost and whether there are better options?
It’s not a matter of just the profits of businesses at the high end of town but people’s livelihoods that are put at risk. If Australia made the choice to cut back dependence on China, it would be withdrawing from trade with the world’s largest trading nation, a country that’s playing by rules to which we’ve all agreed. We certainly need more rules in some areas. But only Mr Navarro (and perhaps Mr Trump) would suggest that that’s a reason for tearing down the rules we have and that have worked quite well.
The right strategy is to manage economic interdependence within the multilateral trade regime and continue to build rules and markets that reinforce the global plurality of interests on which security within the global economic system is more soundly built. That system protects Australia effectively. It’s Australia’s primary national economic and security priority. It would be most unwise to acquiesce in tearing it down.
Shiro Armstrong is Director of the Australia-Japan Research Centre and Director of the Asian Bureau of Economic Research, The Australian National University.
Peter Drysdale is Professor of Economics and head of the Asian Bureau of Economic Research, The Australian ,The Australian National University.
December 20, 2018,
The War on Huawei
The Trump administration’s conflict with China has little to do with US external imbalances, closed Chinese markets, or even China’s alleged theft of intellectual property. It has everything to do with containing China by limiting its access to foreign markets, advanced technologies, global banking services, and perhaps even US universities.
NEW YORK – The arrest of Huawei CFO Meng Wanzhou is a dangerous move by US President Donald Trump’s administration in its intensifying conflict with China. If, as Mark Twain reputedly said, history often rhymes, our era increasingly recalls the period preceding 1914. As with Europe’s great powers back then, the United States, led by an administration intent on asserting America’s dominance over China, is pushing the world toward disaster.
The context of the arrest matters enormously. The US requested that Canada arrest Meng in the Vancouver airport en route to Mexico from Hong Kong, and then extradite her to the US. Such a move is almost a US declaration of war on China’s business community. Nearly unprecedented, it puts American businesspeople traveling abroad at much greater risk of such actions by other countries.
The US rarely arrests senior business people, US or foreign, for alleged crimes committed by their companies. Corporate managers are usually arrested for their alleged personal crimes (such as embezzlement, bribery, or violence) rather than their company’s alleged malfeasance. Yes, corporate managers should be held to account for their company’s malfeasance, up to and including criminal charges; but to start this practice with a leading Chinese businessperson, rather than the dozens of culpable US CEOs and CFOs, is a stunning provocation to the Chinese government, business community, and public.
Meng is charged with violating US sanctions on Iran. Yet consider her arrest in the context of the large number of companies, US and non-US, that have violated US sanctions against Iran and other countries. In 2011, for example, JP Morgan Chase paid $88.3 million in fines in 2011 for violating US sanctions against Cuba, Iran, and Sudan. Yet Jamie Dimon wasn’t grabbed off a plane and whisked into custody.
And JP Morgan Chase was hardly alone in violating US sanctions. Since 2010, the following major financial institutions paid fines for violating US sanctions: Banco do Brasil, Bank of America, Bank of Guam, Bank of Moscow, Bank of Tokyo-Mitsubishi, Barclays, BNP Paribas, Clearstream Banking, Commerzbank, Compass, Crédit Agricole, Deutsche Bank, HSBC, ING, Intesa Sanpaolo, JP Morgan Chase, National Bank of Abu Dhabi, National Bank of Pakistan, PayPal, RBS (ABN Amro), Société Générale, Toronto-Dominion Bank, Trans-Pacific National Bank (now known as Beacon Business Bank), Standard Chartered, and Wells Fargo.
None of the CEOs or CFOs of these sanction-busting banks was arrested and taken into custody for these violations. In all of these cases, the corporation – rather than an individual manager – was held accountable. Nor were they held accountable for the pervasive lawbreaking in the lead-up to or aftermath of the 2008 financial crisis, for which the banks paid a staggering $243 billion in fines, according to a recent tally. In light of this record, Meng’s arrest is a shocking break with practice. Yes, hold CEOs and CFOs accountable, but start at home in order to avoid hypocrisy, self-interest disguised as high principle, and the risk of inciting a new global conflict.
Quite transparently, the US action against Meng is really part of the Trump administration’s broader attempt to undermine China’s economy by imposing tariffs, closing Western markets to Chinese high-technology exports, and blocking Chinese purchases of US and European technology companies. One can say, without exaggeration, that this is part of an economic war on China, and a reckless one at that.
Huawei is one of China’s most important technology companies, and therefore a prime target in Trump administration’s effort to slow or stop China’s advance into several high-technology sectors. America’s motivations in this economic war are partly commercial – to protect and favor laggard US companies – and partly geopolitical. They certainly have nothing to do with upholding the international rule of law.
The US is trying to targeting Huawei especially because of the company’s success in marketing cutting-edge 5G technologies globally. The US claims the company poses a specific security risk through hidden surveillance capabilities in its hardware and software. Yet the US government has provided no evidence for this claim.
A recent diatribe against Huawei in the Financial Times is revealing in this regard. After conceding that “you cannot have concrete proof of interference in ICT, unless you are lucky enough to find the needle in the haystack,” the author simply asserts that “you don’t take the risk of putting your security in the hands of a potential adversary.” In other words, while we can’t really point to misbehavior by Huawei, we should blacklist the company nonetheless.
When global trade rules obstruct Trump’s gangster tactics, then the rules have to go, according to him. US Secretary of State Mike Pompeo admitted as much last week in Brussels. “Our administration,” he said, is “lawfully exiting or renegotiating outdated or harmful treaties, trade agreements, and other international arrangements that don’t serve our sovereign interests, or the interests of our allies.” Yet before it exits these agreements, the administration is trashing them through reckless and unilateral actions.
The unprecedented arrest of Meng is even more provocative because it is based on US extra-territorial sanctions, that is, the claim by the US that it can order other countries to stop trading with third parties such as Cuba or Iran. The US would certainly not tolerate China or any other country telling American companies with whom they can or cannot trade.
Sanctions regarding non-national parties (such as US sanctions on a Chinese business) should not be enforced by one country alone, but according to agreements reached within the United Nations Security Council. In that regard, UN Security Council Resolution 2231 calls on all countries to drop sanctions on Iran as part of the 2015 Iran nuclear agreement. Yet the US – and only the US – now rejects the Security Council’s role in such matters. The Trump administration, not Huawei or China, is today’s greatest threat to the international rule of law, and therefore to global peace.
Jeffrey D. Sachs, Professor of Sustainable Development and Professor of Health Policy and Management at Columbia University, is Director of Columbia’s Center for Sustainable Development and of the UN Sustainable Development Solutions Network. His books include The End of Poverty, Common Wealth, The Age of Sustainable Development, Building the New American Economy, and most recently, A New Foreign Policy: Beyond American Exceptionalism.