Trade – International Policy Monitors

America isn’t back

On 19 February this year, in his first foreign policy speech in Munich, Germany, newly elected President Joe Biden declared that “America is back, the transatlantic alliance is back”, promising words aimed at marking a major change in tone compared to the four years in office of Donald Trump. Unfortunately, developments since that date suggest that there is more continuity between the two administrations than Biden seems to be willing to admit. Whether it is China, Iran, or Afghanistan, Biden has not significantly changed the course set by his predecessor.

Recent events only confirm this trend. The swift US withdrawal from Afghanistan, culminating in the sudden takeover of Kabul by the Taliban on August 16th, suggests that America might have undergone a fundamental change. It has no more appetite for being the world policeman. The spirit of the post-world-war-two period, of US international engagement and promotion of western values throughout the world, might be finally over. America is not falling back into 1930s isolationism, but it no longer sees itself as the centre of the world international community.

The change has taken place over the past few years, triggered by the most disruptive political development that America has experienced in decades: the presidency of Donald Trump. It was Trump who started the US pullout, both from Syria and Afghanistan.

During the 2020 presidential campaign, many democrats vowed to reverse Trump’s extreme isolationism, but once in office, has made few changes in the US policy towards China, Iran or Afghanistan. On Afghanistan, he stubbornly ignored his advisers and international allies and pursued a disorderly and ill-thought pullout. Biden has also refused to change course in America’s dealings with China – portrayed in much US press in almost hysterical cold-war-style tones – or Iran, where despite the rhetoric no progress whatsoever has been achieved on a resumption of the Iran nuclear deal.

This change in American attitude seems to be bipartisan. Both on the right and left of the political spectrum, the prevailing winds favour a modern isolationism. While Trump’s brand of extreme isolationism might still be an outlier in the US political landscape, more moderate forms are now prevalent among both Republicans and Democrats. This situation is not likely to change any time soon, despite Biden’s “America is back” reassurance. And even if a future US President were to seek to reverse course, Trump and Biden have inflicted long lasting, possibly irreparable damage to America’s international image.

To be clear, I am not implying that there is no difference between Biden and his predecessor. Under Biden the US has rejoined the Paris Agreement on climate change, and put an end to Trump’s habit of publicly clashing with his partners at G7 or G20 summits. But Biden’s re-engagement is often limited to diplomatic niceties, or aimed at satisfying the most radical wing of his party. There is little indication that Biden is treating foreign policy with the same high level of priority as presidents Obama, Bush, or Clinton. And the fact that Biden has resumed multilateral diplomacy should not distract from the fact that on military issues, the change in attitude has been dramatic.

Partners in Europe and Asia will no longer be able to look at the US as a reliable partner in defense matters. For Europe, a militarily hesitant America might mean serious exposure to Russian military aggression. To Japan and Taiwan, it might suggest a weakened US resolve to intervene in the face of Chinese or North Korean aggression. Trump’s approach to the Iranian nuclear deal, which included punishing European companies dealing with Iran, has suggested to many Europeans that the EU should seek a greater international role for the euro as an international alternative to the US dollar.

All this risks strengthening the arguments of those in Europe and Asia seeking more independence in foreign and trade policy. But independence always entails the risk of unilateralism, which portends the risk of a fragmentation of the international order that has dominated the world since the end of the second world war.

Allies feel betrayed

This new American isolationism leaves the UK in a bad position at a crucial time in its history, having turned its back on Europe and seeking a new international profile. The Afghan debacle highlighted how totally reliant the UK is on US military support. It should remind even the most bloody-minded UK Brexiters that the past days of UK international dominance are over, in case they had forgotten the lesson of the Suez crisis of 1956. The image of Britain having to sheepishly follow the US moves when leaving Afghanistan will endure.

Europe is also shocked. The reversal will embolden politicians in France and elsewhere who want to step up European military and financial autonomy from the US. German “doves” such as conservative leader and potential future Chancellor Armin Laschet, who had been arguing that the Trump years were just an exception and that trusted Biden’s “America is back,” will have a harder time now defending that position.

Even in areas like the climate negotiations, the impact of Biden’s ill-judged international policy decisions might be felt. Trump caused consternation in Germany when he sought to block the Nord Stream gas pipeline to Russia, just weeks before its completion. The measure has climate implications since without it Germany would not be able to meet its pledges to phase out coal use by the 2030s. Although the Biden administration has reversed the Nord Stream boycott, it nonetheless shows the extent to which a rogue US President can influence climate and energy policies around the world.

