Geopolitical Challenges and Statecraft
Geopolitical Challenges and Statecraft
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Author : Rachel Poole
Date : February 4, 2021
The articles we have summarized this week explore the ties between the US and China and Russia, which are arguably the most complicated and tense relationships newly elected President Joe Biden will have to address during his time in office. US-China and US-Russia relations have a substantial impact on financial markets, the global economy, and global stability overall. Investors would be wise to assess these dynamics and comprehend the impact that an escalation of those tensions could have on markets.
Beijing Lays Down a Marker in South China Sea
Kathrin Hille and Demetri Sevastopulo, Financial Times
In a season of rising tensions between the US and China, a military exercise by the Chinese air force in Taiwan’s air defense zone was a warning shot towards the US. The operation signaled that the US’s presence in the South China Sea was unwelcome while simultaneously putting military pressure on Taiwan, which Beijing claims as part of China. The simulation was also bellwether of the increasing military rivalry between China and the US, a conflict which the Biden administration will likely struggle to cool. China has stepped up its naval operations in the Bashi Channel, a region of relatively shallow waters in the southeast corner of Taiwan’s Air Defense Identification Zone critical to China’s submarine operations. As the tensions rise, Taiwan may well find itself caught in a proxy struggle between the US – its de facto guarantor of autonomy – and China, whose rhetoric against the island-nation has been notably aggressive in recent history. Given the island’s critical importance in the region, the world will be watching for what happens next to shape the course of US-China tensions.
European Strategic Autonomy’s Growing Pains
Judah Grunstein, World Politics Review
“European strategic autonomy” has been a hot-button issue for some time, as Europe strives to carve out a place on a world stage increasingly characterized by great power competition. The conversation around this topic has moved beyond its original scope of security concerns, reframing policy through the lens of geopolitical power. Ironically, much of the debate surrounding strategic autonomy focuses on Europe’s relationship to the United States – a relationship which fractured under the Trump administration and which appears to have carried bad blood to the Biden administration. This is evidenced by the EU’s fairly hasty agreement with China being rushed through before Biden took power. Even if there were significant gains made for European firms’ access to Chinese markets through the deal, the fact that it was pushed through so quickly before Biden took office is curious, and may indicate that Europe is still somewhat uncomfortable with its new stance. Undoubtedly, the deal (pushed by Merkel) has sent a clear signal to both Beijing and Washington that Europe may not unwaveringly tied to the United States. If Trump was an indicator of the dangers of Europe’s over-reliance on the US, time will tell if Europe’s reaction will swing too far to the other extreme. Advocates and enemies of European strategic autonomy will be watching closely.
The battle ahead: war is coming for your money
John Dizard, Financial Times
War risk is often underestimated by investors. The author of this article, John Dizard, warns that the wartime-model of production the US and other economies are using for vaccines and testing kits has created a precedent for state-directed investment and state-restricted trade. Investors tend to work under the impression that they will always be able to hedge and trade currencies with little to no controls. However, Dizard believes the upcoming generation of policymakers will want to “demote the financial class” by imposing controls on capital flows among other things; “Free international capital flows, and associated financial hedges, have become politically fragile.” State-directed economies often become war economies and before wars, capital controls are typically imposed. Dizard argues the most immediate financial and economic shock could come from an Israeli-UAE attack on Iran. In the longer term, there is a risk of China using military action to take over Taiwan. Overall, a sudden military conflict could cause extreme market volatility which could lead to the “mother of all un-meetable margin calls” by the financial clearinghouses in our leveraged world. Currently, global investors are not taking this probability into account.
The Biden-Putin relationship is already on the rocks
Adam Taylor, The Washington Post
One of the trickiest relationships newly elected US President Joe Biden will have to address is the relationship with Russia. In the call President Biden had with Russian President Vladimir Putin last week, there were obvious differences in the leaders’ outlooks. The one bright spot in their conversation was each country’s pledge to extend the New START agreement, the last remaining nuclear arms control treaty between the US and Russia. On the other hand, there were a variety of issues mentioned by President Biden that Russia decided not to include in their account of the call, such as Russian opposition leader Alexei Navalny (who since then has been thrown into prison by the Russian regime) and the Russian hacking of the US tech firm SolarWinds. One of the most immediate challenges for President Biden and Secretary of State Antony Blinken will be how they handle the Kremlin’s alleged poisoning and arrest of Navalny which has sparked massive protests in Russia. Other unresolved issues of Russia’s malfeasance include the allegations that Russia offered Taliban-linked militants rewards for attacking US troops in Afghanistan and the arrest of US Marine Paul Whelan in 2018. Furthermore, President Biden brought up “Ukrainian sovereignty” on the call, hinting at Russian aggression in eastern Ukraine where Russia-backed separatists hold land amid a ceasefire. Unsurprisingly, President Putin’s language during the call hinted at further resistance to several issues. He referred to the Ukraine issue as a “domestic Ukrainian conflict” and never mentioned Navalny by name but instead called him “the patient”. President Putin’s language at the World Economic Forum last week confirms that his relationship with President Biden is off to a rocky start. In a supposed reference to the US he said in his speech, “The era marked by attempts to create a centralized unipolar global order is over now.”
