Posts Tagged ‘Free Trade’

Japan stands beside Europe on free trade

July 18, 2018

The performance of the president of the United States in Europe over the past week left Europeans dumbfounded, shaken and at least on trade, rightfully anxious about the future. Donald Trump has once again threatened Europeans with tariffs in the one sector that hurts (Germans especially) the most — the automotive industry. Since his election, America’s new protectionism certainly makes Europeans feel isolated on issues of trade and the defense of liberal values.

Yet what Europeans often forget is that this is not the case. Europe is not the last man standing. Japan, Australia, India and Canada are all still very much part of our community of shared values.

By Harry Nedelcu
Japan Times


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Prime Minister Shinzo Abe shakes hands with European Council President Donald Tusk as European Commission President Jean-Claude Juncker looks on after the signing of a Japan-EU trade deal in Tokyo on Tuesday. | AFP-JIJI

How we strengthen this community, will depend on the way Europeans will capitalize on the visit of Jean-Claude Juncker and Donald Tusk to Tokyo this week. This visit can take two different paths. One is the path of diplomatic niceties, signing agreements, and smiling and posing for pictures. Following the storm caused by Trump in Brussels and London, that was a welcome respite, to be sure. The other path goes far beyond and can turn our relationship into something much more enduring and ambitious.

This means not just finalizing the trade agreement and strategic partnership, but seizing the moment and using it as a springboard for setting together global standards on a number of issues — such as trade, climate change, security policy, rule-of-law, cyber and data flows as well as data protection.

At the same time, many Europeans, who seem to have resigned themselves to the fact that destiny shall be set by China, need to ask the question — why not also by cooperation with like-minded countries like Japan?

Many in Europe look at Beijing’s “Belt and Road” initiative (BRI) both as an opportunity but also as a Trojan horse. Europeans are not sure how to handle it. On one hand they welcome Chinese investments. On the other, they realize that with these investments, China is pursuing a meticulous strategic goal, acquiring key infrastructure and technological know-how. China’s investments in Europe has increased exponentially — 10 times from 2008 to 2015 and another 70 percent the year after.

Over the past year, many have awoken to the dangers that Chinese foreign direct investment carries and the European Union is working toward a framework for investment screening at the union level. Albeit far behind what other Group of Seven countries already have in place, this is an important step forward.

Europeans are also starting to learn their lessons from Gazprom, where through Russia’s pipelines, it’s not just gas flowing through to Europe but also Russian influence.

The same is becoming true of Chinese influence. With the promise of investment comes Chinese influence and we see it manifesting itself in the shifting foreign policy of countries like Hungary, Croatia and Greece on issues of human rights and the South China Sea. Nonetheless, just as in the Gazprom case, Europe does have alternatives to the BRI. The Chinese initiative is one but not the only option toward opening up to Asia.

The Indo-Pacific corridor is one alternative to the BRI and here Europe has a lot to contribute. The concept is based on norms of freedom of navigation, free trade, stability and the rule of law. With an international order ever more increasingly violated by Russia in Ukraine and China in the South China Sea, Europeans have a vested interest in ensuring this order is respected, especially through one of the world’s most important commercial arteries. With their naval capabilities, France and the United Kingdom are in a unique position to spearhead Europe’s contribution to upholding freedom of navigation, peace and stability in the Indo-Pacific.

At the same time, Japan, with some of the most open data-flow systems in the world, is also best placed to establish together with Europe a state-of-the-art digital economy that could serve as a model for the rest of the world. With much of the global trade happening online in our current century, should data flow freely from one side to the other, both Europe and Japan would gain significantly.

Ultimately, it is in Europe’s interest to upgrade its relationship with Japan and vice-versa and the current Japan-EU summit is a unique opportunity. If EU and Japanese leaders seize it, this could be an important turnaround both for the way Europeans see trade with Asia and for liberal democracy at large.

Harry Nedelcu is policy adviser at Rasmussen Global, a Copenhagen- and Brussels-based consultancy and advisory firm founded in 2014 by Anders Fogh Rasmussen, former prime minister of Denmark and former secretary-general of NATO.


US to impose tariffs on $200bn of Chinese imports

July 11, 2018
Escalation of trade war between the two economic powers unsettles financial markets
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© Getty

By Sam Fleming in Washington, Joe Rennison in New York and Lucy Hornby in Beijing 

Donald Trump kicked off the process of imposing tariffs on a further $200bn of imports from China, in a significant escalation of the trade war between the two economic powers and one that directly challenges US corporations.

The new list of tariffs takes aim at multinationals reliant on sourcing from China for materials and components including automotive parts, food ingredients and construction. If implemented, they would have a bigger impact on US consumers than the tariffs imposed last week on $34bn of goods, which focused on manufacturing components.

