Recent developments in the context of Indo-Pacific

At a time when a massive churn is taking place in the Donald Trump Administration (HR Mcmaster was replaced as head of the NSA by John Bolton, while Secretary of State Rex Tillerson was replaced with the more hawkish Mike Pompeo), Alex Wong, Deputy Assistant Secretary of State for East Asian and Pacific Affairs, gave a briefing with regard to the US vision for ‘Indo-Pacific’ strategy, on April 3, 2018 (a day before a trilateral dialogue took place between senior officials from India, Japan and US). Wong outlined the contours of the strategy, and spoke not just about the strategic vision, but also the economic vision of the US, with regard to the Indo-Pacific.

A backgrounder to the Indo-Pacific, Quad, and the China Factor

For a long time, the US referred to the region as ‘Asia-Pacific’ (which China prefers), but the current Trump Administration has been using the term ‘Indo-Pacific’. During his visit to East Asia and South East Asia, in November 2017, the US President had used the term more than once (much to the discomfort of China) giving a brief overview of what he meant by a ‘Free and Fair Indo-Pacific’. While speaking to a business delegation at Asia-Pacific Economic Cooperation, Trump spoke about ‘rule of law’ and playing by the rules. Former Secretary of State Rex Tillerson had referred to the Indo-Pacific and the Quad Alliance (consisting of US, India, Japan, and Australia) in an address at the Center for Strategic and International Studies (a Washington think tank)  in October 2017, a week before his India visit.

In order to give a further thrust to the Quad, representatives of all four countries met on the eve of East Asia Summit in Manila. A statement of the Indian Foreign Ministry said: Continue reading

Midweek Reader: The Folly of Trump’s Tariffs

With stocks plummeting this week upon an announcement of retaliatory tariffs by China in response to a recent spate of steel and aluminum tariffs from the Trump administration, it seems a midweek reader on the situation is appropriate.

  • At the Washington Post, Rick Noack explains how Trump is going into unprecedented territory since the WTO was founded, and why existing trade norms probably can’t stem a trade war. A slice:

    But while China has used the WTO to accuse the United States of unfairly imposing trade restrictions over the last months, Trump does not appear interested in being dragged into the dispute settlement process. In fact, Trump appears to be deliberately undermining the legitimacy of that process by saying that his tariffs plan was based on “national security” concerns. WTO rules mandate that a member state can claim exceptions from its trade obligations if the member’s national security is at stake.

    That reasoning has long been a no-go among WTO member states, because they understand  that triggering trade disputes under a “national security” framework could eventually render the WTO meaningless.

  • Last month at the Chicago TribuneSteve Chapman had a good op-ed showing why Trump’s justification of steel and aluminum tariffs on national security grounds is bogus:

    But putting tariffs on all imports to prevent dependence on China or Russia is like throwing away your library card to avoid bad books. It would make more sense to focus on the guilty countries rather than deploy a sprayer that also soaks the innocent.

    The national security risk is minuscule, though. Imports make up only one-third of the steel we use, and the Pentagon requires less than 3 percent of our domestic output. No enemy has us over a barrel, because we buy steel from 110 different countries.

    Most of what we import comes from allies and friends, including Canada, South Korea and Mexico, which would have no reason to cut us off in a crisis. If China stopped shipping to us, friendlier countries would leap to grab the business.

  • Also at the Washington Post last month, historian Marc-William Palen gives numerous historical examples of how nobody wins in trade wars and how they can threaten our national security by arousing populist resentment of the US abroad. A slice:

    The trade wars that followed the Republican passage of the protectionist Smoot-Hawley Tariff Act of 1930, which raised duties on hundreds of imports, similarly contain illustrative lessons for today. Canada responded with tariff increases of its own, for example, as did Europe.

    In a widely cited study from 1934, political economist Joseph M. Jones Jr. explored Europe’s retaliation. His study provided a warning about the trade wars that can arise when a single nation’s tariff policy “threatens with ruin” specialized industries in other countries, arousing “bitterness” throughout their populations.

