A decentralized look at the U.S.-China trade war

For the time being, it is highly unlikely that the Trade war between Beijing and Washington will be resolved. In May 2019, Trump increased tariffs on Chinese commodities (worth $200 billion) from 10% to a whopping 25%. So far, the US has imposed tariffs worth about $250 billion on China, while China has retaliated with tariffs on US goods estimated at well over $100 billion.

It would be pertinent to point out that trade disputes have not been restricted only to Washington and Beijing. Imposition of tariffs has been a bone of contention with numerous US allies, including Japan.

Of late, trade issues have resulted in major differences between New Delhi and Washington. Even though there are convergences between both countries on numerous strategic issues, resolving the differences between both sides on trade-related matters is likely to be an onerous responsibility.

In response to tariffs imposed by Washington, New Delhi retaliated, and has imposed tariffs, estimated at $200 million, on 29 commodities (including apples, almonds, and chickpeas). India’s decision was a response to Washington’s decision to impose tariffs, of 10% and 25% on aluminium and steel, in May 2018. Last year, New Delhi refrained from imposing tariffs, but did raise import taxes on a number of US goods to 120% after Washington declined to exempt New Delhi from higher steel and aluminium tariffs. The key propelling factor for India’s recent imposition of tariffs was the US decision to scrap the Generalized System of Preferences (GSP) for India from June 5, 2019. India benefited immensely from this scheme, as it allowed duty-free exports of up to $5.6 billion from the country.

Pressure on Trump

Even though no solution is in sight, there are a number of lobbies in the US, especially trade groups and US businesses, which have been repeatedly urging the Trump Administration to find a solution to the current impasse with China.

Only recently for instance, 600 companies, including Walmart, in a letter to the U.S. President, urged him to resolve trade disputes with China, stating that tariffs were detrimental to the interests of American businesses and consumers. The letter was sent as part of the ‘Tariffs Hurt the Heartland’ campaign.

To underscore the detrimental impact of trade wars on the American economy some important estimates were provided. The letter stated that tariffs of up to 25% on $300 billion worth of goods could lead to the loss of two million jobs. Costs for an average American family of 4 would also increase an estimated $2000 if such tariffs were to be imposed.

Reports indicating the challenges to the US economy and FDI from Chinese companies in US

A number of surveys and reports illustrate the profound challenges which the US economy is facing, as well as a drop in FDI from China.

The University of Michigan’s consumer sentiment index also revealed a drop in consumer sentiment from 100 in May to 97.9 in June. This was attributed to trade wars between China and the US.

According to a survey released by the China General Chamber of Commerce USA, investment by Chinese companies in the United States has witnessed a significant decline since 2016 (including a sharp drop in 2018 and early 2019).

A number of important events have been held recently, where efforts were made to draw more Chinese investments to the US. One such event was the Select USA Summit. Speaking at the Summit, US Commerce Secretary Wilbur Ross stated:

We welcome investment from any place as long as it’s investment that poses no challenges for national security.

US states and FDI

What was clearly visible at the Select USA Summit was the fact that a number of US states pitched for expanding economic ties with China, and drawing greater Foreign Direct Investment.

The state of North Carolina sought to attract investments in areas like IT, aviation, and biotech. The US headquarters of Lenovo are in the state of North Carolina. Trump’s trade wars have hit the state in a big way, and one of the sufferers has been soy bean farmers. As a result of a 25 percent imposition of tariffs, the price of a bushel of soy beans has dropped to $8, from $10 in 2018.

Other US states brought to the fore the impact of tariffs on their respective economies. According to a senior official from the state of Louisiana for instance, it has suffered immensely as a consequence of the imposition of tariffs. Agricultural commodities from Middle America to China are imported through export terminals in Louisiana. Don Pierson, the senior official from Louisiana, said that the agricultural economy of the state, as well as the logistics economy of the state, have taken a hard hit as a consequence of the trade wars. Pierson also spoke about the possibility of exporting LNG from Louisiana to China. Chinese companies in the state of Louisiana, which include Yuhuang Chemical Group (Shandong’s), have made major investments. Shangdong’s decided to invest $1.85 billion in a methanol production complex (this was one of the largest Chinese direct investments in US). Wanhua Chemical Group invested over $1 billion (1.2) in a chemical manufacturing complex in southeastern Louisiana.