The president has told the US trade representative Robert Lighthizer to begin preparations for levies of 10 per cent, the administration said, as it set forth a list of products that may be targeted.

The announcement triggered declines in financial markets as traders reacted to the worsening relations between the two nations and prompted criticism from senior figures within the president’s own party.

China-focused stocks led a broad sell-off in Asia-Pacific equities and the renminbi slid in response to the tariffs.

The Trump administration’s move comes after Beijing accused the US of “trade bullying” and slapped tariffs on $34bn of American exports. China’s action last week came “without any international legal basis or justification”, Mr Lighthizer said on Tuesday evening.

“For more than a year, the Trump administration has patiently urged China to stop its unfair practices, open its market, and engage in true market competition,” he said.

“We have been very clear and detailed regarding the specific changes China should undertake. Unfortunately, China has not changed its behaviour — behaviour that puts the future of the US economy at risk.”

USTR will now begin a public notice and comment process running through July and August, before the imposition of the final tariffs. Mr Trump has told journalists he was ultimately willing to impose tariffs on all $500bn of the goods imported from China.

Beijing has retaliated to the measures imposed to date by targeting US farm and energy exports, including soyabeans. The Ministry of Commerce said on Wednesday that China was “shocked” by Washington’s moves. The actions “were hurting China, hurting the entire world and hurting the US itself”, the ministry said, noting that the “irrational action was unpopular”.

US officials have insisted the country was well positioned economically to handle the trade war. Recent jobs numbers have remained robust, with the US adding 213,000 positions in June. The Trump administration had previously attempted to avoid directly affecting consumers with its tariffs on China but the scope is now widening.

The Chinese products that are on the US list range from certain kinds of furniture and luggage, to inflatable vessels, bicycle parts and burglar alarms.

David French, senior vice-president for government relations from the National Retail Federation, said the measures would “boomerang back” to harm US families and workers.

“Tariffs on such a broad scope of products make it inconceivable that American consumers will dodge this tax increase as prices of everyday products will be forced to rise. And the retaliation that will follow will destroy thousands of US jobs and hurt farmers, local businesses and entire communities.”

Alarm about the worsening trade situation has been spreading among major employers. Minutes from the Federal Reserve’s June meeting reported that businesses were saying that tariffs had already caused companies to put some investments on hold or reduce them.

Seventy of the top 100 exporters from China are foreign companies, putting them squarely in the crossfire, said Zhu Haibin, chief China economist at JPMorgan. “There will be a lot of collateral damage to US companies and other foreign companies. The impact, including to the US itself, will be much larger than Trump estimates.”

The president’s latest move was criticised by Orrin Hatch, the Republican senator who chairs the powerful finance committee. “Although I have supported the administration’s targeted efforts to combat China’s technology transfer regime, tonight’s announcement appears reckless and is not a targeted approach,” he said.

“We cannot turn a blind eye to China’s mercantilist trade practices, but this action falls short of a strategy that will give the administration negotiating leverage with China while maintaining the long-term health and prosperity of the American economy.”

In an unusually strident warning, Kevin Brady, the Texas Republican who chairs the House Ways and Means Committee, said that despite the rising economic risks there were no serious trade discussions going on between China and the US and no plans for talks soon. He urged Mr Trump to meet directly with Xi Jinping, Chinese president, to hammer out a solution.

Mr Brady said: “With this announcement, it’s clear the escalating trade dispute with China will go one of two ways — a long, multiyear trade war between the two largest economies in the world that engulfs more and more of the globe, or a deliberate decision by President Trump and President Xi to meet and begin crafting an agreement that levels the playing field between China and the US for local farmers, workers and businesses.”

The Trump administration move came after stock markets had found a foothold this week. Major US indices slipped by less than 1 per cent after the announcement.

“Markets have been treating trade wars as though they are a trade tiff,” said Peter Tchir, head of macro strategy at Academy Securities. “But I think this is bigger. Trump is very committed to it and I think markets are underestimating that. Investors are being too complacent.”

“I think volatility is now going to increase,” said Mr Tchir. “We are going to have to start picking the winners and losers from trade wars.”

Additional reporting by Xinning Liu and Sherry Fei Ju in Beijing

Twitter: @HornbyLucy

China Vows Fightback Against Trump’s Proposed $200 Billion Tariff Threat — Chinese stocks tumbled and the yuan weakened

July 11, 2018

China vowed to fightback against the Trump administration’s plans to impose tariffs on an additional $200 billion in Chinese goods, escalating a trade war between the world’s two biggest economies.

China: “It’s up to them to open the door again.”

Beijing described the latest U.S. move as “totally unacceptable” bullying, and urged other countries to join China to protect free trade and multilateralism. China promised to lodge complaints at the World Trade Organization but didn’t detail what its retaliatory measures would be.

