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Energy & Economics
USA and China trade war concept. suitable also as South China Sea conflict

Are tariffs, of all things, the salvation of free trade?

by Dr. Jan Cernicky

We can talk about selective tariffs - but not about protective tariffs - Concerns about the effects of economic dependencies are increasingly overshadowing the benefits of open global trade. - In the current geopolitically charged situation, there may be situations in which trade policy dependencies - for example in the case of rare earths - can be mitigated by state intervention. - In such cases, selective tariffs are the best choice. Subsidies to build up own production capacities are significantly less efficient, more expensive and undermine the market principle. - Protective tariffs for industries whose products are sufficiently available on the global market, such as the automotive and steel industries, should be rejected. - The fundamental goal should be the preservation of rule-based world trade in accordance with WTO rules. Any kind of state intervention must be justified on the basis of solid data. Background During Chinese party leader Xi Jinping's visit to Europe in May, there was once again a lot of talk about economic dependencies. They are seen as a threat to the "economic security" of Germany and Europe. What often seems to fade into the background is that the arguments for a global division of labor remain valid: it enables general prosperity precisely because certain countries and regions concentrate on the production of individual goods and consequently do not produce others themselves. On the other hand, it is also true that the economic damage more than compensates for these advantages if a state such as China uses economic dependencies as political leverage and, in the worst case, stops supplying goods for which it has a monopoly. In principle, China has achieved such a monopoly for refined rare earths and some other smelted metals.1 However, this clearly does not apply to electric cars, steel or solar cells. The reason for such quasi-monopolies is simple: Chinese companies export the products in question so cheaply that production elsewhere in the world is not worthwhile. If this were solely due to the fact that Chinese companies produce better, the only correct response would be to roll up our sleeves and become better ourselves. In the case of rare earths from China, however, the advantage of Chinese manufacturers is largely due to direct and indirect subsidies. In such an environment, in which Chinese producers have massive cost advantages due to politically granted benefits, it is not worthwhile for private companies outside China to build up their own capacities for the production of rare earths, for example. Even if prices were to rise and economic production were possible, this would not be rational; state-supported Chinese companies can easily survive periods of low prices. The usual market mechanism, whereby companies with the most competitive solutions survive, does not apply here. Even technologically superior production methods do not prevail due to Chinese subsidies. Possible reactions The best economic solution is undoubtedly for the state not to react at all and to see the availability of very cheap products that are available for domestic consumption or for further processing as an advantage. The fact that the products in question have been made cheaper by Chinese taxpayers' money can be gratefully accepted. It would be a genuine and courageous system competition not to respond with the same instruments, but to maintain a market economy system and thus exploit the weaknesses of the counter-design. Shaping the economic framework conditions politically in such a way that innovations that provide alternatives to the use of the raw materials in question can be developed more easily would be a reaction that is still justifiable within the framework of the social market economy. This would be, for example, favorable recycling processes. In most cases, such innovations are possible. However, their introduction and application is significantly more expensive than importing standard products from China. If dependence on China is really not justifiable in individual cases,2 there are two possibilities for state intervention in the form of subsidies or tariffs, which may be justifiable in rare individual cases, but are not provided for within the framework of the World Trade Organization (WTO). Important indicators for the assessment of dependencies are, for example, the lack of substitutability of the imported good, the degree of concentration of supply in a country and the relevance of the good in question for the domestic economy. However, state intervention to protect domestic production sites, such as is being discussed for electric cars or steel, appears to be explicitly unjustifiable. There is a sufficiently diversified supply of such products on the global market and there is no dependency on just one country. Economic effects of tariffs and subsidies Tariffs and subsidies both aim to compensate for the price difference to cheaper foreign competitors. Tariffs make imports more expensive, while subsidies make domestic production cheaper through state subsidies. Both have a negative welfare effect, but the correlation is more harmful in the case of subsidies. Figure 1 uses a schematic example, which is not based on empirical data, to illustrate the effect if the costs of producing rare earths in Germany were reduced to the level of the import price from China (country 1) through subsidies.   With the subsidies, it is now economically viable for the subsidized companies to produce the rare earths from ore in Germany. The actually cheaper ways of importing rare earths from alternative countries or using other technical solutions remain more expensive and would hardly be used. The goal of reducing dependencies would therefore be achieved in a very expensive way. Large sums of taxpayers' money would be spent on this. In this example, the most expensive possible route is discussed in order to clearly demonstrate the negative consequences. In reality, however, it is very unlikely that the cheapest route in economic terms will be subsidized. This is because there are always many different providers and technical solutions, which means that all the options are often not even known or can only develop in the long term. It is therefore very unlikely that the optimal subsidy recipients will be selected. A benefit is created for a specific, relatively arbitrarily selected application, but not for others. The effectiveness of the market is thus distorted and the competitiveness of the location decreases as a result. As the subsidies compensate for a competitive disadvantage, it is unlikely that high additional tax revenues will be generated. The funds spent are no longer available for other state investments. The result is a loss of welfare on this scale. Only the subsidized companies benefit from this. The price at which rare earths can be purchased in Germany does not change. It is also possible to subsidize production abroad in order to reduce dependence on one country. Such models are being attempted via "raw material partnerships", for example. Such an approach can be significantly cheaper than subsidizing domestic production. In the example (Figure 1), only the significantly lower import price from country 2 would have to be subsidized. However, the other disadvantages of subsidies listed above also apply in this case. In particular, it is even more difficult to obtain all the necessary information for projects abroad and therefore even less likely to choose the most cost-effective option. The targeted tariffs discussed here are intended to respond to dependencies on supplies from a specific country. They are therefore only imposed on imports from this country. Other imports are not affected. To stay with the example, the importer pays a surcharge on the imported rare earths. This makes his product, for which he processes rare earths, more expensive domestically. Manufacturers abroad who are not affected by the duty become more competitive in comparison.    If the tariff rate were set in the same way as above so that the competitive disadvantage for the most expensive option - metal processing in Germany - is compensated for in terms of price, the tariff rate on imports from China would be very high. However, consumers of rare earths in Germany would still have access to the significantly cheaper other options. Metal processing in Germany would therefore remain unprofitable, while imports - now no longer from China, but from country 2 - would continue to be significantly cheaper. However, the price difference to the cheapest processing variant in Germany, in the example (Figure 2) recycling, would no longer be so great, so that this variant would be easier to make economically viable by scaling up or using innovative technical solutions. In reality, the introduction of customs duties would not divert all procurement to a single country; there is no capacity for this anywhere. The result would be a mix of different suppliers, which would make it more worthwhile to drive innovation in Germany. Changes in the price structure between the different providers and processes over time can be tracked by customers in this model - the best process (or the second best, if the best is used in China) then prevails on the market. The welfare loss here arises from the fact that consumption or further processing of the imported products becomes more expensive by at least the difference to the second cheapest source of supply. However, the volume of the welfare loss is significantly lower than in the case of subsidies. It can be argued that tariffs make the prices of downstream products in the supply chain more expensive, whereas subsidies do not. While this is true, it overlooks the fact that the much larger group of companies and consumers who are not directly affected do not suffer any direct additional costs in the case of tariffs, but bear the costs of subsidies through their taxes. Political effects of tariffs and subsidies In terms of their political and structural consequences, subsidies are more harmful than targeted tariffs. This is simply due to the procedure at the end of which individual companies receive a subsidy decision. An "objective" allocation is hardly possible here. On the contrary: the procedure is susceptible to personal relationships, political influence and direct corruption. Furthermore, subsidies that are only granted in one country of the European Union jeopardize the integrity of the European Single Market. Similar problems can arise with customs duties. This happens when they are used to protect certain domestic industries. In the case of targeted, selective tariffs, which are based on clearly defined, objective categories, such as the degree of dependence on a product from a country, there is little scope for political influence once the criteria have been established. Tariffs cannot harm the European single market either, as they can only be imposed at European level anyway. WTO conformity The reduction of tariffs and subsidies within the framework of the World Trade Organization (WTO) and the predecessor agreement GATT are a central reason for the reduction of global poverty in recent decades and one of the cornerstones of Germany's prosperity. It is therefore self-evident that tariffs and subsidies not only contradict the idea of the WTO. They also contradict its two basic principles: Subsidies for domestic production contradict the non-discrimination principle3, tariffs against individual countries violate the Most Favorite Nation Clause4. There are exceptions for both in the WTO rules. For example, WTO members must notify subsidies so that they can be examined and other countries can object to them if necessary. In principle, subsidies are only intended - and within a narrow framework - for developing countries, which still includes China. However, the notification of subsidies to the WTO hardly works any more. For example, 64 countries (around a third of members) have not even notified their subsidies for 20175. Nevertheless, some of China's subsidies may indeed be legal according to the letter of the WTO rules. But they are certainly not legitimate, as the aim of the WTO is to liberalize world trade and not to cement the opposite. And even if subsidies are known, the WTO cannot take legally binding action against them due to the dispute settlement mechanism blocked by the USA. Consequently, the USA has not reacted to the unresolved problem of China's subsidies within the WTO framework. Although tariffs have been imposed on some Chinese imports, the Inflation Reduction Act (IRA) is a huge subsidy program. If the dispute settlement mechanism were to work, the IRA would almost certainly have to be declared WTO-incompatible. However, as this path is blocked, many countries and regions of the world - including Germany and the EU at the forefront - are reacting with their own openly WTO-incompatible subsidy programs. The current subsidy race is constantly creating new reasons to impose subsidies in response to the subsidies of others. This will further damage the multilateral trading system, which has been very successful for Germany in particular. Targeted tariffs, on the other hand, which can be used to eliminate competitive disadvantages caused by subsidies and which are therefore only levied on goods from the subsidizing country, are in principle in line with the basic idea of the WTO. This is because it balances out a distortion of the world market created by subsidies. Therefore, tariffs are generally permitted as a reaction to dumping and subsidies6. A reaction to subsidies via tariffs within the strict WTO framework is currently hardly possible for the reasons mentioned above. In this situation, it should be actively communicated that in an unsatisfactory legal situation, the path of the least evil will be taken with tariffs. At the same time, serious efforts should be made to reform the WTO. Conclusion The argument: "We want to have the production of certain things in Germany because we believe that we would no longer be supplied with them in crisis situations" is not an economic argument. Production for strategic reasons is always a financially subsidized business. Because if there was money to be made, the private sector would do it. Politically, this line of argument is perfectly legitimate - as is the attempt to steer the economy directly in a politically acceptable direction through subsidies. However, this has nothing to do with a social market economy, but rather the opposite. However, if Germany and Europe are to remain committed to the social market economy and open multilateral trade, the only economically sensible response to problematic dependencies from abroad (if one has to respond at all) is to impose targeted, selective tariffs - but certainly not protective tariffs for domestic production sites. The German government should work within the EU to set a clear framework for this and at the same time work on a reform at WTO level to finally reduce the rampant subsidies. Because these - and not tariffs - are currently the biggest threat to the open global trading system that is so important to us. References 1 Vgl. etwa die Darstellung der Abhängigkeiten von für die Energiewende nötigen Metallen in Cernicky (2022): https://www.kas.de/documents/252038/16166715/Energiewende+und+Protektionismus+-+Wie+gehen+wir+pragmatisch+mit+China+um.pdf/442ba770-d504-43cc-25f1-eaf7d970dfc1, genaue Zahlen vgl. etwa die Auflistung des BDI: https://bdi.eu/publikation/news/analyse-bestehender-abhaengigkeiten-und-handlungsempfehlungen/ 2 Zum Versuch einer entsprechenden Bewertung vgl. etwa die von der KAS und dem Ifo-Institut durchgeführte Studie zu Abhängigkeiten in Lieferketten, Flach et al (2021): https://www.kas.de/de/analysen-und-argumente/detail/-/content/globale-wertschoepfungsketten 3 Art. III GATT 4 Art. I GATT/ WTO 5 WTO | 2023 News items - Members reiterate concerns on lack of transparency with subsidy notifications: https://www.wto.org/english/news_e/news23_e/scm_02may23_e.htm 6 GATT Art VI, Dumping und Ausgleichzölle Publisher: Konrad-Adenauer-Stiftung e. V., 2024, Berlin Design: yellow too, Pasiek Horntrich GbR Produced with the financial support of the Federal Republic of Germany. This publication of the Konrad-Adenauer-Stiftung e. V. is for information purposes only. It may not be used by political parties or election campaigners or helpers for the purpose of election advertising. This applies to federal, state and local elections as well as elections to the European Parliament. The text of this work is licensed under the terms of "Creative Commons Attribution-ShareAlike 4.0 international", CC BY-SA 4.0 (available at: https://creativecommons.org/licenses/by-sa/4.0/legalcode.de).