A number of Chinese companies have also begun to realise that there is need to adopt a nuanced approach, and are still tapping certain US states for investment.

Another important event was the Select LA Summit. The Los Angeles Mayor Eric Garcetti, and Lenny Mendonca, chief economic adviser to the California governor, assured overseas investors of all possible support from the town of LA, as well as the state of California.

Impact of trade disputes and Washington’s stance vis-à-vis Huawei

US states and Chinese provinces have been at the forefront of improving economic ties between both countries. Both are likely to suffer as a consequence of not just the trade war between both countries, but also the US ban on Huawei. The tech company, according to a report published in 2016, contributes 7% of the GDP of the town of Shenzhen (Guangdong province). Affiliates of Huawei provide employment to an estimated 80,000 people, while a research facility in a nearby city of Dongguan, provides employment to well over 3,000.

Conclusion

In conclusion, it is important for all stakeholders, not just businesses from both countries, to play their role in resolving economic and technological disputes between China and the US. It is also important for Chinese provinces as well as US states to play a pro-active role in reducing tensions. Both governments, while realising the importance of federating units, have set up official dialogues and set up other mechanisms for sub-national exchanges. It is important that these platforms now contribute towards reducing the divergences between both countries. While all eyes are on the political leadership of both countries, it is important to realise that the stakeholders in the US-China relationship are not restricted to Beijing and Washington DC.

Italy and the Belt and Road Initiative

There has been a growing scepticism with regard to the Belt and Road Initiative (BRI) project in many quarters, due to the lack of transparency with regards to terms and conditions as well as the economic implications for countries which are part of the project. A report published in April 2018 by the Center for Global Development (CGD) in Washington flagged 8 countries (including Pakistan, Maldives, Laos, and Djibouti) where the level of debts are unsustainable.

Apart from the red flag raised by a number of researchers, the removal of Pro-China leadership in countries like Malaysia, Maldives, and Sri Lanka has also resulted in problems with the BRI project, and China’s economic dealings (which are clearly skewed in favour of Beijing) with other countries is drawing more attention.

The most vocal critic of China’s economic links has been Malaysian Prime Minister Mahathir Mohamad. During a visit to China in August 2018, Mahathir, alluded to China’s trade relations with poorer countries as ‘a new version of colonialism’. Mahathir later on denied that his statement was targeted at China or the BRI. The fact is that the Malaysian Prime Minister did scrap projects estimated at well over $20 billion (which includes a rail project, East Coast Link, as well as two gas pipelines).

Top officials in the Trump Administration, including US Vice President Mike Pence, have also been critical of the BRI project for a variety of reasons. The major criticism from US policy makers has been the economic ‘unsustainability’ of the project as well as the point that the project is skewed in favour of China.

Italy to join BRI Continue reading

The nature of the China-US-Vietnam economic triangle

While addressing a joint press conference in Hanoi, after his summit with North Korean Leader Kim Jong Un, US President Donald Trump spoke not just about the Summit, but also the current state of US-China relations. Trump criticised his predecessors for not doing enough to address the trade imbalance with China, while also making the point that he was all for China’s economic progress and growth, but not at the cost of the US.

If one were to look beyond the Summit in terms of the US-Vietnam economic relations, top US companies – Boeing and General Electric – sealed some important deals.

Given the focus of Trump’s visit (which was the Summit with Kim), perhaps these deals did not draw the attention they ought to have. The fact is that the US has begun to recognise Vietnam’s economic potential, as well as its geopolitical significance in Asia. This long note will give a backgrounder to Vietnam’s economic growth story in recent years, highlight some of it’s key strategic relationships, and then examine the nature of the China-US-Vietnam economic triangle.

