India’s shock trade deal exit makes economic reforms more urgent


Sixteen nations met recently at a trade summit in Bangkok, Thailand, hoping to iron out the terms of a regional trade deal covering nearly half the world’s population. Then India, after seven years of negotiations, decided to pull out.

As India’s economy continues to slow, regional integration held the promise of a new source of growth. India now faces a stark choice – either strengthen domestic economic reforms or risk being left behind as trade migrates to lower-tariff trade zones throughout Asia.

Real reforms will not be easy, despite Indian Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) winning national elections in May. The economy has not been the focus since Modi’s re-election. Instead, nationalistic and sectarian politics have defined the first six months of Modi’s new term and a strong coalition government has still not been formed.

The full op-ed in The South China Morning Post is available HERE.

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Why Trump’s Abandonment of Syrian Kurds Is An Ominous Sign for U.S. Allies

US Speaker of the House Nancy Pelosi argues with President Donald Trump in a photo Trump released on Twitter. Photo: Twitter

The scene inside the White House Cabinet Room, by the looks of the photo released by President Trump via Twitter, was fraught with tension. House Speaker Nancy Pelosi was on her feet and pointing at an incredulously looking Trump, mouth agape, chair pushed back from the table. His advisers, mostly heads down looking at their hands, could feel the storm. Pelosi reportedly said, “all roads seem to lead to Putin.” Sometime thereafter the Democratic Representatives stormed out of the room.

Trump’s sudden, impulsive decision to withdraw U.S. troops from northern Syria, where they had been fighting side-by-side with Kurds for years to defeat the terrorist group the Islamic State (ISIS), sparked this epic face-off. An estimated eleven thousand Kurds died for that cause. And here was Trump leaving them to be slaughtered by incoming Turkish forces and their allied militias.

In a press conference that followed, Pelosi questioned Trump’s mental fitness describing his demeanor as a meltdown. Trump fired back with the sophistication of a kindergartner that no it was Pelosi who had the meltdown. So much for executive messaging coming out of the White House these days.

This abandonment of the Kurds and Trump’s apoplectic retorts, are an ominous sign that highly volatile US foreign policy could easily spill over to other parts of the world including Asia. 

In defense of his pullback Trump tweeted that Turkey and Syria should handle the conflict themselves because the US is “7,000 miles away.” US allies Japan and South Korea must be taking note. They are, after all, about 7,000 miles away from Washington D.C. too.

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Trump’s erratic decision making comes at a uniquely precarious moment as North Korea’s Kim Jong-un threatens action of some sort. Most likely he’ll restart nuclear tests if he does not get the Washington attention he craves by the end of the year. 

So far Trump has accommodated Pyongyang, including two long-distance flights to meet Kim in Singapore and Vietnam and cancelling joint US-South Korea military drills. His unpredictable dealmaking instincts were restrained by his then hardline National Security Adviser John Bolton. He no longer serves at the pleasure of the President. New National Security Adviser Robert C. O’Brien will likely play a much less dominant role than his predecessor.

How much longer will Trump stay the course on the US goal of denuclearization despite the threat these weapons pose for Tokyo and Seoul? At this point nothing can be taken for granted in an administration priding itself on the “unconventional” and the leadership style of a self-proclaimed man of “great and unmatched wisdom” who claims he is smarter than all of his generals.

The range of possibilities that might upend decades of US policy in Asia staggers the mind. Trump could unilaterally declare an end to hostilities with North Korea without getting anything in return. He could decide to pull a large contingent of US troops out of South Korea, declaring he’s bringing them home from a forever “war” on the peninsula so far from US shores. No President has done that since the Korean War.

Trump could suddenly decide to reduce the Seventh Fleet’s freedom of navigation operations through the South China Sea as some sort of quid pro quo to get China’s dirt on former Vice President Biden and his son Hunter. In the alternate universe of Trumplandia anything is possible.

The consequences of his unpredictable thinking are already on full display. Japan’s military budget has hit historic highs and is expected to rise nearly five times to US $240 billion in 2023 from US $47 billion in 2018. The increase, fueled mostly by security concerns over China and North Korea, speak to a new abnormal, that the US may not be counted on if Trump remains in office for a second term.

China, of course, would like nothing better than a US pull back, if not an altogether removal from the region, but Beijing can’t celebrate too quickly. Mutual defense treaties that govern US troop and military support for South Korea, Japan, and the Philippines limit any drastic reversals in policy.

Congress erupted with condemnation from both Republicans and Democrats in a powerful vote criticizing the President over his troop pullback form Syria. That forced Trump to backpedal with a warning that he could ”destroy” Turkey’s economy if their military incursion, which he let happen, goes too far.

Any dramatic upheaval in Asia policy would certainly provoke similar ire among legislators on Capitol Hill. He desperately needs the support of Republican Senators to fight a Democrat-led impeachment process.

That doesn’t mean Trump won’t try something just short of politically catastrophic. As he careens from one ill-informed pronouncement to the next it becomes ever more clear that he has no grand strategy. The White House is in the throes of an extremely chaotic and unprincipled phase of this presidency. 