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The Yangshan Deep Water Port in Shanghai, China. Photographer: Qilai Shen/Bloomberg

“China is shocked at the U.S. action,” the Commerce Ministry said in a statement on its website Wednesday. “To protect the core interests of the nation and its people, China’s government is, as in the past, forced to retaliate.”

The response came hours after the Trump administration released a proposed list of thousands of products on which it plans to impose 10 percent tariffs, ranging from vacuum cleaners and windshield wipers to sterling silver spoons and badger hair. The U.S. omitted some high-profile items like mobile phones.

The news sent markets skidding in Asia as Chinese stocks tumbled and the yuan weakened.

Read more on the escalating conflict

China Has Arsenal of Non-Tariff Weapons to Hit Back at Trump
Here’s How a Trade War Between the U.S. and China Could Get Ugly
The U.S. China Trade Relationship: A Dispute in Five Charts
Trump Must Meet Xi to Stop Trade War, Top House Republican Says

If the proposed tariffs go into effect after public consultations end on Aug. 30, duties implemented by the administration aimed squarely at China will cover nearly half of all U.S. imports from the Asian nation.

Some members of Trump’s own Republican party are calling the trade war unwise while American businesses and economists warn it could derail the strongest global upswing in years.

Fresh U.S. tariffs would also come at a time when the Trump administration is seeking Beijing’s help reining in North Korea’s nuclear-weapons program. With little sign of continued formal negotiations, the two powers appear headed toward a protracted trade conflict that may undermine growth and shake up corporate supply chains.

Li Yong, a senior fellow at the China Association of International Trade in Beijing said one retaliatory tactic China could deploy would be a bigger push to attract foreign investment, just not from the U.S.

“The U.S. closed the door for negotiations,” Li said. “It’s up to them to open the door again.”

U.S. officials argue they had no choice but to move forward on the new tariffs after China failed to respond to their concerns over unfair trade practices and Beijing’s abuse of American intellectual property, according to two senior officials who spoke to reporters. High-level talks between the world’s two largest economies starting in May failed to deliver a breakthrough to head off a trade war.

“For over a year, the Trump administration has patiently urged China to stop its unfair practices, open its market, and engage in true market competition,” U.S. Trade Representative Robert Lighthizer said in an emailed statement. “China has not changed its behavior — behavior that puts the future of the U.S. economy at risk.”

The White House move drew immediate condemnation from Senate Finance Chairman Orrin Hatch, a Republican from Utah, who called it “reckless” and not “targeted.”

The Retail Industry Leaders Association, a lobbying group, said U.S. businesses and consumers will lose from the administration’s trade battle. “American retailers and the families we serve barely had time to process the barrage of tariffs implemented last week,” Vice President of International Trade Hun Quach said in a statement. “Now, we will need to grapple with new tariffs on an additional $200 billion worth of imports, which are bound to include even more consumer products and everyday essentials.”

The Trump administration on July 6 imposed 25 percent duties on $34 billion in Chinese imports, the first time the president has implemented tariffs directly on Beijing after threatening to do so for months. The first round of tariffs covered Chinese products ranging from farming plows to machine tools and communications satellites.

China immediately retaliated with duties on the same value of U.S. goods, including soybeans and cars.


In addition, the U.S. is considering duties on a further $16 billion in Chinese goods, after a public hearing later this month. China has vowed to retaliate dollar-for-dollar to any further U.S. tariffs.

“The internal political dynamics in both countries make it unlikely that either side will stand down and offer conciliatory measures that could deescalate tensions and lead to a resumption of negotiations,” Eswar Prasad, a professor of trade policy at Cornell University, said in an email.

So far, tariffs imposed by the two countries are expected to have a modest impact on growth and inflation, economists estimate. But duties on more than $200 billion in Chinese imports may push the trade war into territory where it begins to bite meaningfully into growth. A full-blown global trade war would shave 0.4 percentage point off world growth, according to Bloomberg Economics.

Trump has been considering tariffs against China since his officials concluded in March that Beijing violates U.S. intellectual-property rights, such as by forcing American firms to hand over technology.

“Rather than address our legitimate concerns, China has begun to retaliate against U.S. products. There is no justification for such action,” Lighthizer said.

— With assistance by Enda Curran, Miao Han, Jenny Leonard, Andrew Mayeda, and Xiaoqing Pi

Germany and China sign deals, lobby against US trade tariffs

July 10, 2018
  • The two countries signed deals worth 20 billion euros ($23.6 billion).
  • In addition to multiple joint cooperation projects between governmental agencies, companies like BASF, BMW, Volkswagen, Daimler, Siemens and Bosch announced deals and partnerships.

