At the Intersection of Geopolitics and Geoeconomics

August 15, 2023 | Volume 6, Issue 7 | The BlackSummit Team

Here is a summary of important events that unfolded over the last month, and which may affect economic, financial, and geopolitical issues in the months ahead:

North America

• Following China’s export controls on key semiconductor metals gallium and germanium last month, the US unveiled plans to restrict investment in Chinese high-tech sectors. The executive order aims to ban new private equity, venture capital, and joint ventures in Chinese quantum computing, semiconductors, and some artificial intelligence. Simultaneously, the White House declared a national emergency due to China’s “threat of advancement” in sensitive military-related technologies, further escalating tensions with China. The Chinese embassy in Washington has spoken against the measures, saying they will “seriously undermine the interests of Chinese and American companies and investors”, while US officials have reiterated the order’s “narrow” focus that will maintain the US’ commitment to open investment.

• Former President Donald Trump was indicted on four felony counts relating to his alleged efforts to overturn the 2020 election results. The indictment includes conspiracy to defraud the United States, conspiracy to obstruct an official proceeding, obstruction of and attempt to obstruct a proceeding, and conspiracy against rights. Trump pleaded not guilty and has denounced the indictment as “a persecution of a political opponent.” On similar grounds, yesterday, Trump and 18 of his allies were indicted in the state of Georgia for their efforts to overturn his 2020 election loss in the state.

• Fitch Ratings downgraded the US’ credit rating from AAA to AA+ citing “expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to AA and AAA rated peers over the last two decades that has manifested in repeated debt-limit standoffs and last-minute resolutions.” Markets reacted negatively to the news, and the 10-year bond yield rose to its highest point yet in 2023. The effect of the ratings downgrade is largely a reputational hit, as the dollar is still the world’s top reserve currency.

• The Maui wildfires have become the deadliest blaze in the US in over a century, as 96 people have been killed and tens of thousands of residents and tourists have been evacuated from the island. The cause of the wildfires, which have so far burned 270 hectares of land in Kula and 880 hectares of land in historic Lahaina, remains unknown. Wildfire containment is ongoing.

Europe

• Europe continues to grapple with migration, particularly as the issue has turned into a political football match in European elections moving forwards. In a bid to slow the flow of illegal migrants passing through the Mediterranean, the United Kingdom (UK) and Turkey have struck a deal to exchange customs data more quickly with the goal of enabling law enforcement agencies to better work together between the two countries. The move comes at a time when the Mediterranean has seen at least 2,063 migrants go missing or found dead this year, a number that surpasses the previous annual totals of the last four years.

• Saudi Arabia’s two-day summit in Jeddah ended without a breakthrough in peace talks over the war in Ukraine. While nearly forty countries attended the talks – including notable Russian partners such as Brazil, India, and China – Russia itself was not invited to attend. Ukraine stood firm on its 10-point peace proposal, which includes the withdrawal of Russian troops and return of Russian-annexed territory, while Russia commented that any peace talks are a positive development. Russia continues its military offensive in several regions in Ukraine, and it has recently targeted Ukrainian ports and agriculture infrastructure following its withdrawal from the Black Sea Grain Initiative, a deal that ensured the safe export of Ukrainian grains, last month.

• Poland has announced that it would move an additional 10,000 troops to its border with Belarus in response to the deployment of Wagner fighters into Belarus. The mercenary group’s forces moved into Belarus as part of an agreement brokered to end the Wagner mutiny. Since relocation, the group has engaged in training Belarussian forces and a group of around 100 fighters have moved towards the Suwalki Gap, which separates Belarus from Russian Kaliningrad. Adding to the tension, Poland has accused Belarus of violating its airspace with a military helicopter, an accusation that Belarus has denied.

• Italian Defense Minister Guido Crosetto seeks to exit China’s Belt & Road Initiative (BRI) “without doing damage” to its relationship with China, however it is a move that will likely be taken offensively by China. Italy’s 2019 decision to enter the BRI came as a surprise to other G7 members, with critics arguing that the decision has left Italy worse off as Italy’s trade deficit with China increased. The announcement comes as European leaders are reassessing their long-standing economic ties with China. Beijing has become increasingly competitive, especially in technology sectors, and the trade war between the US and China continues to escalate. 

Asia, Eurasia, & the Pacific

• China is dealing with the threat of deflation, as consumer and producer prices fell for the first time since 2020. China’s slow reopening hasn’t led to a surge in economic activity like the US and other major economies experienced as people released pent-up demand. Instead, consumer spending has remained subdued as a property slump has impacted consumer confidence. Beijing has few options to deal with the threat, as the government has been loath to provide stimulus to help alleviate the issues. As Chinese manufacturers lower prices, imports from China may become cheaper and would help alleviate inflationary pressures on certain goods in other major economies.

• Thailand has spiraled deeper into political crisis. Elections for a new prime minister, set to occur on August 4^th, were postponed, leaving the nation without a new leader or a new government. The decision to delay elections came just one day after the Move Forward Party was ousted from its own coalition. A few months ago, the Move Forward Party won elections with more than 14 million votes for its democratic agenda to cut the military from power, amend royal defamation laws, and break up monopolies in the economy. 

• North Korea’s leader Kim Jong Un has replaced his top general in a shakeup of military brass and has called for the country to prepare for strengthened war deterrence in a “more practical and offensive” manner, as the country responds to allied joint military exercises by the US and South Korea. The move comes at a time of heightening tensions in the region and on the tail of Russian and Chinese high-level delegations to North Korea, with both countries affirming their relations with the North Korean state.