US allies in Asia will need to be prepared for more of the unhinged, unhealthy, or worse. Their relationship with the US Congress is now more important than ever.

This op-ed originally appeared here on the SCMP website 10/24/19

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Hong Kong Protestors Can’t Count on Trump

Illustration: Craig Stephens

This op-ed originally appeared on the SCMP website, 9/16/19.

Every social movement needs its symbols. They rally people to a shared cause and challenge the status quo. During recent Hong Kong protests, the umbrella and gas mask, immortalised in a modern version of Tiananmen Square’s Lady Liberty statue, have served that purpose well. As thousands of demonstrators converged on the US consulate in Hong Kong recently, a new symbol rose as protesters waved the US flag and held signs that called on President Donald Trump to “liberate” Hong Kong from China’s control.

Several prominent demonstrators are even heading to Washington to advocate their cause. The US House of Representatives is considering legislation to thwart any increased Chinese intervention with sanctions and by eliminating trade preferences.

There was a time when an appeal for help like this would resonate in the White House too, but not now, and certainly not with this administration. The US role in Asia is changing, driven both by countries in the region and a Trump Asia policy that vacillates between somnolence and incoherence.

At its core, the US presence in Asia has largely been a welcome and natural counter to China’s growing influence and North Korea’s militarism. When it comes to threats of war, no other military can counter these threats.

But across the region, there is a notable and opposite trend gaining traction – a more unilateral approach to dealing with problems as Trump willingly abdicates the traditional US role of arbiter of disputes and balancer of powers.

Take North Korea, which continues missile testing with impunity. Neither Tokyo nor Seoul has cooperated with each other to create a unified approach to counter Pyongyang’s aggressiveness. Instead, both are engaged in a low-intensity trade battle with each other, which now affects their shared national security.

Seoul has recently severed an intelligence-sharing agreement with Tokyo that makes coordinated action against regional threats, aka North Korea, more difficult. This came in response to Japan cutting off critical exports to South Korean electronics firms and the removal of some preferential trade treatment.

Trump, meanwhile, was more inclined to meet the Taliban at Camp David (later cancelled) than bring Prime Minister Shinzo Abe and President Moon Jae-in together over the issue. His bromance with the North’s Kim Jong-un also sends a potent message: if you have a problem with North Korea, other than nuclear weapons, then maybe you should settle it yourself.

South Korea’s relationship with the US is also changing, albeit mostly at the edges. Seoul has pushed for, and Washington has agreed, to accelerate the return of 26 US military bases.

While the consolidation is nothing new – South Korean troops took over most duties along the demilitarised zone with North Korea over a decade ago – the turnover tracks with both Blue House and White House preferences for a less overt US presence on the peninsula.

Back in Washington, Trump’s unceremonious tweet-firing of John Bolton as national security adviser eliminated one of the last proponents of hawkish US foreign policy from the White House. Trump now has his dream team of anti-interventionists and eager appeasers on Russia, China and North Korea strategic issues. The trade war with China is a notable exception.

Granted, Bolton’s version of US engagement was perversely extreme. He advocated for a first-strike against Pyongyang and was shoving for a war with Iran. Now, however, Trump’s worst foreign policy instincts, including another useless meeting with Pyongyang, are free to further unwind traditional regional cooperation.

Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor certainly won’t miss Bolton’s hawkish approach. She continues to warn against any outside interference. This hews closely to Beijing’s political red line and the propagandists’ view that violent protests were the result of foreign “black hands.” That’s an easy conspiracy theory to sell with the stars and stripes flying over the crowds in Central.

Trump’s response to the most recent calls for intervention in Hong Kong’s unrest was neither swift nor resolute – he didn’t bother to comment. During previous Hong Kong police violence, he only spoke out when Washington’s political backlash became too strong to ignore.

That’s not because the idea of freedom is no longer a core US value, but the era of engaged US-Asia diplomacy has withered under Trump. At least for the next 16 months, there’s little to suggest a change of course outside the most forcing issues of the day.

The weakening Asia embrace does have its limits. Talk of a broader “decoupling” of the US and Chinese economies has been largely overstated. Trump pushes the limits then moves to keep relations from spiralling out of control. That includes staying out of mainland China’s politics, including issues of human rights and the forced detention of the Uygur population in Western China.

Countries throughout Asia also still want a counterbalance to China’s growing influence. That translates into continued US freedom of navigation operations in the South China Sea, multilateral training exercises and military sales to Taiwan. Beyond egregious violence by China or North Korea, Trump has shown little interest in other issues.

As the Trump administration continues dismantling its engagement, preferring short-term gains over longer-term strategy, Asia will inevitably adapt to rely less and less on the US.

The Hong Kong protesters should be under no illusions. The White House might offer platitudes about a peaceful resolution if forced by political circumstance, but official administration support probably won’t last for long.

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World Leaders Weary of Trump’s Foreign Policy Mood Swings

G7 Summit, Biarritz, France. Source:AFP

This op-ed first appeared on the SCMP website 9/2/19.