Energy & Economics
U.S. President Joe Biden participates in a bilateral meeting with General Secretary of the Chinese Communist Party Xi Jinping. Monday, November 14, 2022, at the Mulia Resort in Bali, Indonesia.

Retaining US influence in Africa requires bridge-building with China

by Jakkie Cilliers

In a complex new multipolar world, a country’s allies and friends will determine the global pecking order. Despite its large population, Africa is a small global player. Its combined economy is less than 3% of the world economy, and Africa’s political heterogeneity makes it difficult to stand united on contentious issues such as China’s claim over Taiwan or the war in Ukraine. Although most African countries aren’t part of global value chains, external economic challenges and tensions affect them deeply. Africa’s most violent period since independence was in the years before the Berlin Wall collapse in 1989. At the time, tensions between the United States (US) and former Union of Soviet Socialist Republics (USSR) led to intense proxy wars in the Horn of Africa and Angola. Based on that experience, a new era of competition between the US and China doesn’t augur well for the continent. At its peak, the USSR’s economy was only half that of the US, whereas the US and China will be roughly equivalent in the next decade. China is already larger when using purchasing power parity. By 2050, the Chinese economy will be almost 30% bigger. China is the world’s factory, manufacturing cheaper and more than anyone else. It has flooded the world with affordable solar and wind products to fuel the green transition. China is the global trade destination for many and it builds much of Africa’s infrastructure. China and surrounding Asian countries are emerging as the most important source of economic growth globally. According to an in-depth study by The Economist in May 2022, ‘No other country comes near the breadth and depth of China’s engagement in Africa.’ In contrast, US trade and investment with Africa is declining. If the US wants to maintain its influence on the continent, it should find ways to collaborate rather than compete with China. The bill proposed in April by a bipartisan group of senators to renew the African Growth and Opportunity Act (AGOA) for another 16 years shows that influential US groups are willing to engage with Africa for the long haul. With its low levels of trade reciprocity, the AGOA trade model is well suited to Africa’s needs. The US should use AGOA as a carrot to boost Africa’s exports, not a stick for economic coercion to achieve political objectives. The rise of China in a crowded world means the future will be quite different to previous periods of competition and cohabitation. Many of Africa’s ruling elites cast longing eyes towards China’s autocratic development model as a means to reduce poverty. Democracy and the free market haven’t delivered development, they argue. There is a sense of restlessness in Africa, where the median age is only 19. The youth bulge is expanding with limited prospects for formal employment, a healthy life or meaningful education. To analyse the impact of various global futures on Africa’s development, the Institute for Security Studies’ African Futures and Innovation programme has examined recent and likely global power shifts. For the past century, the US has been the most powerful country in the world. It has successfully presented a narrative that equates global development, stability and progress with American interests and values. Many Africans look to the US, given its freedoms and opportunities – although positive views of the US are dropping in number. The image of a violent mob descending on the Capitol in January 2021 shattered the myth of American exceptionalism, exposing a country torn asunder by its political divisions. Rural America’s reaction to globalisation and the rise of domestic populism detracts from US soft power. At the same time, its declining ability to deter others is on display in the Middle East, which is on a knife edge. Instead of oil from Africa, the next commodities boom for the continent will come from minerals needed for the renewable energy transition. This is reflected in a recent United States Institute of Peace report exploring Africa’s role in diversifying US critical mineral supply chains and strengthening the rule of law, transparency and environmental and labour standards. The US faces an uphill struggle since China has already secured much of Africa's known supply of critical minerals. China’s dominant position regarding these resources reflects the extent to which it is in a different league to the former USSR. Instead of confronting China in Africa, the US must find ways to collaborate with it. Africa cannot again serve as an arena for proxy conflicts and competition, this time between the US and China. Plus, it is Russia, not China, that is now the spoiler in Africa. The extent to which Sahelian countries are experiencing a resurgence of military coups with regime protection provided by Russia’s Africa Corps (previously Wagner) augurs poorly for the continent’s future. The more significant challenge is that the West faces a much larger and more powerful cohort of detractors, perhaps most readily depicted as the G7 versus BRICS+. The impunity that the West has provided to Israel for its war in Gaza and further afield reinforces global south views that different standards apply to them compared to the developed north. Current indications point to China becoming more influential in Africa, with many countries turning eastward. Rather than a new unipolar or even bipolar order, the trend is towards a complex, multipolar global power configuration where one’s allies and friends will determine the international pecking order. Learning to rely on them will be a new experience for the US. This article was first published in Africa Tomorrow, the African Futures and Innovation blog. Exclusive rights to re-publish ISS Today articles have been given to Daily Maverick in South Africa and Premium Times in Nigeria. For media based outside South Africa and Nigeria that want to re-publish articles, or for queries about our re-publishing policy, email us.