The new climate of uncertainty created by the Trump-Biden foreign policy turnaround is likely to have negative impacts on global trade, and risks pushing China into an openly anty-Western attitude.

Africa: The Good News

By Giacomo Valentini

The press is filled with dire news coming from Africa: in July, riots broke out in South Africa following the arrest of former President Jacob Zuma. In Ethiopia, amidst bloody battles and thousands of deaths, fighters from the rebel region of Tigray are overwhelming the national army and threatening to take the capital Mogadishu. All over the continent, COVID-19 causes deaths amid a chronic shortage of vaccines and concern among the medical community that allowing the disease to advance unchecked could give rise to new variants of the disease. The list of bad stories from Africa could continue.

But while this news is undoubtedly concerning, some important but less headline-grabbing developments offer a much more positive vision of where the continent is heading.

Towards better governance

The riots that caused so much damage in South Africa are actually the result of an unexpected resolve by the government of Cyril Ramaposa to fight back against the corruption that pervaded the country during the Zuma years. The fact that Zuma is actually serving time in jail – limited as it might be compared to the misdeeds he is accused of committing – is remarkable. It will hopefully mark a transition in the country away from tribal-based rule to the building of a modern rule-based state.

In Ethiopia, the hope is that the current tragic civil conflict surrounding the Tigray region will not disrupt other, positive developments in the region. One such development concerns the recent launch of the first major blockchain deal in Africa, whereby 5 million Ethiopian students will be given blockchain-based digital IDs, which by improving the credibility of their credentials, will give them better access to business opportunities and financial assets.

Another country experiencing dramatic developments is Sudan, where following a popular insurrection in 2019 that deposed the Islamist despot Omar al-Bashir, an unlikely triumvirate of an urban civilian, a military leader and a warlord is ruling the country, gradually moving it towards a more liberal, business-friendly legal system. Over the past two years the government has lifted many restrictions on public speech, banned female genital mutilations, and repealed various Islam-based laws, including lifting dress obligations for women, decriminalising apostasy, ending public flogging, and partially lifting a ban on the consumption of alcohol.

Clean African energy

On the energy front, the most important development in the Nile basin is the progress in construction of the “Grand Ethiopian Renaissance Dam” (GERD), which will create a gigantic new reservoir along the river Nile, close to the border with Sudan. In July this year, the second stage of the filling of the dam was successfully completed, triggering a new round of complaints from Egypt and Sudan, the down-river countries that are most impacted by the reduced water flow that the reservoir filling is causing. Egypt has issued veiled threats that it was ready to resort to military means should it feel that Ethiopia is damaging its interests with the dam.

Egypt’s rumblings have a broader geopolitical dimension, given the size of the project. With a planned installed capacity of 6.45 gigawatts, the dam will be the largest hydroelectric power plant in Africa when completed, as well as the seventh largest in the world. It would greatly expand Ethiopia’s role in the region, to the detriment of Egypt, which is currently seen as the regional superpower.

Another aspect of the issue concerns Ethiopia’s decision to finance the dam by internal fund raising through bond selling and persuading employees to contribute a portion of their incomes. This decision came because of Egypt’s efforts to undermine the project by denying it traditional sources of international funding such as through the World Bank. The result is a fully domestic funding scheme, no doubt a source of additional pride to Ethiopians. Ethiopia will be able to use the electricity generated for its domestic uses, but also to export it to nearby countries, boosting the regional economy and meeting many of the “green” goals that the international community is pursuing in the fight against climate change. There are, therefore, many reasons to hope that the current troubles in the region will be resolved soon.

Reducing dependence on imported vaccines

On the COVID-19 front, the situation in Africa remains dire, as vaccination levels remain low and developed countries are reluctant to contribute significant amounts of vaccine doses before their own populations are deemed to be sufficiently protected. Even the limited supplies promised under the UN-backed COVAX scheme have largely failed to materialise. But in the longer term, some important developments are underway, which portends to a much more positive scenario for future pandemics.