Vietnam’s growth story: The key reasons Continue reading

A short note on India’s air strikes in Pakistan

Indian Foreign Secretary Vijay Gokhale, while issuing a statement with regard to India’s air strikes on a training camp of the dreaded terror group Jaish-E-Muhammad (JeM) in Pakistan on February 26, 2019, dubbed these as pre-emptive ‘non-military strikes’. The Foreign Secretary stated that the Indian Air Force hit the largest training camp of the JeM, which is in Balakot, Pakistan, and a large number of JeM terrorists were killed in the strike.

The rising tensions between both countries have understandably caught the world’s attention.

JeM had claimed responsibility for the dastardly terror attack in Pulwama, Kashmir, on February 14, 2019 in which over 40 CRPF soldiers were killed. While efforts have been made to designate JeM chief a ‘global terrorist’ at the UN, China has blocked such moves.

The Indian side also made it clear that these air strikes were neither targeted at civilians nor at the Pakistani military. This served two purposes; one it would prevent further escalation and second, it could give some space to Imran Khan’s civilian government.

The international community was quick to react to the attacks by the Indian Air Force (IAF), and asked both sides to de-escalate. The US, while asking Pakistan to take action against terror groups on their soil, also stated that both sides should de-escalate. In a statement issued on February 26, 2019, US Secretary of State Mike Pompeo also asked Foreign Ministers of both countries to resume direct communication and avoid any ‘further military activity’.

A statement issued by the Chinese Foreign Ministry spokesperson also spoke in favour of India and Pakistan exercising ‘restraint’ and the need for peace and stability in South Asia. Even during Sushma Swaraj’s visit to Beijing, a day after the strikes, China, while condemning terrorism, emphasized on the need for reduction of tensions. It did not change.

Domestically, Prime Minister Narendra Modi received full support from the opposition, including the Congress Party. The President of the Congress Party was quick to tweet and congratulated the Indian Air Force. Even other prominent political leaders supported the IAF.

The Indian PM did not miss the opportunity to mention the IAF’s action at a political rally. While speaking at a rally in the Indian state of Rajasthan, Modi paid homage to the para-military troops who died in the February 14 terrorist attack, and also made a reference to the action of the Indian Air Force:

…I want to assure you that the country is in safe hands.

Foreign Minister Sushma Swaraj also met with opposition leaders from different political parties on February 26, 2019. This was in stark contrast to the surgical strikes in 2016 on terror camps in Uri (located in PoK).

Some BJP spokespersons also made unnecessary uncalled for statements. (The BJP did issue instructions to its spokespersons to not issue any uncalled for statements).

Risks of escalation and Indian media

Sections of the Indian electronic media went overboard as usual, something which has been witnessed post 26/11.

While media channels may believe they are raising patriotic fervour, pushing the PTI government led by Imran Khan and the Pakistani army into a wall may not be a very smart move. As mentioned earlier, the usage of the word ‘non-military’ strike was meant to give space to the Pakistan government.

Post the attack, Imran Khan was criticised by the opposition and will be under pressure. His immediate reaction was that Pakistan would respond at a time and place of its choice and also asked the Pakistani nation to be prepared for all eventualities.

Post the Pulwama attack, a well-known Indian strategic analyst had made an important point:

The Pakistani army might be more likely to start a war if its image takes too hard a beating in the eyes of the Pakistani people, than if it suffers physical damage outside the limelight.

It is not just the electronic media, but the narrative on social media which further raises tempers.

Bobby Ghosh, a prominent journalist, made an interesting comment on Twitter:

People keep saying the India-Pakistan conflict is more dangerous now because both have nukes. But other new weapons greatly increase the risk: Twitter, Facebook, WhatsApp… and hyper-nationalistic TV networks.