First he says he will, then he says he won’t, though in the end he might. Welcome to another dizzying episode of Trumplandia, featuring an array of contradictory policy announcements from the mercurial US president.First he raised China tariffs, then had second thoughts which morphed into wishing he’d raised them even more, all the while calling Chinese President Xi Jinping an “enemy”, and then wanting a deal.

After 2½ difficult years, world leaders appear increasingly weary of Donald Trump’s on-again, off-again approach, which poses significant problems for US foreign policy and global affairs, as countries increasingly avoid the US in pursuit of their own short-term gains.

First he says he will, then he says he won’t, though in the end he might. Welcome to another dizzying episode of Trumplandia, featuring an array of contradictory policy announcements from the mercurial US president.First he raised China tariffs, then had second thoughts which morphed into wishing he’d raised them even more, all the while calling Chinese President Xi Jinping an “enemy”, and then wanting a deal.

After 2½ difficult years, world leaders appear increasingly weary of Donald Trump’s on-again, off-again approach, which poses significant problems for US foreign policy and global affairs, as countries increasingly avoid the US in pursuit of their own short-term gains.

US companies face an increasingly difficult business environment in China. European firms stand to gain from their lost market share.

As world leaders adapt to Trump’s confusion-as-negotiating tactic, three broad strategies have emerged to deal with the chaos he creates – ambivalence, confrontation and appeasement. Each has worked to varying degrees, yet none will lead to lasting agreements.Strategic patience may give way to greater policy volatility, which will do nothing to help calm jitters over a possible global recession, avoid potential military conflict, or stem a rising nationalistic tide that threatens peace and prosperity.

Beijing, at one end of the spectrum, is going toe-to-toe with Washington in escalating tensions – tariffs for tariffs, entity list for entity list.

Add a savvy public affairs campaign to counter every appearance of a Trump gain with one of their own, and the trade war shows no signs of ending soon.Negotiations have reached the point where there is not even agreement on whether a phone call was made. Trump said China called US officials, citing Chinese Vice-Premier Liu He’s remarks, and China said it had no idea what he was talking about.

Markets have become hostage to Trump’s Twitter feed

The strong resistance from President Xi and his team appears to have surprised Trump, who has resorted to often nonsensical, self-defeating policy changes.

He continues to strike with a closed fist and then quickly offer up a welcoming hand. This signals neither strength nor strategy to China, which seems increasingly content to wait out the short-term pain for brighter days ahead without Trump.

Japan, at the other extreme, has gone to great lengths to avoid any affronts to Trump, giving him the full palace treatment during his May visit and studiously avoiding any negative comments about the US prevaricator-in-chief. This has certainly paid short-term dividends.

Japan, along with Britain, which showered Trump with similar royal treatment during his London visit last month, has largely avoided his most acidic ire, usually expressed first through schoolyard taunts and name-calling, and then, if he does not get his way, threats.

Still, Japanese Prime Minister Shinzo Abe’s approach has not solved any of the thorny bilateral issues that plague the relationship.Even the recent announcement of a highly anticipated trade deal that will offer tariff reductions does not include the one main Tokyo ask – a firm commitment that Washington will not impose or increase sanctions on Japanese cars. Not much of a win for Abe to take home.

Europe has trod down the middle, at times facing off with Trump, and so drawing barbed comments in return, targeting German Chancellor Angela Merkel on defence spending and threatening French wine with tariffs.At other times, they have seemed to just ignore him, with relatively little public condemnation of Trump’s unilateral approach to everything from Nato spending to a resurgence of Russian aggression.

At the recently concluded G7 summit in Biarritz, France, the big chillbetween the US and its strongest allies was on full display. When Trump failed to show up at a meeting with his counterparts on environmental crises no one batted an eyelid, not even at the glaring insult of sending a staff member in his place.

Similarly, Europe has not joined Trump’s trade war with China, which focuses on Beijing’s egregious violations of World Trade Organisation norms.

In fact, as US companies face an increasingly difficult business environment, European firms stand to gain from their lost market share. Beijing, too, would have a much harder time waiting Trump out if Europe and Japan were pressing equally hard on the trade front as the US.

Nothing in Trump’s hot-and-cold approach is going to change. Responding to questions post-summit, he said this is his negotiating style and it has served him well in the past. Whatever charms he thinks helped build his businesses with so many bankruptcies, they have won him few fans around the world and close to zero diplomatic victories.

In the run-up to the 2020 US presidential election, Trump’s desperation to rack up political wins will force him to press countries even harder. His rhetoric will become sharper, his inconsistencies more prevalent, and a fading sense of control more dangerous.

Since none of the strategies for dealing with Trump’s impulsiveness have worked particularly well, the attraction of mirroring his policy mood swings may increase. That could easily lead to disastrous results.

If that were to happen, Trump will have everyone where he wants them to be, at the centre of a storm of his creation that he can nuke at will, damn the fallout.