• The Philippines has protested what it describes as a blockade of a shoal in the South China Sea by the Chinese coast guard. China’s coast guard claimed that it exercised restraint and performed professionally, even as it admitted to firing water cannons on the Philippine military’s re-supply vessels near the shoal. China still lays an expansive claim to the South China Sea, which it contests with other Southeastern Asian nations, even though its claim was turned down by an international tribunal in 2016.

Middle East & North Africa

• Iran has transferred five Iranian-Americans from prison to house arrest in exchange for access to billions of dollars that were frozen in South Korea as part of a tentative deal between Washington and Tehran. Iranian officials indicated that the move could eventually lead to the full release of the Americans. The deal comes at a time during heightened tensions between the two countries, as thousands of US troops have arrived in the Persian Gulf who may board and guard commercial ships in the Strait of Hormuz, where the US has accused Iran of attempting to seize numerous commercial vessels in the last two years.

• Pakistan’s leader has dissolved the country’s lower house of parliament as the first step to a general election by mid-November. This would be a regular formality if not for the possibility of a delay if Pakistan’s electoral commission decides to redistrict based on results of a recent census. The uncertainty of an election date comes amidst political strife in the country, as popular opposition leader, Imran Khan, has been convicted of corruption and has received a sentence of three years in prison while his party is doing well in the polls. Khan was disqualified from holding public office for five years by the electoral commission last year, a move which Khan called politically motivated. Pakistan has also seen one of the region’s worst terrorist attacks in recent years as an Afghan branch of the Islamic State claimed responsibility for a suicide bombing that killed over 50 people at a pro-Taliban party’s election rally.

• White House and Saudi officials met to continue discussions regarding normalization between Israel and Saudi Arabia. US officials have strived for months to reach an agreement, and while conversations have proven “productive,” no framework has yet been agreed upon. Regarding the talks themselves, American diplomats have commented that there is a long way to go, especially given Riyadh’s has insisted any deal rest on Palestinian statehood. Further complicating progress is Israel’s controversial judicial reforms that have sparked protest throughout the country. 

Latin America & the Caribbean

• Anti-corruption presidential candidate Fernando Villavicencio was killed leaving a campaign event in Ecuador’s capital, Quito, just days before the country’s election. Villavicencio was a former journalist who was outspoken against links between organized crimes and the country’s politicians. Current President Guillermo Lasso said that elections would continue as planned with soldiers guarding polling stations and called for three days of national mourning. Six arrests have been made in connection to the attack, and the suspected shooter died from injuries sustained in the ensuing shootout. The assassination comes during an election centered around the surge in violent crime in Ecuador, as murder rates have more than doubled between 2020 and 2022.

• Yesterday, Argentina devalued its currency by 18% and raised interest rates from 97% to 118% as the government has run out of options and money. After years of trying to avoid a currency devaluation, Argentinian President Alberto Fernandez made the drastic decision following the primary election win of the far-right, libertarian presidential candidate Javier Millei yesterday. Millei wants to dollarize Argentina’s economy and get rid of the central bank to stabilize the country’s economy, proposing drastic reductions in government spending and privatizing companies. The ruling Peronist party’s loss reflects the public’s growing anger with the government’s failure to raise the country from financial ruin.

• Leaders from 8 South American countries – Bolivia, Brazil, Colombia, Ecuador, Guyana, Peru, Suriname, and Venezuela – gathered in the Brazilian city of Belem this month to discuss shared rainforest protection policies that would stop the destruction of the Amazon rainforest. At the summit of the Amazon Cooperation Treaty Organization (ACTO), the nations adopted a “new and ambitious shared agenda” that included respect for Indigenous rights, cooperation on water management and health, and sustainable development. A new science body that will meet annually to produce authoritative reports was also established. However, the Belem Declaration stopped short of adopting Brazil’s pledge to end illegal deforestation by 2030 or Colombia’s pledge to stop new oil exploration. 

Sub-Saharan Africa

• Niger’s military junta, which unseated democratically-elected president Mohamed Bazoum, said that the detained president may soon face treason charges. The junta failed to reach a deadline to reinstate Bazoum issued by ECOWAS, a bloc of West African nations, which had threatened to use military action if the deadline was not met. The bloc ordered the deployment of a standby force to restore constitutional rule to Niger, with Nigeria, Benin, Senegal, and the Ivory Coast saying they would contribute forces. While analysts believe that military conflict is unlikely given that ECOWAS has no desire to push Niger into a civil war, the situation is still developing. The charges levied against Bazoum carry the death penalty, signaling the junta’s desire to cement their rule.

• During a visit by the Chinese commerce minister to South Africa, Chinese and South African leaders signed trade deals worth $2.2 billion that aim to boost South African manufacturing exports to China and Chinese investment in the African country. South African Trade, Industry and Competition Minister Ebrahim Patel said China will assist the country’s efforts to industrialize and transition to a greener manufacturing economy. In 2022, South Africa had $56.3 billion of trade with China, $32.5 billion of which were exports to China.

• At least 26 people were killed and 50 were injured in an explosion in the northwestern town of Finote Selam in the Amhara region of Ethiopia as fighting between the government and Fano, a local militia group, has intensified. During the two-year Tigrayan conflict which ended last November, Fano was allied with government forces. The two have since fallen out after the government moved to disband regional forces. The Ethiopian Human Rights Commission reported heavy fighting in and around cities across the Amhara region.

Suggested Reading

The End of China’s Economic Miracle

Foreign Affairs

After Niger’s coup, the drums of war are growing louder

The Economist

Russia Killed the Black Sea Grain Deal. These Countries Could Suffer Most.

Council on Foreign Relations