Energy & Economics
SHENZHEN, CHINA - CIRCA NOVEMBER 2019: ZTE room at the High-Tech Fair China 2019 at Shenzhen Convention & Exhibition Center.

What should Europeans do about the U.S.-China Rivalry in key strategic technologies?

by Roberta Haar , Hengyi Yang

한국어로 읽기Leer en españolIn Deutsch lesen Gap اقرأ بالعربيةLire en françaisЧитать на русском In October 2023, the EU Commission identified four technology fields as critical: advanced semiconductors; artificial intelligence (AI); quantum, and; biotechnologies.[1] All four areas are greatly impacted by the U.S.-China rivalry in technology, making it essential for Europeans to understand the Sino-American competition. This article examines this rivalry from the Chinese and U.S. perspectives. It recounts their prevailing attitudes, which are shaped by recent events, and that, in turn, mold Chinese and American strategic approaches. From the Chinese policymakers’ perspective, its geo-technological competition with the U.S. is novel and passively learned. During Xi Jinping’s first term, the Chinese government still positioned technology under the economic-oriented strategy of innovation-driven development. This stance followed the idea that ‘science and technology constitute a primary productive force’ and the ‘peaceful development’ principles set during Deng Xiaoping’s era. However, around 2018, two sanctions incidents that targeted Chinese telecommunications giants shifted Chinese leaders’ understanding of tech strategy into the geopolitical context. The first sanction incident involved ZTE, China’s second-largest communications equipment manufacturer. In 2016, the Barack Obama administration accused ZTE of selling telecom equipment containing American chip technology to Iran, which violated U.S. sanctions. In 2017, ZTE pleaded guilty and paid a fine of $1.2 billion. However, in 2018, Trump’s government stated that ZTE did not comply with the settlement agreement, coupling previous sanctions with export controls on ZTE in April 2018. The second incident involved Meng Wanzhou, then Vice-Chairwoman and CFO of the Chinese telecommunications giant Huawei, who was arrested in Vancouver, Canada, during a layover in December 2018. Her detention was at the extradition request of the Trump administration, which levied charges related to alleged violations of U.S. sanctions against Iran. These included bank and wire fraud and outright violations of U.S. sanctions via a subsidiary called Skycom Tech, which allegedly concealed Huawei’s activities in Iran. The necessity of a strategic adjustment These two incidents caused an uproar in the Chinese media, followed by a surge in public patriotic sentiment. However, for the Chinese government, the impact and significance of the two cases were quite different. The essence of the ZTE case was commercial sanctions, which meant that ZTE violated business norms and deserved economic punishment. The official Chinese government stance was that ‘this is just an individual case of corporate violation.’ Despite this position, the fact that the government was actively involved nonetheless politicized the incident within China. It was Xi Jinping himself who negotiated with Trump to save ZTE from bankruptcy after which ZTE became a state-owned enterprise with absolute state control—a move that ultimately resulted in ZTE gaining a greater domestic market share than Huawei. At the international level, the top-level nature of negotiations prevented the ZTE incident from overly politicizing then-ongoing trade frictions between the U.S. and China. While the ZTE episode was resolved with little rancor, Chinese senior officials became concerned about the impact that the U.S. might have on China’s strategic technology companies.[2] In November 2018, Tan Tieniu, then Deputy Secretary-General of the Chinese Academy of Sciences, reported to China’s top leaders that they should learn from the ZTE incident. They should avoid overreliance on imports of core electronic components and chips, and they should not repeat mistakes made by ZTE. In the same month, Xi Jinping mentioned in a speech that ‘internationally, advanced technology and key technology is more and more difficult to obtain… forcing us to travel the road of self-reliance.’ Terms like technological security, technology ‘chokepoints’ (卡脖子), and core technologies in key fields (关键核心技术) began to appear frequently in Chinese official discourse. These reflected Chinese leadership’s views about the ZTE incident that were in turn shaping strategic thoughts on the geopolitical technology competition with the United States. It was the Meng Wanzhou incident at the end of 2018 that for Chinese leaders confirmed the necessity of a strategic adjustment. As in the ZTE case, Huawei was involved in a business violation that from the Chinese perspective should have resulted in corporate punishment. Instead, a personal arrest warrant was issued for Meng, thereby escalating a commercial sanction into a political and diplomatic incident. Le Yucheng, then Deputy Minister of Foreign Affairs, urgently summoned the U.S. and Canadian ambassadors to China and issued a stern protest. The Chinese government also arrested two Canadian citizens in China, sentencing one to 11 years in prison. The Chinese Ambassador to Canada wrote that the Meng Wanzhou case was a ‘premeditated political act in which the United States wields its regime power to hunt a Chinese high-tech company out of political consideration.’ Chinese Defensive Deterrence These two episodes shaped and reinforced Chinese leaders’ strategic thinking about its geopolitical technology competition with the U.S. The 14th Five-Year Plan issued by the CCP in 2020 proposed ‘making technological self-reliance’ a strategic goal. Soon all official documents established a new tone for China’s technology strategy based on self-reliance. Previously, China pursued a reassurance strategy, a strategy that showed goodwill towards the U.S. and the system it led. Thus, in theory, China had two strategic options: reassurance and/or deterrence. The former strategy involves showing friendliness towards the U.S. and its allies, thereby releasing tension, and maybe re-joining the U.S.-led system. A reassurance strategy allowed China more time for stable development—the logic of ‘keeping a low profile’ of the Deng Xiaoping era. The Xi Jinping government picked the second option, deterrence, which is to show strength or use countermeasures to reduce the likelihood of further U.S. trade or coercive action. To make a deterrence strategy work, however, Xi further believed China needed to gain strong capacity in key tech fields. Therefore, Xi first mobilized domestic R&D resources and tried to acquire advanced technologies before using diplomatic countermeasures. The core logic underlying this geopolitical technology strategy is one of ‘defensive deterrence.’ A typical example of this strategy in play concerns the semiconductor industry. Facing export controls on semiconductor equipment from the U.S., the Netherlands, and Japan, the Chinese government first increased R&D investment in the sector, trying to overcome ‘chokepoint’ technologies. As a result, China’s investment in semiconductor R&D grew from $10 billion in 2018 to $25 billion in 2022, an increase of 150%. At the same time, the Chinese government increased investment in the production of key raw materials (silicon, gallium nitride, etc.) and semiconductor production bases. It also guided industries upstream while also pushing for downstream integration through policies to improve and strengthen supply-chain security. Chinese policy also moved to increase international supply-chain dependence on China through its comparative advantages in the semiconductor industry (and even other industries) in a hedging move against the U.S. and its allies. For example, in the automotive chip sector, in the supply of vital raw materials, and in the semiconductor equipment markets, China sought to utilize its significant comparative advantages. In August 2023, the Chinese government announced export controls on gallium and germanium, two key materials for manufacturing semiconductors. China Seeking More Regulatory Power But in addition to responding to what was perceived as U.S. containment policies in the area of technology, China’s strategic use of technology followed another approach, one led by the Ministry of Foreign Affairs (MFA) and the Ministry of Industry and Information Technology (MIIT). This third approach sought more regulatory power, for example, in the areas of civilian AI where China has huge potential.[3] Starting in 2018, the Chinese government showed a strong determination to introduce and study AI ethics and technical standards.[4] Based on these domestic framework policies, various diplomatic initiatives, and standards proposals, the MFA and MIIT expanded China’s regulatory influence in the field of AI. For example, the MFA proposed the ‘Global Data Security Initiative’ in 2020 and the ‘Global Artificial Intelligence Governance Initiative’ in 2023. Minister Wang Yi explicitly stated ‘We hope to provide a blueprint for related international discussions and rule-making.’ The China Electronics Standardization Institute, affiliated with the MIIT, also actively participates in the formulation of international new technology standards. Selectively decoupling: U.S. Attitudes and Strategies When it comes to strategic technologies, the Joe Biden administration has generally maintained a stance toward China that aligns closely with the previous administration led by Donald J. Trump. This is especially the case concerning competitive technologies such as 5G/6G, the specialized processors designed to handle the computational demands of AI, quantum computing, and electric vehicles (EVs). Taking a page from U.S. President Ronald Reagan’s Cold War playbook of outspending the Soviet Union, president Biden initiated a $2.25 trillion infrastructure plan. This plan, not unlike China’s policy to increase domestic innovation and strength, allocated funds for sectors such as transportation, manufacturing, renewable energy, clean water, and high-speed broadband for both wired and wireless technologies. The justification for these investments, part of the Build Back Better Act (BBB) policy and later incorporated into the Inflation Reduction Act (IRA) and the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, was that they were a response to Xi Jinping’s ambitious goals of doubling China’s economy by 2035, intending to establish China as a global leader in biotechnology, green energy, and AI. In addition to a spending strategy to boost U.S. competitiveness in strategic technologies, the Biden administration continued with some of Trump’s punitive measures. For example, Biden maintained tariffs amounting to approximately $300 billion. He also continued action against Huawei, which has the potential to outcompete in 5G/6G mobile network technology. The Trump administration used the Bureau of Industry and Security to exclude Huawei from global semiconductor supply chains and it placed the company on the Commerce Department’s Entity List, thus requiring U.S. companies to obtain a license before exporting to Huawei. As discussed above, Trump’s executive branch also brought fraud allegations against Huawei’s Chief Financial Officer Meng. While Biden kept in place Trump-era prohibitions on sales of U.S. goods to companies like Huawei, as well as maintaining restrictions on exports of U.S. critical technology, he did quickly resolve the dispute over Meng. Within hours of the deal for her release, the two men caught up in the game of hostage diplomacy left China on a flight back to Canada. Highlighting the political nature of the incident, when Meng returned to China, senior local officials at the airport met her. Encourage Multilateralism to meet Global Challenges Along with strident measures, the Biden administration also sought a more nuanced stance. Indications that suggest a less hawkish approach to China include emphasizing a collaborative approach toward global challenges like climate change and future pandemics. Biden further pushed for engagement in high-level meetings with, for example, Secretary of State, Antony Blinken, and National Security Advisor, Jake Sullivan, who held talks with their Chinese counterparts, Yang Jiechi and Wang Yi, in Anchorage, Alaska, in March 2021. These talks were frostier than U.S. officials would have preferred but they got the two sides to engage in some dialogue. Similarly, Biden sought to engage with China in multilateral forums and organizations where both countries are members, such as the recent Asia-Pacific Economic Cooperation (APEC) forum that Biden hosted in November 2023. Even the choice of San Francisco as the venue was designed to be conciliatory as it has historic ties to Asia as well as a central role in global technology as the home of Silicon Valley. Still, one must keep in mind that in deciding on a strategy towards China, Biden must also contend with a Congress and public opinion that are growing increasingly skeptical of doing business with China, which they believe steals good jobs and sends balloons over American territory to spy on U.S. critical infrastructure. One primary shaper of U.S. attitudes towards China are the leaders of the House Select Committee on the Chinese Communist Party, Republican Representative Mike Gallagher and Democratic Representative Raja Krishnamoorthi, who lead one of the last bastions of functioning bipartisanship in Washington, D.C. With their many investigations, subpoenas, and policy recommendations, the House China Committee has become the ‘beating heart’ of U.S. Congressional policy, which, with regards to technology, argues for selectively decoupling from China for national security reasons.[5] A way forward Faced with the U.S.’ decoupling or blunting strategies and China’s defensive deterrence strategy, what steps might European nations take to navigate through the choppy, contentious waters of strategic technologies? Are there also steps that Europeans can take to mitigate the impact on their own strategic technology vulnerability? First, recognizing the pivotal role of technology in the rapidly digitizing global economy, Europeans need to stress that it is in the collective interest of everyone to establish institutions, norms, and policies for effective global governance. Rather than engaging in reactive geopolitical maneuvers resembling a chess game, these institutions could concentrate on constructing a more cooperative foundation for crucial technology sectors. Second, along with this recognition, efforts could be directed toward the development of future institutions, policies, and norms that set standards for next-generation and sensitive technologies. Such efforts should take into account initiatives already made by the Chinese and the Americans. Such efforts could also coincide with a third approach of encouraging the Biden administration to adopt a comprehensive multilateral approach. The U.S. needs to push for collaboration beyond issues such as climate change and economic inequality to encompass the intensely competitive areas in technology like those discussed in this article. For one, Europeans could point out that U.S. blunting strategies are simply not working and may even be backfiring by accelerating Chinese technological advances. In September 2023, Huawei released the Mate 60 Pro smartphone equipped with a 7nm domestic chip, revealing that China has overcome some hurdles that U.S. bans were designed to stymie.[6] Since no one knows how long China’s defensive deterrence strategy will hold (and shift to what Chinese leaders believe is a more offensive deterrence), nor whether Trump or someone as equally anti-multilateral as Trump will be (re)elected, Europeans have many incentives to encourage a softer engagement between China and the U.S. Changing the narrative is a fourth important recommendation. It is essential to recognize that the essence of the Sino-American technology competition is more about narrative construction than a description of the current situation. One indication of this is that both sides believe that the other side started what has been described as the ‘new Cold War.’[7] It does not help that both sides have engaged in behavior that supports the other side’s narrative with some hawkish actors employing similar bash-the-other tactics to gain political advantage.[8] Typically, the factual basis for technological competition is grounded in industrial competition, corporate rivalry, or intellectual property disputes. However, the high-tech relationship between China and the United States has been one of complementarity as well as rivalry. Both China and the United States, as well as European stakeholders, need to be careful of the narratives they espouse, lest they become a self-fulfilling prophecy. This work has been funded by the REMIT project, funded from the European Union’s Horizon Europe research and innovation programme under grant agreement No. 101094228 Footnotes [1] EU Commission Recommendation of 3.10.2023 on critical technology areas for the EU’s economic security for further risk assessment with Member States. [2] Gregory C. Allen. 2023. ‘China’s New Strategy for Waging the Microchip Tech War.’ csis.org, May 3. [3] Jing Cheng and Jinghan Zeng. 2023. ‘Shaping AI’s Future? China in Global AI Governance.’ Journal of Contemporary China 32(143): 794-810. [4] See White Paper on AI Standardization, a Guide to the Building of a National Standard Framework for New Generation AI, a report on Ethical Norms for New Generation AI, a White Paper on Trustworthy AI as well as other regulatory documents. [5] Robbie Gramer. 2023. ‘The Masterminds: Washington wants to get tough on China, and the leaders of the House China Committee are in the driver’s seat.’ foreignpolicy.com, November 27. [6] Weiwen Wang. (2023). ‘China Breaks Through 7nm Chip Technology, Has the China-U.S. Tech War Entered Phase 2.0?’ (中国突破7纳米芯片技术 中美科技战进入2.0阶段?). Lianhe Zaobao (联合早报), September 17. Retrieved from https://www.zaobao.com.sg/news/china/story20230917-1433739 [7] Patricia M. Kim, Matthew Turpin, Joseph S. Nye Jr., Jessica Chen Weiss, Eun A Jo, Ryan Hass, and Emilie Kimball. 2023. ‘Should the US pursue a new Cold War with China?’ Brookings.edu, September 1. [8] Roberta N. Haar. 2020. ‘Will China replace the U.S. as the world’s predominant power?’ Atlantisch Perspectief 44(3):9-13.