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Trump’s Diplomatic Reality Show Hits Summer Re-Run Season

Photo: AFP

This op-ed appears originally appeared on the SCMP website 7/5/19.

Last Sunday, US President Donald Trump crossed the guarded border in Panmunjom, a village in the demilitarised zone between North and South Korea. He smiled and shook hands with North Korean leader Kim Jong-un as photographers rushed to capture the history-making moment. This was, after all, the first time a sitting US president had set foot in reclusive North Korea.

What could have been a breakthrough meeting between the last cold war rivals instead devolved into yet another photo op for the White House family album.

Meanwhile, Trump gains little from giving away personal meetings like candy from a cheap dispenser.

A one-hour-plus Trump-Kim meeting followed without any discernible outcome, other than that the negotiators will get back to negotiating. So we end up where we started, sold on an empty victory as the Donald Trump diplomatic reality show goes into its summer rerun phase.

Under an administration that is obsessed with camera-ready events rather than serious strategy, the country’s credibility around the world continues to decline.

Imagine if this effort had gone into concluding a comprehensive treaty with the North, eliminating the missile and nuclear threat and establishing a durable peace on the Korean peninsula. Then this meeting might have been worth something.

Instead, Trump love-bombed Kim. This flattery may be Trump’s attempt to get the reclusive leader out into the world and impress him with the riches that could be his if he would give up his nukes – except that Kim is not that naive. To believe that Kim would succumb to Trump’s charms and miraculously give up weapons he thinks ensures his country’s survival shows a remarkable lack of sophistication on Trump’s part.

While the White House preoccupies itself with staging publicity stunts, North Korea keeps winning, the longer Kim holds out for a deal. Stringing Washington along is cost-free and gives the young leader larger international exposure and some semblance of overseas influence. Also, perhaps more importantly, it buys him time to continue developing his nuclear arsenal.

Meanwhile, Trump gains little from giving away personal meetings like candy from a cheap dispenser.

The administration’s preference for optics over policy is not limited to North Korea. Meeting Chinese President Xi Jinping at the Group of 20 summit in Osaka, Trump eased national-security restrictions on Chinese tech giant Huawei in exchange for a promise of increased Chinese imports of US goods. China was already buying large quantities of US agricultural products before he imposed tariffs – so yet again, we have an apparent development that just pushed the trade talks back to where they started.

However, Trump’s sudden back-pedalling on Huawei – like his flip-flop on ZTE, another Chinese smartphone maker that had been banned from buying US components after breaking US sanctions against Iran – only adds to other countries’ concern. With Trump, everything is a commodity to be traded.

On Iran, the White House has shown a propensity for haphazard thinking. After repeatedly warning Tehran that shooting down a US drone and attacking ships in the Strait of Hormuz would result in decisive action, Trump suddenly reversed course. He said he was concerned about the loss of life. But it wasn’t a convincing excuse because military commanders could have easily offered other targets or options for retaliation if that was the major issue.

Impulsive and consensus-bending actions are now being emulated among US allies. Japan and South Korea have, in the past, worked in concert on economic and security issues. At the G20 summit in Osaka, both countries adopted a declaration to “realise a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, to keep our markets open”.

Yet, within days, Japan imposed restrictions on hi-tech exports to South Korea. The sudden action appeared to be in retaliation for a top Korean court ruling on Japanese compensation for wartime forced labour, an issue which Japan says it settled under a 1965 treaty.

The world will be worse off if this rot continues. Back in the US, domestic politics is also replacing substance with style and made-for-television flash. According to a Pew survey in June, an overwhelming majority of Americans – 85 per cent – believe that political discourse in the US has become worse, and 55 per cent blame Trump. Huge numbers believe that political debate has become less respectful, fact-based, and substantive.

Leadership has always had an element of stagecraft – grand settings for formal talks, the glare of press corps lights, red carpets. “Politics is show business for ugly people,” as the saying goes. But leaders have to be judged by what they actually accomplish.

So far, global leaders have willingly participated in Washington’s publicity stunts, but as the ties that bind nation to nation slowly unravel, international cooperation will become more difficult. Not only is the world less safe as a result, the preference for symbolic gestures over concrete action also encourages a rise in personality politics.

Even Trump admits in his book Trump: The Art of the Deal: “You can’t con people, at least not for long … if you don’t deliver the goods, people will eventually catch on.” The only question remaining is how much longer this con that has lasted 2½ years can keep going.

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Hong Kong Protestors Face Dilemma of Demonstration Fatigue

Hong Kong demonstration July 1, 2019. Reuters: Tyrone Liu

Yellow-hatted protestors took to the streets of Hong Kong on July 1st, with some marching to the Legislative Council (LegCo) building and breaking in. With windows smashed and graffiti sprayed on the walls the young remained until Hong Kong police announced they were coming.

Tear gas followed the protestors as they emptied into the streets and riot police built human barricades around the building. News reports show footage of the protestors facing off with them late into the night.