Conclusion

Not just the international community, but even sane minds in India and Pakistan realise the costs of conflict, and have been pitching for de-escalation. Apart from the role of the international community, a lot will also depend upon domestic narratives in both countries. While the Modi government received the support of the opposition post the Pulwama terror attack, it needs to focus now on not just taking all political players along but also ensuring that tensions do not rise further as things could go out of control. The media on its part needs to be more responsible, and as for the social media, a lot of it is driven by the views of the political leadership. The political leadership will thus need to change the direction of the narrative, so that tempers are calmed down.

The American objective of isolating Iran continues to be a failure

Recent days have been witness to important events; The Middle East Conference at Warsaw, co-hosted by Poland and the US State Department on February 13 & 14, and the Munich Conference. Differences between the EU and the US over dealing with challenges in the Middle East, as well as Iran, were reiterated during both these events.

The Middle East Conference in Warsaw lacked legitimacy, as a number of important individuals were not present. Some of the notable absentees were the EU Foreign Policy Chief, Federica Mogherini, and the Foreign Ministers of Germany, France, and Italy. Significantly, on February 14, Iranian President Hassan Rouhani, Russian President Vladimir Putin, and Turkish President Recep Tayyip Erdogan met in Sochi, Russia to discuss the latest developments in Syria and how the three countries could work together.

Personalised aspect of Trump’s Diplomacy

In addition to the dissonance between EU and US over handling Iran, the dependence of Trump upon his coterie, as well as personalised diplomacy, was clearly evident. Trump’s son-in-law and Senior Aide, Jared Kushner, spoke about the Middle East peace plan at the Warsaw Conference, and which Trump will make public after elections are held in Israel in April 2019. The fact that Netanyahu may form a coalition with religious right wingers could of course be a major challenge to Trump’s peace plan. But given his style of functioning, and his excessive dependence upon a few members within his team who lack intellectual depth and political acumen, this was but expected.

EU and US differences over Iran

As mentioned earlier, the main highlight of both events was the differences over Iran between the EU and Israel, the US and the GCC (Gulf Cooperation Council) countries. While Israel, the US, and the Arabs seemed to have identified Iran as the main threat, the European Union (EU), while acknowledging the threat emanating from Iran, made it amply clear that it disagreed with the US method of dealing with Iran and was against any sort of sanctions. US Secretary of State Mike Pompeo went to the degree of stating that the goal of stability in the Middle East could only be attained if Iran was ‘confronted’.

The EU differed not just with the argument of Iran being the main threat in the Middle East, but also with regard to the methods to be used to deal with Iran. The EU, unlike the US, is opposed to the US decision to get out of the Joint Comprehensive Plan of Action (JCPOA) and is all for engaging with Iran.

At the Warsaw Conference Vice President Mike Pence criticised European Union member countries for trying to circumvent sanctions which were imposed by the US. Pence was referring to the SPV (Special Purpose Vehicle) launched by Germany, France, and Britain to circumvent US sanctions against Iran. The US Vice President went to the extent of stating that the SPV would not just embolden Iran, but could also have a detrimental impact on US-EU relations.

US National Security Adviser John Bolton has, on earlier occasions, also spoken against the European approach towards the sanctions imposed upon Iran.

Differences at Munich Conference

The differences between the US and the EU over Iran were then visible at the Munich Conference as well. While Angela Merkel disagreed with Washington’s approach to the Nuclear Deal, she agreed on the threat emanating from Iran but was unequivocal about her commitment to the JCPOA. While commenting on the importance of the Nuclear Agreement, the German Chancellor said:

do we help our common cause… of containing the damaging or difficult development of Iran, by withdrawing from the one remaining agreement? Or do we help it more by keeping the small anchor we have in order maybe to exert pressure in other areas?

At the Munich Conference too, the US Vice President clearly flagged Iran as the biggest security threat to the Middle East. Pence accused Iran of ‘fueling conflict’ in Syria and Yemen, and of backing Hezbollah and Hamas.