  • At Cato’s At LibertyDaniel Ikeson explains how Trump’s tariffs establish a dangerous international precedent that will threaten US interests elsewhere:

    By signing these tariffs into law, President Trump has substantially lowered the bar for discretionary protectionism, inviting governments around the world to erect trade barriers on behalf of favored industries.  Ongoing efforts to dissuade China from continuing to force U.S. technology companies to share source code and trade secrets as the cost of entering the Chinese market will likely end in failure, as Beijing will be unabashed about defending its Cybersecurity Law and National Security Law as measures necessary to protect national security.  That would be especially incendiary, given that the Trump administration is pursuing resolution of these issues through another statute—Section 301 of the Trade act of 1974—which could also lead the president to impose tariffs on China unilaterally.

  • The Independent Institute’s Robert Higgs reminds us that citing trade deficits is misleading:

    In reality, individuals, firms and other organizations, and governments trade with other such entities, some of which are located in the same country and others of which are located in other countries. The location of the trading partners has no economic significance whatsoever. Trading entities enter into exchanges voluntarily, each one in each transaction anticipating a gain from the trade. Hence, in expectational terms, every such trade entails a gain from trade, or in other words an addition to the trader’s wealth.

  • At American Greatness, Henry Olsen tries to give a communitarian justification of protectionism:

    So-called populist movements around the world are gaining strength because their voters no longer feel like valued members of their nations. They do not believe their worth should decline because the owners of capital say so, nor do they think their life dreams or values should be denigrated simply because the most educated have different visions.

    Populists like Trump address this spiritual yearning and fulfill the deepest need every human has, to be valued and to belong to a group that values you. In this, and perhaps in this need alone, all men are truly created equal. Tariffs are simply an economic means to fulfill this spiritual need. Tariff opponents can only win if they first recognize this need and promise a more effective way to fulfill it.

  • At Bleeding Heart Libertarians, Jason Brennan explains why communitarianism cannot justify protectionist policies:

    Second, if tariffs don’t actually succeed in helping these workers, then the symbolic argument falls flat. Imagine an artist said, “I’m so concerned about the plight of people living in tenements, I’m going to do a performance art project where I burn down all their homes and leave them on the street. Sure, that will make them even worse off, but my heart is in the right place, and I thereby express my concern for them.” This artist would be…a contemptible asshole.

  • Finally, given its relevance at the moment, it’s worth revisiting Paul Krugman’s classic essay “Ricardo’s Difficult Idea” which remains the best account of why non-economist intellectuals have a hard understanding free trade:

    (i) At the shallowest level, some intellectuals reject comparative advantage simply out of a desire to be intellectually fashionable. Free trade, they are aware, has some sort of iconic status among economists; so, in a culture that always prizes the avant-garde, attacking that icon is seen as a way to seem daring and unconventional.

    (ii) At a deeper level, comparative advantage is a harder concept than it seems, because like any scientific concept it is actually part of a dense web of linked ideas. A trained economist looks at the simple Ricardian model and sees a story that can be told in a few minutes; but in fact to tell that story so quickly one must presume that one’s audience understands a number of other stories involving how competitive markets work, what determines wages, how the balance of payments adds up, and so on.

Can Elizabeth Warren help turn the populist tide?

During her recent visit to China, a Democratic Senator from Massachusetts, Elizabeth Warren (perceived by many as a potential Presidential Candidate of the Democratic Party in 2020), came down heavily on US President Donald Trump’s approach towards foreign policy, arguing that it lacks substance, is unpredictable, and does not pay much attention to liberal values and human rights, which according to her has been the cornerstone of US foreign policy for a long time.

Trump’s unpredictability

Commenting on Trump’s unpredictable approach towards Asia, Warren stated:

This has been a chaotic foreign policy in the region, and that makes it hard to keep the allies that we need to accomplish our objectives closely stitched-in.