Hong Kong demonstrators clash with police early morning July 2nd. Photo: Anthony Wallace AFP/Getty images

After tempers calm the protest movement will be faced with the same dilemma that all social movements face – demonstration fatigue. Without another inciting incident — this time it was the anniversary of the British handover to China and a continuing fight to eliminate a proposed extradition bill with Beijing, the protest movement may have a hard time maintaining momentum.

Source: Bloomberg

The Hong Kong movement galvanized around opposition to a proposed extradition bill on June 12th with an estimated over one million people taking to the streets. That bill has been temporarily suspended from consideration in the legislature, but not withdrawn. Other long standing grievances include China’s heavy hand in limiting voter choices during Hong Kong election and stacking the legislature with Beijing appointees.

Carrie Lam, Chief Executive of Hong Kong is at risk of losing her position if demonstrations continue, though what substantial gains come next remains an open question. More freedom for the island seems unlikely as the the “One Country, Two Systems” formula post UK-hand-over has already been weakened.

China is playing the long game and demonstrations mainly add short-term pressure in a system tilting more and more towards Beijing.

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No Deal, No Problem – A Trump-Xi G20 Meeting Is Already a Win

Illustration: Craig Stephens

This op-ed originally appeared in the SCMP on 6/24/19 and has been updated below.

Update: According to news reports (SCMP/Politico) Trump and Xi have tentatively agreed to a trade truce in the run-up to their Sat. 6/29 meeting at the G20 in Osaka, Japan. Preliminary press releases reportedly indicated that the U.S. would not impose new sanctions on an additional $300M in imports from China.

Presidents Donald Trump and Xi Jinping are finally meeting on Saturday at the Osaka G20 Summit. For those hoping that a resolution to trade tensions is near at hand, however, it is best to lower expectations now.

Neither side is itching for a compromise that could be easily interpreted as weak or conciliatory. Quite the opposite. If there was a meter measuring market pain for both countries, it has not yet pinged high enough for either side to change its position. That is what it will take because the tariff feud has turned into a contest of wills over a much broader geopolitical struggle.

Trump is holding fast. He gloated over his tough China stance to an adoring crowd of 20,000 fans during his 2020 Presidential campaign rally in Orlando, Florida. While his understanding of trade complexities can be charitably described as confused, he proudly declared that Americans were not paying for the tariffs, despite all evidence to the contrary.

The best the world can hope for is a pause between the two with neither side looking like they are “giving in.”

This followed not-so-veiled threats that if the meeting didn’t happen Trump would immediately impose additional tariffs on the remaining $300 billion of Chinese imports. He remains convinced that the US has the upper hand and “China will have to make a deal.” These are not the words of a leader convinced he has to compromise, even though he offered conciliatory words about how strong of a leader Xi is and their good personal relationship. 

The Trump administration is already walking back expectations of a major breakthrough. Commerce Secretary Wilbur Ross, speaking to Bloomberg at the Paris Air Show this week said “eventually we will have a deal with China, but I don’t think it will come directly out of the G20. The G20 is 40,000 foot level kind of discussion.” Principles for going forward, he went on to say, would be the best case.

It’s hard to imagine what principled negotiations would look like when there has been so little of it in the past. Sending mixed signals is Trump’s forte, it’s how he keeps everyone guessing, as if that’s some masterstroke of negotiating leverage. It isn’t. An impulsive strategy like this builds mistrust and uncertainty, the opposite conditions for effective negotiations.

Xi also shows no signs of compromise. Economic growth may be slowing, from manufacturing to car sales to exports and foreign direct investment, but the policy pumps are just turning on to push the economy forward again. “Soft” diplomacy has begun to turn hard with academic program cancellations, delayed visa issuances, and anti-US rhetoric on state-controlled media. These are not the signs of a leader ready to compromise either.

More importantly stark differences remain between both sides. The US wants fundamental changes to China’s system of state-owned enterprises. The state sector is one of the few remaining vestiges of party control over the economy and Xi would have to damage his own base to satisfy Trump’s demands. This looks increasingly like a non-negotiable issue.

President Xi, in agreeing to the G20 meeting, said he wants Chinese companies to be treated fairly, an oblique reference to letting the Huawei issue go. Trump has casually suggested the company could be included in a trade deal, but this further muddies the waters of what constitutes a national security threat versus a political punching bag. Congressional backlash to softening his stance would be swift and unforgiving.

Instead, the best the world can hope for is a pause between the two with neither side looking like they are “giving in.” 

The G20 is a perfect venue for these gestures, with its traditionally grand shows of diplomatic pleasantries. If Trump and Xi appear together, shake hands, and smile, consider that a small victory. If a process or roadmap is announced, then at least both sides can go back to their corners while negotiators search for compromises — not a terrible outcome considering the alternatives.

Trade disagreements between the US and China are at risk of becoming symbolic of a great power rivalry, and symbols can easily take on a life of their own if given enough time and energy. A dangerous nationalistic fervor brews in both countries. It doesn’t take much to go from simmer to boil. 