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Alexander Koerner/Getty Images
Porsche cars destined for export stand at Bremerhaven port on March 19, 2018 in Bremerhaven, Germany.

German Chancellor Angela Merkel and Chinese Prime Minister Li Keqiang stressed their commitment to a multilateral trade system Monday in the wake of Washington’s decision to impose widespread tariffs, saying it was to everyone’s benefit.

Speaking in Berlin after the two countries signed deals worth 20 billion euros ($23.6 billion), Li told reporters the projects demonstrated how nations could work together.

In addition to multiple joint cooperation projects between governmental agencies, companies like BASF, BMW, Volkswagen, Daimler, Siemens and Bosch announced deals and partnerships.

“Free trade plays a strong leading role for both sides and for the world economy,” Li said through an interpreter in the Berlin chancellery.

On Friday, U.S. President Donald Trump imposed 25 percent tariffs on $34 billion of Chinese goods in response to complaints Beijing steals or pressuring companies to hand over technology. China announced retaliatory tariffs on a similar amount of U.S. goods.

Trump has also imposed tariffs on aluminum and steel imports that include the European Union, and has threatened additional tariffs on products like automobiles, singling out Germany in particular.

Bavaria-based automaker BMW has already been caught in the middle of escalating trade strife between the U.S. and China, saying Monday it would have to raise prices on SUVs it builds in the U.S. that it exports to China, after Beijing raised the import tax on cars from the United States to 40 percent from 15 percent.

“We have a lot of direct investment in the United States of America, we have a lot of direct investment in China,” Merkel said.

“It really is a multilateral interdependent system that at its best most likely is really a plurilateral win-win situation when we stick to the rules.”

She also applauded China for relaxing rules on foreign investment, saying that it was important to see “the market opening in China in this area is not only words, but is also being followed by deeds.”

In one deal finalized on Monday, Chinese firm CATL announced that it would build a factory in the German state of Thuringia to build batteries to supply to BMW for use in electric cars.

BMW said it had agreed to purchase 4 billion euros worth of batteries, with 1.5 billion euros of sales in Germany and 2.5 billion in China.

Merkel said the company brings a product and technology to Germany that wasn’t previously available.

She added, however: “If we could do it ourselves, I’d also not be sad.”

China presses EU on US trade policies — China and the EU could launch joint action against the US at the WTO

July 5, 2018

TAKING SIDES: While EU nations share China’s concern over US tariffs, they are also wary of Beijing maneuvering to dominate global markets, European diplomats said


Chinese President Xi Jinping gestures as he delivers his opening remarks to the members of the Global Chief Executive Committee at the Diaoyutai State Guesthouse in Beijing on June 21.

Photo: EPA

China is putting pressure on the EU to issue a strong joint statement against US President Donald Trump’s trade policies at a summit later this month, but is facing resistance, European officials said.

In meetings in Brussels, Berlin and Beijing, senior Chinese officials, including Vice Premier Liu He (劉鶴) and State Councilor Wang Yi (王毅), have proposed an alliance between the two economic powers and offered to open more of the Chinese market in a gesture of goodwill.

One proposal has been for China and the EU to launch joint action against the US at the WTO.

However, the EU, the world’s largest trading bloc, has rejected the idea of allying with Beijing against Washington, five EU officials and diplomats said, ahead of a Sino-European summit in Beijing on July 16 and July 17.

Instead, the summit is expected to produce a modest communique, which affirms the commitment of both sides to the multilateral trading system and promises to set up a working group on modernizing the WTO, EU officials said.

Liu has said privately that China is ready to set out for the first time what sectors it can open to European investment at the annual summit, expected to be attended by Chinese President Xi Jinping (習近平), Chinese Premier Li Keqiang (李克強) and top EU officials.

Chinese state media have promoted the message that the EU is on China’s side, officials said, putting the bloc in a delicate position.

The past two summits, in 2016 and last year, ended without a statement due to disagreements over the South China Sea and trade.

“China wants the European Union to stand with Beijing against Washington, to take sides,” one European diplomat said. “We won’t do it and we have told them that.”

The Chinese Ministry of Foreign Affairs did not immediately respond to a request for comment on Beijing’s summit aims.

Xinhua news agency in a commentary yesterday said that China and Europe “should resist trade protectionism hand in hand.”

“China and European countries are natural partners,” it said. “They firmly believe that free trade is a powerful engine for global economic growth.”

Despite Trump’s tariffs on European metals exports and threats to hit the EU’s automobile industry, Brussels shares Washington’s concern about China’s closed markets and what Western governments say is Beijing’s manipulation of trade to dominate global markets.

“We agree with almost all the complaints the US has against China, it’s just we don’t agree with how the United States is handling it,” another diplomat said.