Critical of US approach towards China

Warren met with senior Chinese officials including Liu He, vice-premier for economic policy, Yang Jiechi, a top diplomat, and the minister of defense, Wei Fenghe, and discussed a number of important issues including trade and the North Korea issue.

Warren criticised China for being relatively closed, and stated that the US needed to have a more realistic approach towards Beijing. She also spoke of the need for the US to remain committed to raising Human Rights issues, and not skirt the issue, while dealing with China.

Said the Democratic Senator: Continue reading

Trump’s personal game might work in China

In spite of all the economic and strategic differences between the US and China, personal relationships play an important role in bilateral relations between Washington DC and Beijing.

Trump’s Ambassador to China 

One of the first appointments made by US President Donald Trump was that of Terry Branstad as US Ambassador to China. The key reason was Branstad’s personal rapport with Chinese President Xi Jinping. This began in 1985, when Branstad was Governor of Iowa, while Xi Jinping an official from Hebei was visiting Iowa. In 2011, Branstad visited Beijing, and met with Xi at the Great Hall of the People. In February 2012, when he was vice-president, Xi stopped in Muscatine, Iowa, where he met not just with Branstad but with big industrialists and farmers from the states.

The US President, commenting on the reason for appointing Branstad, stated:

Governor Branstad’s decades of experience in public service and long- time relationship with President Xi Jinping and other Chinese leaders make him the ideal choice to serve as America’s ambassador to China.

During US President’s China visit in November 2017, Branstad, who shares a good rapport with Trump, did the groundwork for the visit. While in recent weeks tensions between both countries have escalated, with Trump imposing tariffs on Chinese goods worth $60 billion, the American president was delighted with the welcome he had received during his trip and had even told the Chinese President: “My feeling towards you is incredibly warm.”

It would be pertinent to point out that Trump’s decision to appoint Branstad as Ambassador to China (December 2016) came as a relief to the Chinese, given the fact that the US President took Taiwanese President Tsai-Ing Wen’s phone call, much to the chagrin of Beijing (since this went against established US policy).

If one were to look beyond the role of personal relationships in the very complex but important Beijing-Washington relationship, China lays a lot of emphasis on experience (educational, professional) in the US. If one were to examine the credentials of some of the top officials in Xi Jinping’s administration, US education as well as experience in dealing with economic issues pertaining to the US, has played a key role in some of the Chinese President’s appointments.

For instance, Liu He, whom Xi Jinping has appointed as a Vice Premier for overseeing the economy and financial sector, is US educated. Liu, who speaks fluent English, obtained a master’s degree in public administration from the Kennedy School of Government (Harvard University) in 1995. Apart from his in-depth understanding of the Chinese economy, Liu has also been involved in important discussions with US leaders.

Another significant appointment by Xi Jinping is that of Yi Gang, who has been named as Governor of the People’s Bank of China (PBOC). Yi obtained a business degree from the Hamline University in St. Paul, Minnesota, and a Ph.D. in economics at the University of Illinois, before moving to Indiana University at Indianapolis as a professor in 1986. He taught later at the Peking University in Beijing, before moving to the PBOC in 1997.

While economic and strategic issues are too complex to be driven by personal relationships or chemistry (though Trump seems to be a keen believer in personal chemistry given the emphasis he lays on individual ties) alone, an in-depth  understanding of the culture, politics, and economics of one’s interloctutors is especially handy. Given the current tensions between both countries over tariffs, this dynamic may prove to be especially useful.

India’s near-abroad: Iran’s regional moves

Close attention was paid by sections of India’s strategic community (and understandably so) to the statement of Iranian Minister of Foreign Affairs, Dr Javad Zarif, during his visit to Pakistan, in which he extended an invitation to Pakistan to join the ambitious Chabahar Project (about 70 kilometres from China’s ambitious Gwadar Project).