Considering the risks of a breakdown in talks, both sides need to go in clear-minded. At present there is no economic crisis that will pressure Beijing to make concessions. And election-cycle politics in the US will not pressure Trump into a deal. To the contrary, his campaign’s talking-points have already been tested using China as an easy target for political gains. 

That expectations for the Osaka meeting need to sink so low speaks to a broader break down in relations rather than the specific trade issues that need to be addressed.

In diplomacy, sometimes a pause is a prelude to a turn around, sometimes it’s just a break to argue another day. In either case, not escalating the feud is a benefit for everyone, even if it’s just a short-term win that both sides can claim as their own.

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No “New Cold War” Between U.S. and China

Illustration: Craig Stephens

People like stretching historical analogies over present-day problems, even when they don’t quite fit. It’s no wonder that the United States’ competition with China in trade and technology has been widely dubbed the “new cold war”, though it bears only a superficial resemblance to that period of ideological conflict.

What the world faces now is much more complicated than that. We’re entering a chaotic period of shifting, unprincipled relationships. It’s not a competition between the “free world” and “authoritarianism” any more but, rather, a world divided against itself, chasing short-term gains as nationalism rises.

Over the last several years, the values and opportunities that China and the US represent to the world have changed at a pace unique in recent history. Most countries have successfully navigated between China and the US, but if relations between the two sour much further, the pressure on other countries to choose sides might be impossible to ignore.

Countries are caught in the middle of a non-ideological battle between economic powerhouses.The US has changed dramatically under President Donald Trump. He has elevated an anti-immigrant, anti-global, anti-free trade agenda, targeting allies and competitors alike. He wields tariffs like a bludgeon over any country he determines to be working against his interests, ranging from Mexico (in the name of stemming the flow of illegal immigrants) to potentially Australia (on who knows what whim).

And he has trampled on cherished democratic norms and the legitimacy of the constitution, Congress, and courts. Gone are the days of the US as a beacon of human rights and open markets, and as the land of seemingly unending opportunity.

Other countries are noting that the world of strict alliances and the spheres of influence are changing. Consider the historically close ties between the US and the Philippines, which includes the Mutual Defence Treaty of 1951. Manila now seeks to re-evaluate the agreement that requires each side to go to the other’s aid in case of an attack. The Philippines conducts military drills with the US, but also takes part in Chinese-led naval exercises – even though Beijing currently controls territory in the South China Sea that Manila sees as its own.

Clearly, the Philippines feels compelled to sit on the fence, as do many other countries. Singapore drills with both the US and Chinese navies. Japan, a strong military ally of the US, has signed a cross-border investment agreement with China. Germany refuses to rule out the use of Huawei mobile-internet equipment despite Washington’s threat to cut off intelligence sharing with Berlin if it does not drop the Chinese vendor.

China is also changing rapidly. After decades of stellar growth, its economy is slowing and its export growth to countries around the world can’t go on forever. Beyond growth, politics is increasingly influencing business.

Source: CNBC

In the past, as long as countries avoided direct criticism of the Chinese government, they could keep access to the lucrative mainland market. Now, companies are increasingly targeted for purely political purposes and a blacklist is reportedly being created that might include US tech companies and Japanese firms that will no longer work with Huawei. Earlier this year, an unofficial Chinese ban on Australian thermal coal imports looked suspiciously like payback for Canberra’s decision to block Huawei, too.

China’s global campaign to win friends and influence neighbours worked well. Beijing spoke of biding its time and rising peacefully, and most observers didn’t bother to consider what China was biding its time for. However, its aggressive campaign to militarise the entire South China Sea has since shattered illusions of peaceful coexistence under international law.

A military build-up sized more for a global role has also became evident with China’s development of a third aircraft carrier and an army of state-backed hackers targeting foreign countries and companies at an alarming rate. Port agreements around the world have also raised the alarm about China’s naval expansion along with its global economic interests. To even the casual observer, a defensive posture is evolving into an offensive capability.

And here lies the danger of rushing into war rhetoric – trade war, cold war or otherwise. For the lens through which we view the world also limits what we see.

In war, one side wins, the other loses. In the complex world of international relations, however, that’s often not the case. The more that the antagonistic aspects of the US-China relationship get hyped, the less room there is to negotiate. People may then erroneously believe that conflict is inevitable.

At this moment in history, neither the US nor China represents an ideal to the rest of the world. Both want the world to conform to their specific versions of economic success. Both are challenging what it means to be allied with other nations. Tight configurations have loosened.

If the global order fractures along fault lines, there won’t be two sides like in the cold war, but many chaotic fragments that will be hard to make whole again.

This op-ed originally appeared on the SCMP website.

China Share of U.S. Imports Decline as Mexico, India, and SE Asia Gain

This op-ed originally appeared in the SCMP, May 20, 2019

China’s position as top US trade partner and largest source of American imports may be over as other economies gain from Beijing’s tariff troubles. Mexico and countries across Southeast Asia have already seen their percentage of US imports rise as China’s declines. This change will only accelerate as the trade war continues, and as of now there’s little reason to think it won’t go on for an extended period.