In July, the government of Senegal announced the construction of a vaccine facility in the country, with the financial and technical support of the EU and the World Bank. A former French colony, the country is host to the Institut Pasteur de Dakar, part of the international Pasteur Institute network. The plant is scheduled to begin production by the end of 2022. Further good news on the vaccine front comes from Cape Town, South Africa, where the Biovac institute announced that in 2022 it will start production of Pfizer’s COVID-19 vaccine, using large batch ingredients from Europe which it will blend and put in vials for distribution in Africa. These will be the first African locations to have vaccine production capacity, a very important step in raising living standards in the continent.

Africa to the stars

One further area of African progress comes from the aerospace sector. In July this year, Uganda became the latest African country to prepare to launch a satellite. It is one of 10 countries on the continent with such plans, while another 13 have already put satellites into orbit. For 2021, African countries are spending over half a billion dollars on their space programmes, roughly double the amount spent in 2018. Many African countries are located at latitudes that are favourable for rocket launches, with increasing interest among international investors in new and existing launch sites on the continent.

Conclusion

The geopolitical consequences of an African renaissance are to be carefully taken into account. China’s close involvement in many investment projects in Africa should be a warning to western countries that they need to step up their own actions there, to encourage the emergence of modern, pluralistic societies and open economies.

The EU gets fit for 55

By Giacomo Valentini, 31 July, 2021

On 14 July, the European commission presented its “fit for 55” initiative, a package of measures to ensure that the EU will cut its greenhouse emissions by 55% by 2030.

The plan radically expands and replaces the bloc’s previous reduction plan, which set a more modest 40% reduction target. The new more ambitious goals will allow the EU to boost its international credentials ahead of the COP26 conference to be held in Glasgow on November 1-12. The EU will be able to tell the conference that it is putting itself on a path to complete decarbonisation of its economy by 2050, thus exceeding the goals of the Paris Agreement. It will also be able to claim to be a key player in talks with other major emitters, most notably the US and China, about how to collectively meet the Paris objectives.

The plan addresses emissions from all major sectors of the EU economy:

Industry and electricity generation
Transport (road, air and maritime)
Buildings
Agriculture and forestry

It presents the vision of a European economy in 2030 where all new cars will be propelled by electric batteries or hydrogen, where renewable energy sources provide at least 40% of total energy use, and where coal, oil and gas will be progressively phased out.

The package of measures will have to go through the normal EU legislative process before becoming law. It is likely many of the individual measures will undergo changes as legislators work to produce agreements they can sell to their voters. Already many member states and industry associations have reacted negatively to several provisions of the package, especially the phase out of ICE cars by 2035 and the introduction of emissions trading for automotive and heating fuels. The Carbon Border Adjustment Mechanism is also likely to raise concerns about its trade impacts.

Assuming these negative reactions can be overcome, the individual measures are to start taking effect in a staggered manner, starting in 2023.

Main actions in the EU’s “Fit for 55” plan

Industrial emissions – EU ETS

lower the current cap on EU industrial greenhouse gas emissions, nearly doubling the annual rate of reduction to 4.2%, compared to 2.2% today. This would mean that EU industrial and energy installations would emit 61% less CO2 by 2030 compared to 2005.

Non-industrial emissions

Under the EU’s “effort sharing” initiative, each state will be assigned new, more ambitious reduction targets for buildings, road and domestic maritime transport, agriculture, waste and small industries.

Renewable energy and energy efficiency

The Commission proposes a new target to produce 40% of energy from renewable sources by 2030, while introducing new sustainability criteria for biofuels
EU states will be given new, more ambitious and binding annual targets for reducing energy use at EU level.

Buildings

The public sector will be required to renovate 3% of its buildings each year to drive the renovation wave while creating jobs and saving money for the taxpayer.
Fuel for heating buildings will be included in a new fuel emissions trading scheme that will be launched in 2026.

Cars

Average CO2 emissions of new cars are to be reduced by 55% by 2030, and 100% by 2035 compared to 2021 levels. All new cars registered as of 2035 will be zero-emission (battery or hydrogen). By that year, EU governments will have to install charging and fueling points at regular intervals on major highways: every 60 kilometres for electric charging and every 150 kilometres for hydrogen refueling.
For existing cars and trucks, petrol and diesel are to be included in the new fuel emissions trading scheme that will start in 2026.

Aviation

Jet fuel suppliers at EU airports will be required to blend increasing levels of sustainable aviation fuels in their fuel. This would include biofuels but also synthetic low carbon fuels, known as e-fuels.
The EU will remove most exemptions from its requirement that aircraft flying to or from an EU country are subject to quotas and can trade emissions in the EU ETS.