GCC Countries at the Warsaw Conference

It is not just the US and Israel, but even representatives of the GCC which took a firm stand against Iran. (A video leaked by Israeli Prime Minister Benjamin Netanyahu revealed this.)

Bahraini Foreign Minister Khaled bin Ahmed Khalifa went to the extent of stating that it is not the Israeli-Palestinian Conflict but the threat from Iran which poses the gravest threat in the Middle East. Like some of the other delegates present at the Warsaw Conference, the Bahraini Foreign Minister accused Iran of providing logistical and financial support to militant groups in the region.

Similarly, another clip showed the Saudi Minister of State for Foreign Affairs (Adel al-Jubeir) saying that Iran was assisting and abetting terrorist organisations by providing ballistic missiles.

Iran was quick to dismiss the Middle East Conference in Warsaw, and questioned not just its legitimacy but also the outcome. Iranian President Hassan Rouhani stated that the conference produced an ‘empty result’.

US allies and their close ties with Iran

First, the US cannot overlook the business interests of its partners not just in Europe, but also in Asia such as Japan, Korea, and India. India for instance is not just dependent upon Iran for oil, but has invested in the Chabahar Port, which shall be its gateway to Afghanistan and Central Asia. New Delhi in fact has taken over operations of the Chabahar Port as of December 2018. On December 24, 2018, a meeting – Chabahar Trilateral Agreement meeting — was held and representatives from Afghanistan, Iran, and India jointly inaugurated the office of India Ports Global Chabahar Free Zone (IPGCFZ) at Chabahar.

The recent terror attacks in Iran as well as India have paved the way for New Delhi and Tehran to find common ground against terror emanating from Pakistan. On February 14, 2019, 40 of India’s paramilitary personnel were killed in Kashmir (India) in a suicide bombing (the dastardly attack is one of the worst in recent years). Dreaded terror group Jaish-E-Muhammad claimed responsibility. On February 13, 2019, 27 members of Iran’s elite Revolutionary Guards were killed in a suicide attack in the Sistan-Baluchistan province which shares a border with Pakistan. Iran has stated that this attack was carried out by a Pakistani national with the support of the Pakistani deep state.

Indian Foreign Minister Sushma Swaraj met with Iranian Deputy Foreign Minister Seyed Abbas Aragchchi en route to Bulgaria. In a tweet, the Iranian Deputy Foreign Minister stated that both sides had decided to strengthen cooperation to counter terrorism, and also said that ‘enough is enough’. This partnership is likely to grow, in fact many strategic commentators are pitching for an India-Afghanistan-Iran security trilateral to deal with terrorism.

Conclusion

So far, Trump’s Middle Eastern Policy has been focused on Iran, and his approach suits both Saudi Arabia and Israel but it is being firmly opposed by a number of US allies. It is important that the sane voices are heard, and no extreme steps are taken. As a result of the recent terror attack in Pulwama, geopolitical developments within South Asia are extremely important. Thus, the US and GCC countries will also need to keep a close watch on developments in South Asia, and how India-Pakistan ties pan out over the next few weeks. New Delhi may have its task cut out, but will have no option but to enhance links with Tehran. Trump needs to be more pragmatic towards Iran and should think of an approach which is acceptable to all, especially allies. New Delhi-Tehran security ties are likely to grow, and with China and Russia firmly backing Iran, the latter’s isolation is highly unlikely.

Southeast Asia, China, and Trumpian foreign policy in 2019

A survey titled, ‘State of Southeast Asia: 2019’ conducted by the ASEAN Studies Centre (between November 18 and December 5, 2018 and released on January 7, 2019) at the think-tank Iseas-Yusof Ishak Institute came up with some interesting findings. The sample size of the survey was over 1,000 and consisted of policy makers, academics, business persons, and members of civil society from the region.