Energy & Economics
Chinese Yuan on the map of South America. Trade between China and Latin American countries, economy and investment

Ahead of the curve: Why the EU and US risk falling behind China in Latin America

by Ángel Melguizo , Margaret Myers

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском As Beijing’s investment approach to Latin America focuses on industries of strategic importance, the EU and US will need to contend with growing Chinese competition China is pouring less foreign direct investment (FDI) into Latin America. But while this may seem like a sign of Beijing’s disinterest in the region, data suggests that Chinese companies are simply recalibrating, not retreating. In doing so, they are becoming important players in sectors key to Western interests: critical minerals, fintech, electric vehicles, and green energy. While the European Union and the United States have long been top investors in Latin America, increased competition with Chinese investment now jeopardises their interests in the Latin American industries that will become most crucial to the digital and green transitions. The number of Chinese projects in Latin America grew by 33 per cent from 2018-2023, compared with the previous five-year period of 2013-2017, even as the total value declined. In other words, Chinese companies are making more investments in the region but are pursuing smaller-scale projects on average. These investments are also more focused on what China calls “new infrastructure“ (新基建), a term which encompasses telecommunications, fintech, renewable energy, and other innovation-related industries. In 2022, 60 per cent of China’s investments were in these frontier sectors, a key economic priority for the country. Beijing also views smaller projects in these industries as incurring less operational and reputational risk, especially compared to some of the large-scale infrastructure investment projects often associated with the Belt and Road initiative. Like China, the investment priorities of the G7 grouping – particularly the US and the EU – are centring on critical minerals, fintech, electric vehicles, and green energy as they aim to grow and reinforce existing economic and political partnerships in Latin America. However, both the US and the EU risk falling short of China’s investment strategy in the region. The US has signalled want for greater economic engagement with the region, especially in sectors of strategic interest. However, to date, US efforts to compete with China remain largely focused on building US domestic capacity in these strategic sectors, even as some US companies, such as Intel, are increasingly focused on including regional partners in their supply chains. Some see opportunity for Latin America in Joe Biden’s landmark legislation, the Inflation Reduction Act (IRA), which is aimed at incentivising the energy transition while also de-risking critical supply chains. For example, certain countries in the region may benefit from preferential market access for their lithium or other key inputs to new energy and technology supply chains. However, the reach of the IRA – which remains a largely domestic policy – does not stretch as far as China’s current investment reshuffle. The Americas Act, announced by members of Congress in March could generate promising new investment opportunities for the region, as it encourages US companies and others to move their operations out of China, to which Latin America stands as a promising replacement. But Americas Act reshoring would primarily incentivise textiles and potentially medical equipment manufacturing, with less overall focus on the range of “new infrastructure” industries that China is prioritising. Chinese interests in information and communication technologies reveal a similar story. While the US has focused its policy on 5G equipment sales, China is undertaking a process of vertical integration in Latin American tech sectors that will dramatically boost its competitiveness. For instance, Chinese company Huawei is rapidly expanding its focus to include data centres, cloud computing, cybersecurity, and other services, especially in Argentina, Brazil, Chile, Colombia, Mexico, and Peru. (Computing accounted for a sizable 41 per cent of total Chinese information technology investment in the region between 2018 and the first half of 2023.) At the same time, Global Gateway, the EU’s proposal for a global investment initiative is yet to reach its potential in the region. Brussels is looking to be Latin America’s partner of choice by building local capacity for making batteries and final products like electric vehicles, as European Commission president Ursula von der Leyen noted last year. Yet even as the EU signals renewed commitment, China is becoming increasingly dominant in the electric vehicle market in Latin America and other regions. China surpassed the US in electric vehicle sales in 2023, with Chinese companies accounting for 45 per cent of total global sales and three times that of Germany’s. What is more, China has invested $11 billion in lithium extraction in the region since 2018, as part of a bid to control a third of global lithium-mine production capacity. Meanwhile the EU has secured some access to lithium as part of trade deals with Chile, alongside other nations, but this pales in comparison to what will be required to fuel the future of EU battery production. Latin America as a whole accounts for an estimated 60 per cent of the world’s lithium reserves. Based on its current levels of engagement in the region, the EU risks falling short of lithium, stalling its battery production and subsequently, its electric vehicle sales, just as China advances in this field. The window is closing for the EU, the US, and other partners looking to both maintain market share and compete with China in these Latin American industries, despite still-high rates of US and EU investment in and trade with the region. Indeed, US automakers increasingly see Chinese competition across the globe as an “extinction-level event.” Ensuring competitiveness in “new infrastructure” and related sectors will require a continuous commitment by partners to building and supporting project pipelines, and to delivering products and services at price points that can compete with China’s subsidised offerings. Both the EU and the US remain critical economic partners for Latin America and are contributing in ways that China is not. Still, complacency risks allowing China to take the lead in emerging industries in the region, some of which weigh heavily in the EU’s green and digital transformation. To protect their own future industries, the EU and the US need to first take a longer look at Latin America’s – especially as China vies for a dominant position.

Energy & Economics
Export in Chains

Export bans and inter-state tensions: The need for a revised WTO export bans framework to address worrying state behaviour at the peak of the pandemic