Shipping

Shipping emissions will be included for the first time in the EU ETS.
To stimulate the uptake of sustainable maritime fuels and zero-emission technologies, there will be progressively rising purity standards for maritime fuels in EU ports, so that by 2050 these fuels emit 75% less greenhouse gas than today.

Agriculture and forestry (LULUCF)

The overall EU target for 2030 will be to remove 310 million tonnes of CO2/equivalent emissions through carbon sinks. This target would be broken down into individual national targets. By 2035, the EU should aim to reach climate neutrality in agriculture and forestry including both CO2 and methane emissions from fertilisers and livestock.
A new EU Forest Strategy will seek to plant three billion trees across Europe by 2030.

Taxation

New legislation will be presented to require the 27 EU states to remove all exemptions and reduced rates that currently encourage the use of fossil fuels.
To make sure foreign countries with lax environmental standards do not benefit from the increased EU carbon rules, a new Carbon Border Adjustment Mechanism would impose a CO2 tax on imports of certain products.

Funding the transition to a zero-impact economy

The entirety of the revenues from the EU ETS scheme will be devoted to funding climate and energy-related projects. This will include a new €72 billion “Social Climate Fund” which in the six years from 2025 to 2030 will help European citizens cope with the costs of installing energy efficient equipment, new heating and cooling systems, and purchasing zero-emission cars.
The EU will increase the funds available under the existing “Innovation” and “Modernisation” funds (intended to help companies meet their EU ETS obligations), and provide new funding to address the possible social impact on vulnerable households, micro-enterprises and transport users.
The EU has established that the €500 billion InvestEU fund (recovery from the COVID-19 crisis) be used in a manner consistent with the EU’s climate and energy goal.s
The EU is also requiring that 35% of its €100 billion “Horizon Europe” (2021-2027) research and innovation fund be spent on climate and energy-related innovation.

Geopolitics in the Trump Era

The media have given scarce coverage of the renaming in late May of the US Pacific Command (PACOM) to “US Indo-Pacific Command” (INDOPACOM). The change was generally reported as a largely symbolic gesture, mainly underscoring the growing importance of India on the international scene.

But there is more to this change than simple symbolism. The PACOM already covered a vast area, including all the Pacific rim. The new designation extends the coverage to large sections of the Indian Ocean, making it by far the largest US command zone. It should be considered in the context of broader developments in the region and in Washington.

The US sees a dual threat coming from China. The country is seen as a commercial and economic threat, but also as a possible future military one, too. By extending PACOM to include India, the US is bringing another emerging power into the South Pacific game. India shares US concerns about Chinese assertiveness in the region and beyond.

The US security community has long been concerned with growing Chinese claims on sections of the Southern Pacific Ocean, putting pressure on US allies such as Japan and the Philippines. This was already becoming an issue under the Obama administration, but the Trump administration has gone further than its predecessor, reassessing the geopolitical threats to the US and putting China at the top of the list of its concerns, followed by Iran as a distant second. The Trump administration does not consider Russia to pose a major threat to US international interests.

Read in these terms, US ouvertures to North Korea could be interpreted as an attempt to strip China of a military buffer, potentially bringing the US army closer to the Chinese border. At the very least, the signs of warming US-North Korea relations are a thorn on the side of China.

Announcing INDOPACOM on 31 May, US Defense Secretary James N. Mattis made it clear that the inclusion of India served an anti-China agenda. He said the new area of responsibility seeks to strengthen country bonds across “a region open to investment and free, fair and reciprocal trade, not bound by any nation’s predatory economics or threat of coercion, for the Indo-Pacific has many belts and many roads,” an unambiguous reference to China’s “One Belt, One Road” policy for the region.

This ties in with the second type of perceived Chinese threat – the economic one. The US is targeting China through steep import tariffs on a variety of Chinese goods. While imports from China are indeed impacting the US market, the sanctions will almost certainly damage the US economy at least in the short term. But on broader terms, they add to US pressure on China at a time when Chinese economic and possibly political expansion is becoming more and more an issue. As in all wars, the US believes it can inflict more damage on China than the damage the trade war will cause the US. And as seen above, the new US approach is also targeted at China’s “One Belt, One Road” initiative – another economic front on which China risks losses.

The other big geopolitical area where the Trump administration is deploying a new approach is the Middle East. The drivers appear to be both economic and ideological.