It would be fair to say that some of the findings of the survey were along expected lines. Some of the key points highlighted are as follows:

According to the survey, China’s economic clout and influence in South East Asia is steadily rising, and it is miles ahead of other competitors. Even in the strategic domain, Washington’s influence pales in comparison to that of Beijing’s. As far as economic influence in South East Asia is concerned, a staggering 73 percent of respondents subscribed to the view that China does not have much competition. A strong reiteration of this point is the level of bilateral trade between China and ASEAN (Association of Southeast Asian Nations), which comfortable surpassed $500 billion in 2017. After China, it is not the US, but ASEAN which has maximum economic clout in the region. If one were to look at the strategic and political sphere, 45% of respondents opined that China is the most influential player in South East Asia, followed by the US at 30 percent.

Second, China’s increasing influence does not imply that it is popular in South East Asia. In fact, a large percentage of the respondents expressed the opinion that China’s lack of integration with global institutions is not a very positive omen. South East Asian nations also have clear reservations with regard to the Belt and Road Initiative (BRI). 50% of respondents believed that the project would increase ASEAN countries dependence upon China, and there were serious apprehensions, with one third of respondents raising question marks with regard to the transparency of the project. A small percentage of respondents (16%) also felt that the BRI was bound to fail. Many ASEAN countries have been alluding to some of the shortcomings of the BRI, of course none was as vocal as Malaysian Premier Mahathir Mohammad. In the survey, respondents from Malaysia, Thailand, and the Philippines expressed the view that their countries should be cautious with regard to the BRI. Interestingly, even respondents from Cambodia, a country where China has made significant inroads, Japan is the most trusted country and not China.

Third, US isolationism, especially under Trump, has led to an increasing disillusionment with Washington DC in the region. The current administration has been aggressive on China, and it has sought to take forward former US President Barack Obama’s vision of ‘Pivot to Asia’ in the form of the Indo-Pacific Narrative. Senior voices within the Trump Administration, including current Secretary of State Mike Pompeo, have been trying to give a push to the Indo-Pacific Narrative and reaching out to South East Asian Countries. In July for instance, while addressing the Indo-Pacific Economic Forum at the US Chamber of Commerce in Washington, Pompeo said that the US was going to invest $113 million in new U.S. initiatives in areas like the digital economy, energy, and infrastructure. Pompeo also stated that these funds were a ‘down payment on a new era in U.S. economic commitment to peace and prosperity in the Indo-Pacific region’. Pompeo’s address was followed by a visit to South East Asia (Singapore and Indonesia), where he met with leaders from a number of ASEAN countries.

On December 31, 2018, the US also signed the ARIA (Asia Reassurance Initiative Act), which sought to outline increased US economic and security involvement in the Indo-Pacific region. ARIA has flagged US concerns with regard to China’s expansionist tendencies in South East Asia. Other key strategic issues, such as nuclear disarmament on the Korean Peninsula, have also been highlighted.

The Trump Administration has also earmarked $1.5 billion for a variety of programs in East and South East Asia.

Trump’s decision to pull the US out of the Trans Pacific Partnership (TPP) led to a lot of disappointment in the region, with allies like Singapore putting forward their views. Speaking at the ANZ Forum in November 2018, Former Prime Minister of Singapore, Goh Chok Thong stated:

…It is still a superpower but it has become less benign and generous. Its unilateral actions in many areas have hurt allies, friends and rivals alike […] America First is diminishing the global stature, moral leadership and influence of the US.

This view was also echoed by a number of experts who commented on the finding of the survey.

The Former Singapore PM also made the point that Asia needed to recalibrate its policies in order to adjust to the new world order.

ASEAN

What is clearly evident is that ASEAN needs to build a new vision which is in sync with the changing geopolitical situation. While Malaysian PM Mahathir Mohammad, by scrapping Chinese projects and referring to a new sort of colonialism emerging out of China’s BRI project, has taken an important step in this direction, it remains to be seen whether other countries in the region can also play their role in helping ASEAN weave its own narrative. For a long time now, countries have been dependent upon both the US and China, and have thought in terms of choices, but there has never really been a concerted effort to create an independent narrative.