by Dr. Seebal Aboudounya

Please note that this article is only available in English. Abstract: During the peak of the Coronavirus (SARS-CoV-2) pandemic, some states imposed export bans on medical goods to prevent their exportation during the emergency situation brought about by the Covid-19 pandemic. However, the manner in which this policy was applied caused much discontent especially between neighbouring countries and allies, particularly due to the confiscation of pre-ordered goods destined for countries also experiencing a crisis situation. This paper analyses the rise of inter-state tensions due to export bans at the peak of the pandemic and calls for the need to revise the World Trade Organization’s (WTO) export bans framework which currently contains a number of gaps exacerbating the problem and leaving a legal gap. The paper discusses those gaps in the WTO’s legal framework and highlights the areas in need of revision to avoid repeating the troubles of the past pandemic. Introduction Faced with political pressure and an extraordinary situation during the Coronavirus (SARS-CoV-2) pandemic, some countries resorted to the use of export bans as a tool to ensure that they have enough medical supplies for their population. However, their use of export bans also involved the confiscation of medical goods destined for delivery to their neighbours and allies. Such behaviour provoked discontent among those states expecting the delivery of their ordered medical supplies which were urgently needed as the death-toll from Covid-19 was sharply rising. This article starts by explaining the instances where confiscations using export bans occurred, namely between the United States and Germany, the US and Barbados as well as France and the United Kingdom. The paper also discusses the ‘near misses’ involving some European states where the export bans were initially used to confiscate the goods of other European countries, but then those goods were ultimately allowed to be delivered abroad to their delivery location. The discussion then shifts to the international legal framework of the World Trade Organization (WTO) governing the use of export bans and then shows how this legal framework is flawed in certain areas as it contains some gaps that may be exploited for conducting unconstrained confiscation operations. An overview of existing studies on export bans then reveals that this policy is already harmful in several ways (Evenett 2020a; Bown 2020; Barichello 2020). The article then ends with a concluding discussion emphasising how export bans are particularly harmful when used in relation to pre-ordered goods and reiterating the need for a revised WTO legal framework on export bans. Incidents of confiscations using export bans The three incidents below all occurred during the peak of the covid pandemic in 2020 when countries faced life and death situations. The three cases also involved the use of export bans to justify the confiscation of medical goods pre-ordered by other states. US vs Germany This incident occurred on 3rd April 2020 involving the United States and Germany (Crump 2020). This particular event captured a lot of media attention and included the release of high-level statements from both sides, with accusations of “modern piracy” being directed towards the US (BBC 2020a). The main issue here was that approximately 200,000 N95 masks that Germany had ordered for its police force were diverted to the United States (Selinger 2020). The masks shipment dispatched from China from an American company was diverted to the US during a transfer between planes in Thailand (Selinger 2020). Germany stated that the masks were confiscated in Bangkok by American officials and that those masks were ordered from a US producer (Crump 2020; DW 2020). The next day, the US company 3M denied Germany’s claims and told a German news agency that it did not have any paperwork regarding a shipment for Germany (DW 2020). However, Germany had made it clear on 3rd April that it had ordered and paid for those urgently needed masks from a US company (Berlin 2020). In fact, Germany referred to earlier accusations made by French officials against the US for buying France’s masks in China and added that “the U.S. administration has obliged the American conglomerate 3M by law to supply the U.S. with as many N95 respiratory masks as possible, such as those used in hospitals” and that “the group also manufactures in China” (Berlin 2020a). Significantly, the media was already reporting how the American company 3M “has been prohibited from exporting its medical products to other countries under a Korean-War-era law invoked by President Donald Trump” (BBC 2020a). The BBC (2020a) added that “on Friday [3rd April], Mr Trump said he was using the Defence Production Act (DPA) to demand that US firms provide more medical supplies to meet domestic demand”. Zooming in on Trump’s official statements during the Coronavirus Task Force Press Briefing reveals significant information when he stated that:  I’m also signing a directive invoking the Defense Production Act to prohibit export of scarce health and medical supplies by unscrupulous actors and profiteers. The security and Secretary — the Secretary of Homeland Security will work with FEMA to prevent the export of N95 respirators, surgical masks, gloves, and other personal protective equipment. We need these items immediately for domestic use. We have to have them. […] We’ve already leveraged the DPA to stop the hoarding and price gouging of crucial supplies. Under that authority, this week, the Department of Health and Human Services, working with the Department of Justice, took custody of nearly 200,000 N95 respirators, 130,000 surgical masks, 600,000 gloves, as well as bottles — many, many, many bottles — and disinfectant sprays that were being hoarded (Whitehouse 2020, emphasis added).  Trump’s statements are important because they include the significant number of 200,000. Although Trump did not specify where those 200,000 N95 were confiscated from, the number remains important (BBC 2020a); it is the same number of masks that Germany reported. More importantly, the official statement also supports the fact that the DPA was used as a tool for confiscating goods. Trump’s statements describe these good as being ‘hoarded’ prior to their confiscation, however, the statements from Germany’s side indicate that those masks were intended for the German people. As significant as Trump’s statements were the ones made by Berlin’s Interior Senator who blamed the US for the confiscation of the N95 masks (DW 2020). In fact, he stated that:  We consider this an act of modern piracy. This is not how you deal with transatlantic partners. Even in times of global crisis, there should be no wild west methods. I urge the federal government to urge the United States to comply with international rules (Berlin 2020b; BBC 2020a).  As such, this incident saw direct statements from the German side, indicating that Germany saw the US’ behavior as deviating from international rules. Yet despite Trump’s statements in the press briefing, he directly addressed the German incident, denying the claims by saying that “there has been no act of piracy” (Crump 2020). Similarly, the spokeswoman for the American embassy in Bangkok denied that the US had knowledge of the mask shipment bound for Germany (Tanakasempipat 2020). Despite the US’ constant denial of state involvement, it remains a fact that an order of 200,000 masks destined for Germany was never delivered. Moreover, at no point did the developments mention non-state entities, but rather, the discourse had remained solely at the inter-state level and the main issue for discussion was the US’ use of the Defence Production Act to secure vital medical goods. US vs Barbados On the 5th of April, Barbados was brought into the picture when 20 ventilators donated to Barbados by a Philanthropist where “barred from exportation” by the US government (Barbados Today 2020). Moreover, as stated by the Barbadian Health and Wellness minister, these ventilators were already “paid for” (Barbados Today 2020). In explaining this incident, the Health minister clarified that “it has to do with export restrictions being placed on certain items” (Connell 2020). Thus, the Barbados incident was another instance where export bans were used as the justification for confiscating important medical supplies that were destined for another country. As for the US’ response to this incident, The Miami Herald wrote that a State department spokesperson’s email response “seemed to suggest that some previous media reports about seized medical exports may not be accurate” (Charles 2020). However, given that this is an incident relating to a Caribbean Island whose relations with the US are far from hostile, it is unlikely that this confiscation incident was characterised by significant inaccuracies. France vs UK Another instance of confiscation via export bans was reported during the pandemic, but this time, the location was Europe. The incident happened in March 2020 and had the UK’s National Health Service (NHS) as the victim and France as the accused. France’s actions were reported by Euronews when it stated that:  France has forced a face mask manufacturer to cancel a major UK order as the coronavirus-inspired scramble for protective gear intensifies. The National Health Service ordered millions of masks from Valmy SAS near Lyon earlier this year as COVID-19 threatened. But amid a global shortage, France earlier this week ordered the requisition of all protective masks made in the country (Euronews 2020). France’s export ban placed the company in an uncomfortable situation as it was prohibited from fulfilling the NHS’ order. Indeed, the company director commented that "the requisition does not allow any wiggle room for us to deliver to the NHS, but it is complicated because the NHS was the first client to order and uses our masks all year long” (Euronews 2020). It is important to note that four months later, the Guardian revealed that Valmy had a contract with the NHS that was signed in 2017 where this company “was required to deliver almost 7m FFP3 respirator masks to the UK at 17p per mask in a pandemic situation as soon as the order was activated” (Davies and Garside 2020). The NHS did indeed activate the contract in early February, however, the French “sweeping requisition decree” ultimately meant that France seized the masks within its borders (Davies and Garside 2020). Near misses: tensions in Europe The incidents below can be described as “near misses" as the accused states initially confiscated other state’s products, but eventually gave them back to their neighbours. The cases here are particularly useful for showing how the misuse of export bans has the potential to harm diplomatic relations between neighbouring states and allies, especially when the ban is placed over other states’ pre-ordered goods. Germany vs neighbours One of such instances occurred between Germany and Switzerland, but this time Germany was the accused. The incident was reported on the 9th of March 2020 and caused a strain in Germany’s relationship with Switzerland during the pandemic. The “diplomatic spat” started a week after the German government banned exports on most protective medical goods (Dahinten and Wabl 2020). Switzerland was particularly angered when 240,000 masks travelling to it were blocked from crossing the German border to enter Switzerland (Dahinten and Wabl 2020). Switzerland then called the German ambassador for “an emergency meeting” regarding this issue amid a very tense situation, especially when it hardly manufactures protective equipment itself (The Local 2020). Eventually after a call was scheduled between the leaders of both countries, Germany modified the ban on the 12th of March, adding exemptions and then removed it completely the following week (Hall et al. 2020). Germany’s diplomatic relations were equally weakening with another neighbour, but this time, the neighbour was a European Union (EU) member. The point of conflict was of course the export ban on protective equipment. The Austrian Economy minister commented on this ban by stating that:  It can’t be that Germany is holding back products for Austria just because they happen to be stored in a German location […] these products are for the Austrian market, and unilateral moves by Germany are just causing problems in other countries (Dahinten and Wabl 2020).  