On the economic side, US shale oil development has lead to a revision in American approach to world oil policy. With few concerns for its domestic supplies, the Trump administration is using US economic, military and diplomatic might to “redefine the rules” on the international oil market.

The Trump administration has been quick at forging a close working relationship with Saudi Arabia. The Saudi leadership appears to be accepting the emergence of US prominence in oil, on the understanding that the US will never become a major exporter, and will thus leave Saudi dominance of the world market intact.

US relations with Saudi Arabia also support another prong of US foreign policy – a renewed “friendship” initiative towards Israel. The motivations behind such friendship are ideological, but tie in nicely with the geopolitical commonality of interests between Israel and Saudi Arabia – motivated by the common perception of a threat from Iran.

By withdrawing from the Joint Comprehensive Plan of Action (JCPOA), the US has clearly taken sides in the broader Middle East conflict opposing the Sunni and the Shia factions of Islam. Unlike previous sanctions against Iran, the Trump administration’s are targeted at destroying the Iranian economy, attempting to form an “cordon sanitaire” around the country. European banks and oil companies have also begun severing economic ties with their Iranian partners, under the threat of serious US fines if they fail to do so. India is also reported to be cancelling oil contracts with Iran.

In this broad geopolitical picture, Russia and Europe do not appear to play a central role for President Trump.

US relations with Russia are ambivalent, with the Trump administration adopting a usually friendly attitude, with Congress instead showing much greater concern at Russian activities – especially its suspected meddling in the US political process and its aggressive policy of annexation of neighbouring territories.

EU-US relations began cooling already during the Obama administration. Asia was identified as being America’s emerging focus of interest, with Europe seen as a trusted and reliable ally. The Trump administration has brought a dramatic change to this:

Trump has distanced himself from the traditional US commitment to NATO, even airing the possibility of withdrawing its 35,000 troops stationed in Germany
The US has withdrawn from the Iranian nuclear deal, which had been crafted with crucial EU cooperation
The US has imposed tariffs on imported European steel and aluminum, ostensibly as part of its strategy of preventing Chinese exporters from bypassing the tariffs it imposed on them
It has withdrawn from the Paris Agreement on climate change, another European pet project, seen as heralding a new way of tackling complex international problems in a multilateral and inclusive manner.

European reactions

Among European leaders, there is a genuine feeling of betrayal and indignation. Chancellor Angela Merkel recently warned that the trade conflict risks escalating into full-blown war if the car sector becomes targeted. On climate, the EU is attempting to fill the void left from the breakdown of the US-China “axis”, and also to forge a new, more distributed network of “climate leaders”. On Iran, the EU is finding it much harder to forge a strategy to replace the US.

But do not expect a rapid, decisive European response to these changes in US policy. In most policy areas, EU decision making is based on lengthy consultations between its members, a complex and time consuming process.

But an EU reaction is nonetheless underway: trade is one of the rare areas where the European Commission has extensive powers to take rapid action. It has done so with the immediate launch of counter-tariffs in response to the US decision in June to impose tariffs on steel and aluminum imports from Europe.

In the area of defence, Trump’s criticism of NATO has accelerated an already existing project to forge a European defense initiative based on developing a common military procurement market and close military coordination between the EU’s national armies. Attempts to establish a joint European defense and military arrangement, put on hold in the 1950s and restarted in the 1990s in light of the end of the Cold War, have been proceeding at glacial speed. Trump has provided the magic wand allowing for much more rapid progress.

For the longer term, the EU will have to deal with a world where trade conflicts risk becoming more common. This is partly due to a reaction by voters in many countries to post-WW2 internationalism. The EU does not want to become a relic of the past internationalist era. It has the chance of instead showing the way towards a new internationalism.

Outlook

It is to be expected that over time, the international order will adjust to the new US policy. Europe will do its best not to find itself wrong-footed again by future unexpected changes in US policy. It is too early to determine if and how the Europeans will beef up their common foreign policy abilities – for example by giving the EU High Representative for Foreign Affairs more autonomy in forging and representing EU foreign policy. But European governments are never again going to take US support for granted.

China’s response might be more predictable. The country is likely to conclude that the US will never be a reliable partner. It will thus continue to pursue its own pattern of geopolitical alliances and international power peddling.

In the long run, the Trump message to the world is: don’t count any longer on the US as a guarantor of world stability. Emerging economic powers in Asia, Africa and Latin America are listening.

Giacomo Valentini, 6 july 2018