Still, China’s stance is striking given the US’ deep economic and security ties with European nations. It shows the depth of Chinese concern about a trade war with Washington, as Trump is set to impose tariffs on billions of US dollars worth of Chinese imports tomorrow.

It also underscores China’s new boldness in trying to seize leadership amid divisions between the US and its European, Canadian and Japanese allies over issues such as free trade, climate change and foreign policy.

“Trump has split the West, and China is seeking to capitalize on that. It was never comfortable with the West being one bloc,” a European official involved in EU-China diplomacy said.

“China now feels it can try to split off the European Union in so many areas, on trade, on human rights,” the official said.

Another official described the dispute between Trump and Western allies at the G7 summit last month as a gift to Beijing because it showed European leaders losing a long-time ally, at least in trade policy.

European envoys say they already sensed a greater urgency from China last year to find like-minded countries willing to stand up against Trump’s “America first” policies.

A report by New York-based Rhodium Group, a research consultancy, in April showed that Chinese restrictions on foreign investment are higher in every single sector save real estate, compared with the EU, while many of the big Chinese takeovers in the bloc would not have been possible for EU companies in China.

China has promised to open up, but EU officials expect any moves to be more symbolic than substantive.

They have said China’s decision in May to lower tariffs on imported cars will make little difference because imports make up such a small part of the market.

China’s plans to move rapidly to electric vehicles mean that any new benefits it offers traditional European automakers will be fleeting.

“Whenever the train has left the station we are allowed to enter the platform,” a Beijing-based European executive said.

However, China’s offer at the upcoming summit to open up reflects Beijing’s concern that it is set to face tighter EU controls and regulators are also blocking Chinese takeover attempts in the US.

The EU is seeking to pass legislation to allow greater scrutiny of foreign investments.

“We don’t know if this offer to open up is genuine yet,” a third EU diplomat said. “It’s unlikely to mark a systemic change.”

Will the South China Sea Become a Chinese Lake?

July 4, 2018

Twelve days at sea on a French warship provide occasion to ponder what lies ahead for the disputed waterway.

Published on: July 3, 2018
Jonas Parello-Plesner is a senior fellow at the Hudson Institute.

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Chinese military assets in the South China Sea. 


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Vietnamese Anti-China protesters hold placards which read ‘The country will not forget – Johnson South Reef – 14th March, 1988’ during a gathering to mark the 28th anniversary of the Spratly Islands clashes between Vietnam and China at a public park in Hanoi March 14, 2016.


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Asia economies discuss trade pact amid rising protectionism

July 1, 2018

Japan’s Prime Minister Shinzo Abe on Sunday called for an early conclusion of a regional trade pact that ensures free and rules-based commerce in the face of an increasingly protectionist United states under President Donald Trump.

At a meeting of the Regional Comprehensive Economic Partnership, or RCEP, which is co-chaired by Japan and Singapore, trade ministers and officials from 16 countries renewed their commitment to speed up negotiations on outstanding issues by the end of the year.

Japan seeks to take leadership in shaping the pact as an alternative to a Pacific Rim free-trade grouping that Trump abandoned early this year.

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Japanese Prime Minister Shinzo Abe speaks during the Regional Comprehensive Economic Partnership (RCEP) meeting in Tokyo Sunday, July 1, 2018. Trade ministers from 16 Asian countries are meeting in Tokyo on a regional trade pact, highlighting efforts to ensure free and rules-based commerce in the face of an increasingly protectionist United States under President Donald Trump. Kyodo News via AP Sadayuki Goto

At a joint news conference after the talks, Japanese Trade Minister Horoshige Seko and his Singaporean counterpart, Chang Chun Sing, said the 16 participants agreed to reach a basic conclusion at a year-end Singapore meeting. They noted that the participants see it as a chance to show Asia’s commitment to defend free trade.

In a joint statement, the ministers said achieving a pact is important especially “in view of the current global trade environment, which faces serious risks from unilateral trade actions and reactions, as well as their debilitating implications on the multilateral trading system.” They also pledged to seek breakthroughs in politically challenging areas.

Earlier Sunday in his opening remarks, Abe said a pact among the countries that together make up half the global population has an enormous growth potential.

“As we are faced with concerns of the rise of protectionism in the world, all of us in Asia must unite, and our future depends on whether we can keep hoisting our flagship principle of free and fair trade,” Abe told the meeting in Tokyo. “Let us be as one and achieve a free, fair and rules-based market in this region.”

Japanese Prime Minister Shinzo Abe, center, joins hands with trade ministers from Asian countries for a group photo during the Regional Comprehensive Economic Partnership meeting in Tokyo on Sunday, July 1. (Kyodo News via AP)

Trump, who says he prefers bilateral deals, has pulled the U.S. out of the Trans-Pacific Partnership, leaving the remaining 11 countries from Chile to New Zealand to work on a revamped version of that pact.