If US President Donald Trump raises tariffs on all Chinese imports, as he’s threatened to do, bilateral trade may never be the same.Shifting trends are already showing up in the trade data. While China continues to be a top source of US imports, sales in the first quarter of 2019 have dropped 14 per cent to US$106 billion from US$123 billion during the same three-month period last year, according to US Census data.

This is despite the US dollar strengthening against the Chinese yuan, making Chinese imports even cheaper. Mexico, the No 2 source of US imports, had the largest quarterly gains. Over the past decade, Chinese manufacturers have also lost market share in four out of its seven top US sectors, including computers, apparel, toys and furniture. Mexico’s share of the lucrative US computer segment grew to 32 per cent in 2018, from only 21 per cent in 2010. The recently negotiated US-Mexico-Canada trade agreement gives Mexican firms an even stronger advantage after Trump raised tariffs on Chinese imports.

Countries throughout Southeast Asia have also increased their market share in other top China categories. Vietnam has tripled its sales of apparel and textiles (non-wool or cotton) to nearly US$7 billion from US$2.25 billion in 2010. Taiwan, the Philippines, Thailand and Vietnam are also gaining on Chinese firms’ sales of computer accessories.

Chinese firms still account for half of all US imports of computer accessories, but other competitors are picking up significant market share. Collectively Taiwan, the Philippines, Thailand, Vietnam, and Mexico captured 28 per cent of this US import sector, up from 15 per cent at the beginning of the decade. These increases occurred despite Trump abandoning the Trans-Pacific Partnership, an agreement meant to eliminate tariffs among participating countries, which would have accelerated imports from Vietnam even faster.

India, too, is uniquely positioned to reap the benefits of shifting supply chains and its growing domestic market. According to the International Monetary Fund, India is already the fastest-growing major economy in the world and is expected to hit nearly 8 per cent in 2024, up from 7.1 per cent in 2018.

Construction has begun on the city of Amaravati, the new capital of the state of Andhra Pradesh. Photo: AFP

Construction on the city of Amaravati, the new capital of Andhra Pradesh, India. Photo: AFP

Gems have dominated exports to the US, but several Indian states, including Andhra Pradesh, in southeast India, are now home to mobile phone manufacturing plants. India’s cellphone exports to the US remain extremely small at present, but increases in capacity, rising skill levels and comparably lower wage costs that supply the booming domestic market may support export-oriented growth in the future.

India’s infrastructure projects are also expanding, providing US companies facing difficulties in China with new opportunities. Several cities are being built from the ground up, including Amaravati, the recently established capital of Andhra Pradesh. These projects feature green architecture, smart city technology, alternative energy and large-scale construction of residential and commercial buildings.

The World Economic Forum estimates that the automotive and electronics industries in the state alone could present a US$5 billion opportunity.The capital is one of several new developments in the world’s second most populous country and is emblematic of India’s economic rise as China’s own infrastructure spending comes under pressure. That’s good news for US construction equipment makers that have been caught up in China’s latest US$60 billion of retaliatory tariffs.

Difficulties, of course, litter the road to India becoming a global economic powerhouse. Fractious domestic politics, something single-party China has largely avoided, hobbled India’s potential for decades. Ports, road, rail and power currently lag more developed economies in the region. And the Trump administration has targeted India’s excessive tariffs on many US goods, opening up a possible new front in what is becoming his global war on trade.

Support for economic reform is being fostered by the US business community in India. In marked contrast, the business community in China, a long-time buffer to Washington trade hawks, have begun to sour on Beijing’s promises of change.The American Chamber of Commerce in China noted in its 2019 report that for the first time US business sentiment has turned from “cautiously optimistic” to “cautiously pessimistic”. That’s a sea change from years of rosy-viewed survey results.

Even for China’s industries of the future, carving out a sustainable portion of US imports will be difficult

For years they avoided confrontation over policies favouring Chinese domestic companies and forced technology transfer. They accepted short-term losses with the hopes of even greater profits in the future, all while dissuading the US government from more forcefully confronting China. Some now privately support Trump’s efforts to forge a more level playing field, though opposition to tariffs as the tool remains.

Domestic changes to China’s economy also make reclaiming lost market share among US imports increasingly difficult. Central planners in Beijing readily accepted that higherdomestic wages would force low-end manufacturing out of the country. Those jobs left and won’t be returning, much as they did for Japan, South Korea and Taiwan, which no longer make the vast majority of plastic toys and clothing for export.

Employees work on the production line of clothes for export at a factory in Xiayi county in China’s central Henan province in August 2018. Photo: AFP

Employees work on the production line of clothes for export at a factory in Xiayi county in China’s central Henan province in August 2018. Photo: AFP

Even for China’s industries of the future, carving out a sustainable portion of US imports will be difficult. Distrust over expansive intellectual property theft will remain a concern over Chinese hi-tech products like networking equipment, artificial intelligence and biotechnology, the principal areas targeted for future growth.