Zarif, while delivering a lecture at the Institute of Strategic Studies Islamabad (ISSI), stated:

We offered to participate in the China-Pakistan Economic Corridor (CPEC). We have also offered Pakistan and China to participate in Chahbahar

He further went on to state that Iran’s ties with India were not in any way targeted at Pakistan, just as Islamabad’s ties with Riyadh were not against Iran.

Surprise in India

This invitation surprised many in India, given the fact that it has provided financial assistance for Phase 1 of the project and will operate two berths. During Iranian President Hassan Rouhani’s visit in February 2018, one of the tangible outcomes was the lease contract signed by IPGL (Indian Port Global Limited) and Iran’s Port and Maritime Organization, for operating Phase 1 (Shahid Beheshti Port) over an 18-month period. The joint statement also made a clear reference to India’s unwavering commitment to the Chabahar-Zahedan Rail Line, which will enable transportation of goods all the way up to the Afghan border. The Indian side also stated that it would like to see Chabahar as part of the INSTC (International North South Transport Corridor). The INSTC will help in connecting India to Russia and Europe, via Iran.

Chabahar as India’s answer to Gwadar

Many in India have looked at Chabahar as India’s answer to the Gwadar Project, and of course its gateway to Afghanistan and Central Asia. The project is especially important to New Delhi because it enables India to bypass Pakistan, which has flatly refused to give India access to Afghanistan and Central Asia. In 2016, during Indian Prime Minister Narenda Modi’s visit to Iran, India, Iran, and Afghanistan had signed a three nation transport and transit corridor pact to enhance connecitivity. While leaders of all three countries spoke about the relevance of this agreement in the context of connectivity, the Iranian President had made it clear that it was not targeted at anyone. Said Rouhani:

[This pact is] not against any other country […] it is beneficial to the entire region.

India also sent a consignment of wheat (15,000 tonnes) to Afghanistan through the Chabahar Port in 2017. The shipment was dispatched from Kandla (Gujarat, India) and reached Chabahar in Iran. From Chabahar it was transported by road to Nimroz Province in Afghanistan.

India’s response

Replying to Zarif’s statements in a press briefing, India’s Spokesman Raveesh Kumar stated that:

[It is the] prerogative of the government of the Islamic Republic of Iran to choose its partners for the development of infrastructure facilities there.

Kumar also explained the strategic relevance of the project given its geo-political importance.

India-Iran ties beyond the Chabahar Port

Ever since the signing of the nuclear agreement in 2015 between Iran and the P5+1 countries, business linkages – and not just the Chabahar Project – between Iran and India have gotten a fillip. In 2017, India’s oil imports from Iran went up to 4.37 million barrel per day, even though there was a dip between April-December 2017 due to tensions between both countries on the Farzand B gas field. (Iran was supposed to award the gas field to India, but there have been differences on terms and conditions.) During Rouhani’s visit, both countries decided to address the obstacles related to banking and taxation, in order to bring about closer economic linkages.

Iran has thus emerged as an important strategic and trade partner for India.

What may have surprised sections of Indian government, along with its strategic thinkers, would be the Iranian invitation given to Pakistan, in spite of bilateral tensions between the two. In May 2017, for example, the Iranian Army Chief, Major General Mohammad Bagheri, had threatened to strike terror camps in Baluchistan (Pakistan) after the killing of ten Iranian guards by Jaish-Al-Adl in the Sistan-Baluchestan province. Said Baqeri:

[…] unless Pakistan control[s] the borders, arrest[s] the terrorist[s] and shut[s] down their bases […] we will hit their safe havens and cells wherever they are.

Since then tensions between the United States and Iran have also risen, and the latter has a close relationship with China. This has reshaped the Pakistan-Iran dynamic.

New Delhi’s real challenge

The real challenge for India in the near future is the hawkish stand of US President Donald Trump’s most recent appointee: Michael Pompeo (who was earlier head of the CIA, a main American intelligence agency). Trump is also likely to replace his current National Security Advisor, HR Mcmaster, and one possible replacement is John Bolton (former US Ambassador to the United Nations), a known hawk on Iran.