Such statements indicate that placing export bans on other states’ goods seriously angers the importing states as such bans make them feel that their interests are being completely ignored by their counterparts. France vs neighbours France also got a share of the criticism in March when it seized the supplies of the Swedish company Mölnlycke located in France after announcing an export ban on masks and other medical goods (AP 2020; Marlowe 2020). The conflict erupted between France and Sweden when the French ban was placed over Mölnlycke’s Lyon Warehouse that is responsible for distributing personal protective equipment to Southern Europe as well as Belgium and the Netherlands (Marlowe 2020). Significantly, the seized stock was composed of 6 million masks, all of which “had been contracted for”, including a million masks each to Italy and Spain (Marlowe 2020). Eventually, France allowed the shipments to go to Italy and Spain despite initial reluctance to do so (AP 2020). However, the easing of the situation was mainly due to the “crucial efforts” of Sweden’s prime minister who was thanked by Mölnlycke on the 4th of April for his role in the removal of the French export ban on the Lyon Warehouse (Mölnlycke 2020). It is important to note that this instance also made its way to the European Parliament on the 3rd of April where the French export ban was questioned and criticised as “yet another demonstration of the lack of European solidarity” (EP 2020). Thus, this specific incident resonated across the whole of Europe, and not in a positive way. Export bans: the GATT framework The international law on export bans falls under the competence of the WTO, particularly the General Agreement on Tariffs and Trade 1994 which itself is mainly composed of the 1947 GATT agreement (GATT 1994). Significantly, article XI of the agreement titled ‘General Elimination of Quantitative Restrictions’ prohibits the use of export bans when it states that:  No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party (GATT 1994).  However, the agreement leaves out certain exemptions where this prohibition does not apply, the relevant one here being “export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party” where the GATT clearly states that “the provisions of paragraph 1 of this Article shall not extent to” it (GATT 1994, XI, 2(a)). The emphasis on the temporary application of such measures is important and is further clarified in the WTO’s timely report on “export prohibition and restrictions” issued at the peak of the Covid pandemic where it explained that:  The reference to a measure that is "temporarily applied" indicates that the carve-out applies to measures applied for a limited time, taken to bridge a "passing need". In turn, "critical shortage" refers to deficiencies in quantity that are crucial, that amount to a situation of decisive importance, or that reach a vitally important or decisive stage, or a turning point (WTO 2020, annex 1).  Of relevance to the export bans legal framework is also Article XX of the GATT (1994) titled “General Exceptions” that states how:  Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures […] (b) necessary to protect human, animal or plant life or health.  Thus, here the GATT agreement allows countries to use export bans when it is necessary to protect lives. The WTO’s report confirms the relevance of this exception to the Covid-19 situation when it explains that:  In the context of COVID-19, Article XX(b) of the GATT 1994 could be used to justify a ban or quantitative restriction on the exportation of goods, so long as such a measure would be necessary and effective in contributing to protecting the health of that country's citizens (WTO 2020, Annex 1).  Thus, in terms of international law, countries are allowed to make use of export bans when faced with exceptional circumstances. During the Covid pandemic, the WTO member states did indeed make use of the exceptions and exemptions codified in the GATT agreement while informing the WTO of their new policies (Pauwelyn 2020, 107). However, when life is back to normal, their use remains illegal. Thus, overall, the export bans legal situation can be described as residing in a ‘legal grey zone’ whereby their use, though normally prohibited, can be justified and permitted in serious situations requiring them (Pelc 2020, 349). Nonetheless, it is important to note that the international legal framework here does not provide clarification for situations where the export ban exemption is placed on pre-ordered or pre-paid-for goods supposed to go to other countries. Indeed, the current legal framework suffers from a number of ambiguities as explained below. The first ambiguity relates to the term “destined goods.” When prohibiting export bans, article XI speaks of “export of any product destined for the territory of any other contracting party”. Thus, clearly, countries cannot put their hands on goods going to other countries for this would be illegal. However, the carve-out intended to “prevent or relieve critical shortages” is not detailed enough as to clarify if this also applies to goods “destined” for other countries (GATT, article XI, 2(a)). Even if the “destined” statement is applied to the exemption, the ambiguity remains. Much of the ambiguity rests on how to interpret the term “destined” from the export prohibition paragraph: is the term “destined” applied here generally whereby a company in Country X is an exporter and thus it’s goods will naturally be “destined” for other countries, or does the term imply goods that are ready-to-travel to other countries who have already placed an order or paid for goods? Clearly, it’s the second interpretation when applied as an exemption that has been the cause of conflict between the states in the previous section. However, regardless of which interpretation is intended in the GATT, instances where countries confiscate orders destined for other countries is seen as politically and morally unacceptable by the latter; “modern piracy” was how Germany described it. Thus, whatever the world leaders had in mind when they agreed to this exemption, clearly it now needs a lot of clarification. Secondly, there is ambiguity over the situation regarding donated goods. This is an important question especially given the Barbados case. Here the goods sold in country X were already bought in Country X (from a philanthropist in Country X) to be sent to country Y. Thus, a transaction had already taken place and the goods now belong to the philanthropist who is kindly giving this order to Country Y. Does an export ban apply to this situation? Logically, there is little to no justification for its application in this scenario, but the GATT agreement still needs to confirm this. Thirdly, there is ambiguity over the situation of “guest” companies. Given the globalised world we live in, does this exemption apply to international companies geographically located in country X? This was the main cause of tension between Sweden and France when France imposed the export ban over the Swedish company’s Warehouse. A logical consideration of this situation would lead to a ‘no’ answer to this question, but it is also acknowledged that the company may be subject to the geographical jurisdiction and the laws of the country that it is located in. Thus, it is important that the relationship between the host country and the foreign company is clarified when it comes to export prohibitions. Fourthly, there is ambiguity over the timeline of enforcing an export ban policy. The Covid crisis saw quick decisions being taken and implemented. This was particularly the case with export bans and was to the detriment of the importing states. In the case of the US-Germany incident, the confiscation of the masks on their way to Germany occurred hours before the US president announced invoking the defence production Act. In fact, the US policy on export restrictions became official on the 7th of April after the Federal Emergency Management Agency published it (Bown 2020). Significantly, FEMA stated that “this rule is effective from April 7, 2020 until August 10, 2020” (FEMA 2020). Thus, the obvious question arises: on what basis were the masks going to Germany confiscated? Similarly, on what basis were the ventilators destined for Barbados blocked by the US on the 5th of April? If the WTO steps in to advise on the implementation of such export bans, the situation would be greatly improved. Finally, there is ambiguity over the extent to which one country may enforce its policy, particularly in other countries. The US-Germany case was sensationalised by an “international hunt” for masks in Bangkok; thus, here the US officials imposed the export ban on an American company in a foreign country outside their national jurisdiction. However, the question remains, is this permissible under the GATT? The GATT articles did not go that far, but it is important that the international legal framework answers this question. Overall, several unanswered questions resulting from the brevity of the GATT’s article on export bans require answers. Filling in those gaps in the GATT would greatly improve the legal framework on export bans and ease tensions between member states. The next section takes a closer look at export bans, particularly their discussion in the literature and their unwelcome effects. The effects of export bans The academic literature on export bans mainly focuses on their effects, either on several states or on specific case-studies. Prior to Covid-19, a number of studies were mainly concerned with the effects of export bans following the food price crisis in 2007-2008 when countries made use of export restrictions on agricultural commodities in an attempt to stabilise domestic markets (e.g. Liefert, Westcott, and Wainio 2012; Dorosh and Rashid 2013; Timmer 2010). However, following the coronavirus