What the tariff fight now represents is a fundamental shift in the trading relationship. China’s pain is a gain for other countries eager to fill the import gap. This shift may turn into a structural change that will be extremely difficult to reverse. As threats rise from both sides of the Pacific, it may already be too late.

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China’s “Maritime Militia” Raising Stakes for South China Sea Clash

This op-ed originally appeared in the SCMP, May 10, 2019

For years China has avoided direct military-to-military clashes in the South China Sea through the use of fishing vessels backed by the Chinese Coast Guard to enforce its territorial claims. This “maritime militia” strategy may have exhausted its effectiveness now that the U.S. considers these irregular forces to be under the command of the People’s Liberation Army and Navy (PLAN). 


U.S.-China military dialogues need to increase to match this rising risk of small-scale skirmishes leading to broader armed conflict. Prospects for dialogue, however are dimming as tensions across a range of bilateral issues show no signs of easing.

It was no trivial distinction when, as has been recently made public, U.S. Admiral John Richardson told Chinese Vice Admiral Shen Jinlong in January, 2019, that militia and Navy would be treated the same.

A larger-scale conflict almost occurred as recently as December, 2018, when China sent 100 maritime militia ships to contest the Philippine-occupied Thitu reef located between the island of Palawan and Vietnam. By April, 2019 the number had grown to over 200 ships. Under the new calculus if the Philippine military were attacked by any of these vessels, the treaty-bound U.S. would be obligated to strike back. U.S. Secretary of State Mike Pompeo reassured Philippine President Duterte of this commitment.

Though small in size, unarmed fishing boats, and armed Coast Guard vessels routinely approach ships in the region and ignore warnings to keep their distance. Any one of these could pose a serious threat as the 2000 bombing of the USS Cole, which resulted in the death of 17 sailors and the injury of 39, clearly illustrated. 

Without stronger and more regular contact, the threat of even simple harassment activities that have been tolerated in the past may quickly turn to armed conflict.

This change in military operational protocol comes at a time of increasingly tense relations between the U.S. and China as political forces in both countries test the strength of the status quo. U.S. President Trump’s hardline National Security Adviser John Bolton appears ascendant in the administration’s often haphazard foreign policymaking process, often leading public messaging from the White House. He’s taken aggressive stances against Venezuela, Iran, and North Korea with an excessively bellicose approach to international affairs. 

Recent racist comments from State Policy Planning Director Kiron Skinner certainly don’t help bilateral relations either. In a recent Washington speech at a security event sponsored by the centrist New America think tank, she stated that the challenge posed by China is one of a different ethnicity and civilization and a “non-caucasian” great power competitor. 

With this type of xenophobic theorizing posturing as serious policy, more contact and strong lines of communication between the U.S. and China are more important than ever.

Chinese aggression is also on the rise as naval forces have continued to strengthen. A “near miss” occurred as recently as September, 2018 when a Chinese warship deliberately came within 45 yards of the U.S. warship Decatur, forcing the ship to alter course and avoid a serious collision.

Mediating these conflicts used to be the domain of military-to-military contacts at the highest levels of government. Formal dialogues were regularly held under both Republican and Democratic administrations.  The peaceful resolution of a 2001 mid-air collision between a Chinese jet and a U.S. P-3 surveillance plane, which resulted in the death of a Chinese pilot and the emergency landing of the U.S. crew on Hainan, provides ample evidence of the value of continued communication.

Without stronger and more regular contact, the threat of even simple harassment activities that have been tolerated in the past may quickly turn to armed conflict. As history shows, what starts out small and contained can quickly escalate in ways neither country can easily control. 

Facts at sea are not going to change anytime soon. The U.S., as well as other countries, will continue Freedom of Navigation Operations in the South China Sea in areas globally recognized as international waters. 

Image: Central Intelligence Agency – Asia Maps — Perry-Castañeda Map Collection: South China Sea (Islands) 1988

China is strengthening its artificial islands and their naval harbors, airstrips, and radar installations even though Xi Jinping specifically said he would not militarize the South China Sea back in 2015. 

International and regional responses to these provocations have been exceptionally muted.

Despite a 2016 ruling by a UN tribunal, which declared these installations illegitimate, China has continued to build, occupy, and arm its South China Sea outposts. The UN Convention on the Law of the Sea, to which China is a signatory, makes clear that artificially constructed islands cannot be used as justification for territorial claims. 

The ASEAN Regional Forum (ARF), comprised of 27 nations, has been unable to address concerns over China’s conduct in the South China Sea. An ARF member, China routinely blocks attempts to address these issues.

Which leaves bilateral relations as the main driver of discourse. 

As China’s ambitions expand economically and politically around the globe, its military reach will inevitably grow as well. The build-up, including several aircraft carriers and plans for several more, as well as advanced submarines speak to ambitions that go far beyond China’s coast. 

Without an effective and regular mechanism for two of the world’s largest military powers to address their issues in a peaceful manner, the greater the risk of conflict. Neither country should let this situation devolve further. There’s already too much at stake in a relationship that grows more tense with time.