Wednesday 25 January 2017

Goodbye military intervention, hello economic warfare

Donald Trump won the US election on a promise to ‘make America great again’. Now he is in the Oval Office, he will actually have to make good on those promises. He will need to create new jobs and improve living standards for America’s ‘left-behind’ who turned out en masse to vote him in. Trump appears to believe that the quickest way to achieve this is by revamping and restructuring the US’s global economic relationships, particularly with China.

Inevitably, such an upheaval will cause geopolitical tensions and Britain must be careful not to get sucked into a vortex of trade warfare. However, if we play our cards right, the process could provide a fantastic global opportunity for the UK.

The next four years are going to be about the economy. We know that the US can mount a military operation anywhere in the world but whether it can compete economically across the globe is much less certain. Trump clearly intends to change that and will use an arsenal of trade sanctions, economic tariffs and market access to do so.

All the evidence indicates that he intends to focus on China – the country he blames for taking American jobs and undermining the US economy. That the new head of the White House National Trade Council is the author of a book entitled ‘Death by China’ tells us a great deal. Then there is Trump’s fighting talk, threatening to block China from the islands it has built in the contested South China Sea. Also note the engagement with Taiwan’s leader in the immediate aftermath of Trump’s victory, raising questions over his recognition of the ‘one China’ policy. In his first press conference as president-elect, Trump also effectively accused China of that most heinous crime of the modern day – hacking.

The pattern is clear. Trump has consistently vowed to get tough on China. His big plan for raising US living standards quickly is to weaken China and to force its economy to work more in line with American interests.

However, regardless of what Trump says, we know that China will not compromise its interests easily. Its economic might is formidable; this is hardly Mexico, deeply dependent on the US economy. To achieve his aims, Trump would have to start by weakening China politically by using the old authoritarian strategy of ‘divide and conquer’. This means splitting the Middle Kingdom from its major international ally – Russia. Making friends with Russia against China would have the additional benefit of opening up a new channel for the US to build relations with Iran and Iraq.

All this could prove great news for Russia, whose economy is hurting after two years of international sanctions imposed after its military intervention in Ukraine. With a presidential election coming up next year, Vladimir Putin is badly in need of a light at the end of the tunnel.

With Trump in the Oval Office and former ExxonMobil chief Rex Tillerson – who received the Order of Friendship from Putin himself in 2013 – as Trump’s chosen Secretary of State, Russia is much better-placed to secure concessions that it ever was during the Obama and Clinton years.

US recognition of the annexation of Crimea, finance, technology, even letting Putin’s Russia loose to pursue its ambitions in Ukraine, the Baltics and perhaps Moldova are all on the cards. Trump has also said that he would revise US involvement in the fight against terrorism, leaving much of this to Russia and its allies – a move that would be unwise and reckless to say the least.

For Russia, such concessions will come at a price: betraying its alliance with China.

This will be a painful decision for Putin. The alliance with China is in Russia’s national interest. It would be no exaggeration to describe turning against the one country that has supported Russia through the economic pain of sanctions as a betrayal. Not only that, China has supported all of Russia’s allies, from Kazakhstan to North Korea and supported Putin’s circle as well as the president himself. All this notwithstanding, Trump’s offer will be a tempting one for the Russian president.

Putin can try to play Trump, having his cake and eating it by taking the new concessions without committing to a rift with China. However, Trump will want to see a return on his investment. Granting concessions to Russia without a firm commitment to back the US against China would undermine Trump’s self-proclaimed reputation as a master deal maker.

Putin will need to make a decision, knowing that whichever friend he chooses, the other will not make life easy.

All this might seem like a long way away from the UK or even from Europe – but it is not.

Previously, British officials have made much of a ‘golden age’ for Anglo-Chinese relations, with numerous business and investment projects on the cards, including the recently re-approved Hinkley Point. The Conservative government, particularly under the policies of former chancellor George Osborne, has welcomed Chinese investment with open arms.

If Trump gets his way in splitting up Russia and China– which he probably will, given Putin’s lack of options – his appetite will grow. He will want wider support and may well expect Britain to choose between an alliance with China and its special relationship with the US. This presents a myriad of challenges for Theresa May as she prepares to meet the new US president. Handling it is one of the most important foreign policy and economic challenges for Britain today. We must not give in easily.

Trump will be a tough, rough and cynical negotiating partner. The UK must be practical in response.

We are not Russia, which must beg for international pardon if it wants to see its sins of the recent past forgotten. The UK can negotiate from a position of greater strength.

If Trump wants the UK as an ally against China, he should offer Britain compensation. This will mean compensation for lost Chinese investment and for the costs of Brexit.

After all, the UK has embarked on Brexit planning with a strong focus on greater collaboration with China, hoping this will help to rebalance any losses in European trade. If the US wants us to turn our back on that, it must compensate us properly.

It would, however, be much more prudent for Britain to position itself as a bridge between the US and China. Trump’s aggressive stance towards China might not succeed – at which point it will be in everyone’s interests for the two superpowers to have a channel for constructive dialogue.

With the US-UK special relationship and cordial, mutually beneficial relations with China, Britain is ideally placed to fill that role. We could reap dividends from both sides and play a truly important role on the world stage.

In order to capitalise on the opportunity, we must be robust. We must make our position clear from the outset and stick with it. To be Trump’s equal in negotiations, we must pitch business acumen against business acumen. This means that business representatives should be involved alongside politicians, to bring their real-world expertise to the negotiating table. In this way, we will be ready to protect our interests and drive forward our vision in future negotiations with Trump.

The Trump presidency could present Britain with a brilliant opportunity: a chance to reposition ourselves as a true global power with political and economic ambitions and boasting interests around the world once again. We must be ready to grasp it.


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