What ASEAN actually needs is a narrative where it does not shy away from taking an independent stance, and where it is also willing to take a stand on issues of global relevance. One such issue is the Rohingya Issue. Apart from Malaysia and Indonesia, none of the other members of ASEAN has taken a clear stand. In the past, many ASEAN countries thought that they could refrain from commenting on contentious issues. Respondents to the survey felt that ASEAN states should be more involved in the Rohingya Issue.

The United States and other countries which are wary of Chinese influence should come up with a feasible alternative. So far, while members of the Trump Administration have repeatedly raised the red flag with regard to China’s hegemonic tendencies, and predatory economics as has been discussed earlier, it has not made the required commitment. While the Trump Administration has not been able to pose a serious challenge to Beijing, it remains to be seen if the Asia Reassurance Initiative Act is effective.

It is also important for Washington, and other countries, not to look at Chinese involvement from a zero-sum approach. Perhaps it is time to adopt a more pragmatic and far sighted approach. If Japan and China can work together in the Belt and Road Initiative, as well as other important infrastructural initiatives in South East Asia, and India and China can work together in capacity-building projects in Afghanistan, the possibility of US and China finding common ground in South East Asia should not be totally ruled out. Amidst all the bilateral tensions, recent conversation between US President Donald Trump and Chinese President Xi Jinping, and statements emanating from both sides are encouraging.

Conclusion

An isolationist Washington DC and a hegemonic Beijing are certainly not good news, not just for ASEAN, but for other regions as well. The survey has outlined some of the key challenges for ASEAN, but it is time now to look for solutions. Hopefully, countries within the region will shape an effective narrative, and be less dependent upon the outside world. The survey is important in highlighting some broad trends but policy makers in Washington as well as South East Asia need to come up with some pragmatic solutions to ensure that Beijing does not have a free run.

How the United States can woo Africa away from China

On December 13, 2018, US National Security Advisor John Bolton, while speaking at the Heritage Foundation, highlighted the key aims and objectives of ‘Prosper Africa,’ which shall probably be announced at a later date. The emphasis of this policy, according to Bolton, would be on countering China’s exploitative economics unleashed by the Belt and Road Initiative, which leads to accumulation of massive debts and has been dubbed as ‘Debt Trap Diplomacy’. A report published by the Centre for Global Development (CGD) (2018) examined this phenomenon while looking at instances from Asia as well as Africa.

During the course of his speech, Bolton launched a scathing attack on China for its approach towards Africa. Said the American NSA:

bribes, opaque agreements and the strategic use of debt to hold states in Africa captive to Beijing’s wishes and demands.

Bolton, apart from attacking China, accused Russia of trying to buy votes at the United Nations through the sale of arms and energy.

Bolton also alluded to the need for US financial assistance to Africa being more efficient, so as to ensure effective utilization of American tax payer money.

The BUILD

It would be pertinent to point out that the Trump administration, while realizing increasing Chinese influence in Africa, set up the US IDFC (International Development Finance Corporation), which will facilitate US financing for infrastructural projects in emerging market economies (with an emphasis on Africa). IDFC has been allocated a substantial budget — $60 billion. In October 2018, Trump had signed the BUILD (Better Utilization of Investments Leading to Development) because he, along with many members of the administration, felt that the OPIC (Overseas Private Investment Corporation) was not working effectively and had failed to further US economic and strategic interests. Here it would be pertinent to mention that a number of US policy makers, as well as members of the strategic community, had been arguing for a fresh US policy towards Africa.

Two key features of IDFC which distinguish it from OPIC are, firstly, deals and loans can be provided in the local currency so as to defend investors from currency exchange risk. Second, investments in infrastructure projects in emerging markets can be made in debt and equity.