Trump has imposed high tariffs on steel and aluminum imports and has threatened to add automobiles to reduce America’s trade deficit. He has singled out China’s products, prompting fears of a trade war.

Japan, already hit by increased U.S. steel and aluminum tariffs, has told the World Trade Organization it may retaliate against U.S. goods totaling about 50 billion yen ($450 million). Japan’s government on Friday warned the U.S. Department of Commerce that a higher U.S. tariff on auto imports could backfire, jeopardizing hundreds of thousands of American jobs created by Japanese automobile industry-related companies, raising prices for U.S. consumers and causing a disaster for the U.S and global economy.

Trump’s moves have resonated in Asia, where many countries have prospered thanks to free trade and the expansion of global supply chains.

Japan hopes to conclude the RCEP pact by the end of this year. Members of the initiative, launched in 2013, however still struggle with issues including tariffs, trade in services and investment rules, as well as protection for intellectual property rights. Japan is also cautious about China’s influence. China, which is not part of the TPP, plays a key role in RCEP.

RCEP also includes Southeast Asia, Australia, New Zealand, India and South Korea.

The Associated Press

The world is pushing back in the South China Sea

June 30, 2018

In recent weeks, there have been several commentaries reporting a temporary new norm in the South China Sea (SCS) — realpolitik’s triumph over moralpolitik and the rapid decline of regional US soft power. But current developments suggest otherwise. Years of ill-advised US acquiescence and accommodation (strategic patience and wishful thinking) in the SCS appear to be over for now.

By Tuan N Pham
East Asia Forum

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USS Ronald Reagan

There indeed seems to be a new norm emerging in the SCS. But it is more reflective of the new muscular US National Security Strategy and US National Defense Strategy that call for an embrace of strategic great power competition with China than of a decline of US influence in the region.

Many countries are now firmly pushing back against Chinese unilateral expansionism in the SCS. Philippine President Rodrigo Duterte reportedly declared that he was ready and willing to go to war with China over SCS resources. A prominent Taiwanese think tank has proposed leasing Taiwan-occupied Taiping Island to the US military. And at the 2018 Shangri-La Dialogue, the United States, India, Vietnam, France and the United Kingdom all spoke strongly against China’s assertive and destabilising actions in the SCS.

These words are being backed up by actions.

Washington disinvited Beijing to the 2018 Rim of the Pacific naval exercise on the grounds that Chinese actions in the SCS run counter to international norms and the pursuit of free and open seas. US freedom of navigation operations (FONOPs) and presence operations in the SCS continue, and US defence officials are reportedly considering a more assertive program that could include longer patrols, more ships and closer surveillance of Chinese facilities.

London and Paris have joined Washington to challenge Beijing in the SCS. Both have conducted naval operations in the SCS to put pressure on China’s increased militarization of the disputed and contested waters.

Vietnam continues the modest expansion of its outposts in the Spratly Islands. With the latest construction at Ladd Reef, Hanoi has made small and incremental upgrades to 21 of its 49 outposts in recent years. The construction work also underscores a new facet of Vietnam’s military doctrine in the SCS — the employment of a maritime militia that will emulate China’s maritime militia, which China uses to enhance its presence and operations in the contested waters without provoking a military response from other countries.

Malaysia — like Vietnam and the Philippines — is embarking on a military buildup to better protect its maritime claims and interests in the SCS. Kuala Lumpur recently announced that it would upgrade its naval aircraft as well as purchase ship-based naval helicopters. The enhanced naval aviation capabilities are intended to support an ongoing comprehensive modernization of its surface fleet.

The aforementioned commentaries on the SCS also repeat some familiar Chinese perspectives on US FONOPs and US intelligence, surveillance and reconnaissance (ISR) operations that require some US perspectives for a more balanced understanding of the issues.

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A jet fighter from Taiwan shadows a Chinese bomber. China refuses to admit that Taiwan is free, sovereign and democratic.

US FONOPs are an important expression of and are recognised by international law. The purpose and intent of US FONOPs are clearly laid out in US policy, and all operations are meticulously documented and publishedevery year. On the whole, US FONOPs challenge excessive maritime claims in the SCS, not competing sovereignty claims; do not discriminate against particular states, but rather focus on the claims that individual states assert; are deliberate in nature, but are not deliberate provocations; and contest unilateral restrictions on freedom of navigation and overflight rather than accept rhetoric.

US ISR operations — which are conducted inside other countries’ exclusive economic zones (EEZs) — are lawful under customary international law and Article 58 of the United Nations Convention on the Law of the Sea (UNCLOS).