Pompeo would go along with Trump, and have no qualms in scrapping the Iran Nuclear Deal in May 2018, the next date when the issue comes up for consideration.

Pompeo’s predecessor, Rex Tillerson, had differed with Trump on this issue on more than one occasion. During the election campaign, Trump had criticized the Nuclear Agreement. He had dubbed the agreement a ‘disaster’ and ‘the worst deal ever negotiated’. In an address to a Pro-Israel Lobby group, AIPAC, the US President had gone to the extent of stating that dismantling the deal would be his first priority.

Tillerson, no dove on Iran by any stretch of imagination, had categorically stated that dismantling the deal was not in US interests, though the US President disagreed. Commenting on their disagreements about Iran, Trump had stated:

When you look at the Iran deal, I think it’s terrible […] it was okay. I wanted to either break it or do something, and he felt a little bit differently. So we were not really thinking the same.

Tillerson was closely working with European countries to rework the deal, and address some of the Trump administration’s concerns.

The Chair of the Senate Foreign Relations Committee, Bob Corker, has also predicted that Trump will walk out of the Deal: “The Iran deal will be another issue that’s coming up in May, and right now it doesn’t feel like it’s going to be extended.”

More aggressive Saudi Arabia

Saudi Arabia is likely to become more aggressive after the exit of Tillerson. In fact, on the eve of Saudi Crown Prince Mohammed Bin Salman’s arrival in the US, the Saudi Foreign Minister, Adel al-Jubeir, criticized the Iran Nuclear deal. Said the Saudi Foreign Minister:

Our view of the nuclear deal is that it’s a flawed agreement.

During the Saudi Prince’s visit, Trump too did not miss out on an opportunity to lambast the Iran nuclear agreement. While commenting on the future of the deal, the US President stated:

The Iran deal is coming up soon and you will see what will happen […] Iran hasn’t been treating that part of the world, or the world appropriately.

According to the Arab News it was also decided that the United Arab Emirates, Saudi Arabia, and the US would set up a trilateral security forum which would look not just at issues pertaining to Middle East and Iran, but also South Asia.

Conclusion

India would be advised to be cautious, and while some sections the Right have been ecstatic with Trump’s stance vis-à-vis Pakistan (not to mention China), New Delhi needs to be prepared for some turbulence as a consequence of the recent changes within the Trump Administration. New Delhi needs to articulate its strategic and economic interests in Iran, not just to the US, but also to Saudi Arabia. In the past, the US has not objected to Iran’s close ties with India, but it remains to be seen whether or not Trump and his team will exhibit flexibility and pragmatism vis-à-vis Iran.

New Delhi has a myriad of foreign policy challenges, and Trump’s rigidity towards Iran is likely to be a major one in the near future.

Quad: The way ahead and the key challenges

The Quadrilateral Security Dialogue (QSD) consisting of India, Australia, Japan, and the US has been pitching in favor of a ‘Free and Fair Indo-Pacific’ ever since the first meeting between representatives of member states in November 2017.

Shinzo Abe, the current Prime Minister of Japan, actually proposed this arrangement about a decade ago. Diplomatic engagement began, and joint military exercises were even held, but a change in guard in Australia, as well as Chinese complaints to member states, resulted in the end of the arrangement. Given the increasing focus on the ‘Indo-Pacific’ region and the strengthening of strategic ties between all four countries, reticence was finally shed and representatives of the four countries met in November 2017, on the eve of the East Asia Summit in Manila. The main aim of the alliance, thus in other ways, has been to check China’s assertiveness, especially in the South China Sea, and democracy has been one of the key binding factors between the Quad. The U.S. State Department, after the meeting in November 2017, issued a statement that the United States is “committed to deepening cooperation, which rests on a foundation of shared democratic values and principles.”

More recently, the joint statement issued after the meeting between Trump and Australian Prime Minister Malcolm Turnbull in February 2018, reiterated the point about a Free and Open Indo-Pacific. Said the joint statement between both countries: Continue reading