There is absolutely no doubt that some African countries have very high debts. Members of the Trump administration, including Former Secretary of State Rex Tillerson, had also raised the red flag with regard to the pitfalls of China’s unsustainable economic policies and the ‘Debt Trap’.

According to Jubilee Debt Campaign, the total debt of Africa is well over $400 billion. Nearly 20 percent of external debt is owed to China. Three countries which face a serious threat of debt distress are Zambia, Republic of Congo, and Djibouti. The CGD report had also flagged the precarious economic situation of certain African countries such as Djibouti and Ethiopia.

US policy makers need to keep in mind a few points:

Firstly, Beijing has also made efforts to send out a message that BRI is not exploitative in nature, and that China was willing to address the concerns of African countries. Chinese President Xi Jinping, while delivering his key note address at the China-Africa Summit in September 2018, laid emphasis on the need for projects being beneficial for both sides, and expressed his country’s openness to course correction where necessary. While committing $60 billion assistance for Africa, the Chinese President laid emphasis on the need for a ‘win-win’ for both sides.

African countries themselves have not taken kindly to US references to debt caused as a result of China. While Bolton stated that Zambia’s debt is to the tune of $6 billion, an aide to the Zambian President contradicted the US NSA, stating that Zambia’s debt was a little over $3 billion.

At the China Zhejiang-Ethiopia Trade and Investment Symposium held in November 2018, Ethiopian State Minister of Foreign Affairs Aklilu Hailemichae made the point that Chinese investments in Ethiopia have helped in creating jobs and that the relationship between China and Ethiopia has been based on ‘mutual respect’. The Minister also expressed the view that Ethiopia would also benefit from the Belt and Road Initiative.

During the course of the Forum of China-Africa cooperation in September 2018, South African President Cyril Ramaphosa had also disagreed with the assertion that China was indulging in predatory economics and this was leading to a ‘New Colonialism,’ as had been argued Malaysian Prime Minister Mahathir Mohammad during his visit to China in August 2018.

Washington DC needs to understand the fact that Beijing will always have an advantage given the fact that there are no strings attached to it’s financial assistance. To overcome this, it needs to have a cohesive strategy, and play to its strengths. Significantly, the US was ahead of China in terms of FDI in Africa in 2017 (US was invested in 130 projects as of 2017, while China was invested in 54 projects). Apart from this, Africa has also benefited from the AGOA program (Africa Growth and Opportunity Act), which grants 40 African countries duty free access to over 6000 products.

Yet, under Trump, the US adopts a transactionalist approach even towards serious foreign policy issues (the latest example being the decision to withdraw US troops from Syria) and there is no continuity and consistency.

US can explore joint partnership with allies

In such a situation, it would be tough to counter China, unless it joins hands with Japan, which has also managed to make impressive inroads into Africa, in terms of investments, and has also been providing financial assistance, though it is more cautious than China and has been closely watching the region’s increasing debts. Japan and India are already seeking to work jointly for promoting growth and connectivity in Africa through the Africa-Asia Growth Corridor. The US is working with Japan and India for promoting a free and open Indo-Pacific, and can work with both countries for bolstering the ‘Prosper Africa’ project.

Perhaps, Trump should pay heed to Defence Secretary Jim Mattis’ (who will be quitting in February 2019) advice where he has spoken about the relevance of US alliances for promoting its own strategic interests.

There are of course those who argue that US should find common ground with China for the development of Africa, and not adopt a ‘zero-sum’ approach. In the past both sides have sought to work jointly.

Conclusion

African countries will ultimately see their own interests, mere criticism of China’s economic policies, and the BRI project, and indirectly questioning the judgment of African countries, does not make for strategic thinking on the part of the US. The key is to provide a feasible alternative to China, along with other US allies, or to find common ground with Beijing. Expecting nuance and a long term vision from the Trump Administration, however, is a tall order.