The Chinese argument on the permissibility of military activities in EEZs is counter to the US position. The United States believes that while coastal states under UNCLOS have the right to regulate economic activities in their EEZs, they do not have the right to regulate foreign military activities in their EEZs.

Beijing contends that military activities — such as ISR flights, maritime survey operations and military exercises — on the high seas and in EEZs are unlawful according to UNCLOS, and that it is a requirement under UNCLOS that the high seas are used only for peaceful purposes, despite itself doing exactly the opposite.

Beijing’s interpretation of UNCLOS is a minority position held by 27 states, while the vast majority of states (over 100, including all permanent United Nations Security Council members other than China) do not hold this position.

The region and the world have come to the realisation that Beijing’s actions in the SCS are dangerously undermining the extant global order that China itself has benefited from. Other countries must now be more assertive to encourage and challenge China to become a more responsible global stakeholder that contributes positively to the international system. Otherwise, Beijing will be further emboldened to expand and accelerate its campaign to control the disputed and contested strategic waterway through which trillions of dollars of global trade flows each year.

Tuan N Pham is widely published in national security affairs and international relations. The views expressed therein are his own and do not reflect the official policy or position of the US Government.


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Why it matters: The U.S.-China standoff over the South China Sea

June 29, 2018

China’s militarization of the South China Sea was at the top of Defense Secretary James Mattis’ agenda on his trip to Beijing this week, and Chinese state media reports President Xi Jinping told him China will not give up “any inch of territory passed down from ancestors.”

Why it matters: The sea is a critical component of China’s plan to build a military proportional to its economic power. Beijing has no intention of giving up its claim, while the U.S. has no intention of accepting it.

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There are two conflicts defining the South China Sea dispute, Dennis Wilder, the National Security Council’s Senior Director for East Asia under George W. Bush, tells Axios:

  1. China’s artificial islands: Over the past four years, China has built a series of artificial islands in the South China Sea, and turned them into airfields and naval ports. “It’s breathtaking what the Chinese have done out there,” says Wilder. “There’s nothing like it anywhere else in the world.”
  2. Freedom of navigation: The U.S. vital interest in the region is to maintain the ability to sail commercial and naval ships through the waters, which China claims as its own with its “nine-dash line.” A third of the world’s trade, worth about $3.4 trillion, passes through the South China Sea every year.

Chinese J-11 Fighters Deployed To Woody Island In South China Sea

China J-11 Flanker fighters operating from Woody Island located in the northern portion of the South China Sea.

Zoom in

In 2016, Xi stood in the Rose Garden next to President Obama and said China would not militarize the South China Sea. He did it anyways. “That part of the game is over,” Wilder says.

  • The big reason the U.S. doesn’t step in on the issue of artificial islands is that, unlike Malaysia, Brunei, Indonesia, the Philippines and Vietnam, it doesn’t have claim over the territories China is grabbing, says Wilder. The U.S. does back these countries diplomatically, and urges them to stand up to Beijing.
  • Yes, but: “They’re scared to stake their claims because they don’t know that [the U.S.] would actually go to war for them over this issue,” he says.

“From Beijing, the South China Sea looks as Chinese as the Caribbean looked American to Teddy Roosevelt,” says Graham Allison, a Harvard professor who was assistant secretary of defense in the Clinton administration.

  • But the U.S. is maintaining its commitment to freedom of navigation by periodically sailing navy ships within 12 nautical miles of the islands China claims as its own — a move that China calls “American militarization” of the Sea.

Where things stand

Mattis said only that his meetings in Beijing were positive. However, Wilder says, “I’m sure in the private discussions with the Chinese he was as clear as he has been publicly on other occasions.”

The bottom line, per Allison: “Beneath the noise about the South China Sea, the growing Chinese military, and the trade conflict is an underlying Thucydidean dynamic. Rising power threatening to displace ruling power. That’s the dominant storyline — rest is details.”


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Peter Navarro’s radical transformation — From Free Trade to Trade War — Alarmist or Realist on China?

June 25, 2018

People think of Peter Navarro, the top White House trade adviser, as President Trump’s mind-meld on tariffs — the most hardline protectionist in the White House. But Navarro used to preach very different ideas in his early career as an economist.

The bottom line: In his 1984 book, “The Policy Game: How Special Interests and Ideologues are Stealing America,” that’s no longer in print — Axios got a copy from a university library — Navarro sounds a lot like the very administration officials he’s sparred with on trade policy. And he argues that tariffs will inevitably send the global economy into crisis.

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We asked Navarro what prompted the radical change in his views, and he explained how he went from a free trader to an economic nationalist. In response to “The Policy Game,” specifically, Navarro told Axios:

It borders on the comical that Axios would spend so much time on a book written 34 years ago and completely ignore the insights of my later works like the 2006 Coming China Wars, the 2011 Death By China, and the 2015 Crouching Tiger.  Together, these books explain at length why the globalist Ricardian free trade model is broken and urgently needs fixing in the name of both the economic and national security of the United States.
— Peter Navarro
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From the book…

“The clear danger of this trend [protectionism] is an all-out global trade war; for when one country excludes others from its markets, the other countries inevitably retaliate with their own trade barriers. And as history has painfully taught, once protectionist wars begin, the likely result is a deadly and well-nigh unstoppable downward spiral by the entire world economy.
If the world is, in fact, sucked into this spiral, enormous gains from trade will be sacrificed. While such a sacrifice might save some jobs in sheltered domestic industries, it will destroy as many or more in other home industries, particularly those that rely heavily on export trade. At the same time, consumers will pay tens of billions of dollars more in higher prices for a much more limited selection of goods. Sacrificed, too, on the altar of protectionism will be the very heart of an international world order that since World War II has successfully changed the aggressive struggle among nations for world resources and markets into a peaceful economic competition rather than a confrontational political or military one.”
— “The Policy Game,” pg. 55

There are multiple passages in “Policy Game” that directly argue against Navarro’s current positions. Navarro’s go-to argument defending the White House’s trade moves has been national security. In a June New York Times op-ed, he wrote:

“President Trump reserves the right to defend those industries critical to our own national security. To do this, the United States has imposed tariffs on aluminum and steel imports. While critics may question how these metal tariffs can be imposed in the name of national security on allies and neighbors like Canada, they miss the fundamental point: These tariffs are not aimed at any one country. They are a defensive measure to ensure the domestic viability of two of the most important industries necessary for United States military and civilian production at times of crisis so that the United States can defend itself as well as its allies.”

But Navarro’s own book topples that argument as well:

“On the benefit side, protectionism within certain basic industries like autos, steel, and electronics helps to create and sustain an industrial base that, in times of war or national peril, can be shifted to defense purposes, However, this national security argument — and the existence of any benefits resulting from protecting these industries — can be legitimately called into question for several reasons.
First, the existence of any sizable benefits rests on the assumption that import competition in our defense-related industries would not only reduce the size of these industries but also shrink them to the point where they would be too small to support our defense needs. The threshold of danger is a matter of some dispute. How big, after all, do our auto, steel, or electronics industries have to be to keep our borders safe? In spite of this uncertainty, few analysts would argue that import competition is likely to push a nation with as large and mature an industrial base as ours anywhere close to that threshold.
Second, it is highly possible that our defense capability might actually be enhanced — not damaged — by import competition. Without the umbrella of protectionism, our defense-related industries would be forced to operate at lowest cost, engage in more research and development, aggressively innovate to stay one step ahead of the competition, and modernize their plants at a faster pace. Thus, while import competition might shrink these industries, they would be leaner, tougher, more efficient, and more modern and in all likelihood outperform a bigger and inefficient (protected) version of those same industries.
On the national security cost side, the major effect of protectionism is to threaten the stability of the international economic order through a global trade war…”
— “The Policy Game,” pg. 82

Navarro lauded the impact of tariffs on saving American jobs in a May op-ed in USA Today, writing:

“There can be no better way to make America — and American manufacturing — great again than to start to rebuild those communities of America most harmed by the forces of globalization. These new facilities will stand as shining testimony to the success of tough trade actions, smart tax policies and targeted worker-training programs.”

But he warned against the harmful longer-run effects of tariffs on jobs in his 1984 book:

“American protectionism threatens employment and profits in the export-dependent nexus because it invites retaliation from our trading partners …
From these direct and indirect effects, it is clear that over time, the major benefits of protectionism — more jobs and higher profits — are largely and perhaps completely offset by a reduction in jobs and profits in export and linkage industries and in those industries vulnerable to the ‘end run.’ Therefore, the argument that protectionism serves as a jobs and income assistance program must be discounted.”
— “The Policy Game,” pg. 79-80

And Navarro has emphasized that tariffs won’t hurt American consumers, saying on CBS’ “Face the Nation” in March that the Trump administration’s moves’ effect on the prices of consumer goods will be “negligible to nothing.”

In 1984, Navarro held a very different view:

“The biggest losers in the protectionist policy game are consumers. Even here. however, ‘consumers’ do not constitute a monolith, for there are several different consumer categories.
Bearing the greatest burden of protectionism are American retail shoppers who pay over $70 billion annually in higher prices (and reduced consumption) for products ranging from autos, bicycles, and color TVs to shoes, shirts, and cutlery.”
— “The Policy Game,” pg. 65

Go deeper: Navarro explains his journey from globalist to protectionist — in his own words.