pandemic, some studies have focused on their use on medical goods and agricultural goods as well as on their effects (Koppenberg et al. 2020; Pelc 2020; Evenett 2020b). Nevertheless, what unites almost all the studies on export restrictions is that they mainly agree that such bans do more harm than good. The recent studies on export bans are important because they demonstrate how this policy results in negative effects. For example, Simon Evenett (2020a, 831) in his recent work argues that “export bans on masks, for example, erode the capability of trading partners to cope with the spread of COVID-19. Rather than beggar-thy-neighbour, export bans on medical supplies effectively sicken-thy-neighbour”. He further analyses the effect of the export ban from the perspective of the developing countries cut-off from receiving advanced medical equipment such as ventilators, and explains that whenever this policy is implemented, “a significant share of the world’s population” is prevented from accessing this vital equipment (Evenett 2020a, 832). Evenett (2020a, 833) therefore recommends that governments consider other alternatives to export bans that “do not impede foreign purchases”. Significantly, Evenett also discusses the effect of the export curbs on the exporting country itself and argues that this policy is counter-productive:  Whatever temporary gain there is in limiting shipments abroad, the loss of future export sales will discourage local firms from ramping up production and investing in new capacity, which is exactly what the WHO has called for. In practical terms, during a pandemic this mean that an export ban “secures” certain, currently available medical supplies at the expense of more locally produced supplies in the future (Evenett 2020a, 832).  Internationally, export bans have also been shown to have severe effects on several countries at once. Chad Bown’s (2020, 43) work on the Covid pandemic demonstrates how “taking supplies off the global market can lead to higher world prices and reduced quantities, harming hospital workers in need in other countries”. He also cautions that their use during the pandemic may invoke a “multiplier effect”, similar to the one observed during the sharp price increases of agricultural goods in the 2000s when “one country’s export restriction led to additional global shortages, further increasing world prices, putting pressure on other countries to impose even more export restrictions” (Bown, 2020, 44). Richard Barichello’s (2020, 223) study on Covid-19 and the agricultural sector also highlights the negative effect of export bans while observing how some countries have already imposed export restrictions on staple goods such as rice and cereal products during the pandemic. Barichello acknowledges that such export bans could have a positive effect on countries such as Canada if a consequence of such a ban increases the price of a commodity that it exports. However, he also explains the gravity of the adoption of export bans during current times when he writes that:  The distributional effects of adding export restrictions will, like the COVID-19 crisis itself, fall most heavily on the poor in importing countries by reducing trade, raising food prices, and reducing food security in all but the export countries of that commodity (Barichello 2020, 223). Export bans have also been shown to have “intangible” negative effects that are also significant. Hoekman, Firoini and Yildirim’s (2020) study focuses on export bans from an “international cooperation” perspective and emphasises the foreign policy damages resulting from export bans. The authors write that “in the case of the EU, the immediate policy responses of some member states may have damaged the European project by eroding trust among European partners” (Hoekman, Firoini and Yildirim 2020, 78). Simon Evenett (2020b, 54) adds that export restrictions are a “gift to those economic nationalists abroad that want to unwind or shorten international supply chains”; such nationalists can then claim that relying on the foreign market is unreliable. It is significant that the WTO itself discusses a similar point in its Covid-19 report on export restrictions when it lists the following as part of the “other possible consequences” of export bans:  An erosion of confidence in the multilateral trading system, in particular if restrictions negatively impact the most vulnerable, especially least-developed countries, whose healthcare systems are already strained. It would be difficult for importing members to trust a system that fails to produce tangible benefits in times of crisis and may lead to general calls to ensure that production of medical and other products only take place at the national level (WTO 2020, 9).  The WTO (2020, 9) also highlights how from a health-perspective, export bans may ultimately weaken the fight against the coronavirus when it states how: “given its global nature, if some countries are not able to combat the disease, this coronavirus, or mutated strains of it, will inevitably recirculate and contaminate the populations of all countries, including those imposing the export restrictions”. Thus, an export ban on medical goods is not the soundest policy to implemented during a pandemic. Effects of export ban confiscations & concluding thoughts It is important to consider the consequences of using export bans specifically as a confiscation technique. The points raised above are still of high relevance. However, there are three main disadvantages that are particularly prominent when countries place export bans on other states’ goods. Firstly, enforcing this policy on the goods of other states creates severe tensions between countries at different levels. The first one is at the diplomatic level whereby the officials of country Y express their discontent to officials of country X. Such tensions then easily transmit to other places. Indeed, at the citizenry level, these tensions take the foreground as the citizens in country Y read the news and frown at what their neighbouring states are doing to them in times of need. Thus, the misuse of export bans can be seen as a threat to diplomacy, international trade, and to the principles of establishing friendly relations between states and peoples. Secondly, shortages and stress are another effect of this policy when enforced on other states’ goods. When countries place orders, it is usually because they have a need for those orders. When those orders are then confiscated, those expecting the orders are left empty-handed and in a stressful situation. The stress is generated after the realisation that their plans for fighting the virus have been compromised; orders placed months or weeks ago will now not reach their borders despite those orders being just hours away from arrival. In the above cases, the German police and the NHS had to deal with the unpleasant news that their mask orders will not arrive. Such export bans create a difficult situation for the importing nations and for their institutions, as they then try to seek alternative suppliers at a very short notice. Finally, the implementation of this policy on other states’ orders sends worrying empirical signals. Scholars of IR when they first learn about international politics naturally ask whether the world we live in is a very “realist” world characterised by “survival of the fittest” instinct, or whether it is a world that accommodates international law and inter-state cooperation, despite anarchy. This is the essence of the classical debate between Realists and neo-Liberal Institutionalists (Mearsheimer 1994; Walt, 1997; Ikenberry 2011; Martin 1992). It is reassuring that in the previous discussion, the WTO still had a role to play. The European Commission also tried to solve the disputes arising between its members over the export bans (EC 2020). However, despite those interventions, it was clear that the cause of the problem was the unilateral export ban policy that was quickly being implemented at the discretion of the member states over what was destined for other states. As such, there is an urgent need for the WTO to revise its export ban legal framework to prevent the above scenarios from ever repeating in the future. 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Baldwin and Simon J. Evenett eds., COVID-19 and Trade Policy: Why Turning Inward Won’t Work. London: CEPR press, pp. 31-47. https://cepr.org/publications/books-and-reports/covid-19-and-trade-policy-why-turning-inward-wont-work Charles, Jacqueline. 2020. “Barbados accuses U.S. of blocking ventilators for coronavirus, then walks back allegation.” Miami Herald. 6 April. https://www.miamiherald.com/news/nation-world/world/americas/haiti/article241783756.html Connell, Antoinette. 2020. “Bostic: Ventilators not seized.” Nation News. 6 April. https://www.nationnews.com/2020/04/06/bostic-ventilators-not-seized/ Crump, James. 2020. “US denies diverting masks headed for Germany after Trump administration accused of ‘modern piracy’.” The Independent, 6 April. https://www.independent.co.uk/news/world/americas/coronavirus-masks-update-trump-germany-facemasks-bangkok-modern-piracy-a9449976.html Dahinten, Jan and Matthias Wabl. 2020. “Germany Faces Backlash From Neighbors Over Mask Export Ban.” Blomberg. 9 March. https://www.bloomberg.com/news/articles/2020-03-09/germany-faces-backlash-from-neighbors-over-mask-export-ban Davies, Harry and Juliette Garside. 2020. “Revealed: NHS denied PPE at height of Covid-19 as supplier prioritised China.” The Guardian. 20 July. https://www.theguardian.com/world/2020/jul/20/revealed-nhs-denied-ppe-at-height-of-covid-19-as-supplies-sent-to-china-coronavirus Dorosh, Paul. A. and Shahidur Rashid. 2013. “Trade subsidies, export bans and price stabilization: Lessons of Bangladesh–India rice trade in the 2000s.” Food Policy, 41, 103-111. https://doi.org/10.1016/j.foodpol.2013.05.001 DW. 2020. “US firm denies German ‘piracy’ claims over vanished face masks.” DW, 4 April. https://www.dw.com/en/us-firm-denies-german-piracy-claims-over-vanished-face-masks/a-53017112 EC. 2020. “Communication from The Commission To The European Parliament, The European Council, The Council, The European Central Bank, The European Investment Bank And The Eurogroup: Coordinated economic response to the COVID-19 Outbreak.” European Commission, 13th March, Brussels. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52020DC0112 EP. 2020. “Parliamentary questions, subject: Masks intended for Italy blocked by France.” European Parliament. 3rd April. https://www.europarl.europa.eu/doceo/document/P-9-2020-002075_EN.html Euronews, R. 2020. “Coronavirus: French protective mask manufacturer scraps NHS order to keep masks in France.” Euronews, 6 March. https://www.euronews.com/2020/03/06/coronavirus-french-protective-mask-manufacturer-scraps-nhs-order-to-keep-masks-in-france Evenett, Simon J. 2020a. “Sicken thy neighbour: The initial trade policy response to COVID‐19.” The World Economy, 43 (4), pp. 828-839. https://doi.org/10.1111/twec.12954 Evenett, Simon .J. 2020b. “Flawed prescription: Export curbs on medical goods won’t tackle shortages.” in COVID-19 and Trade Policy: Why Turning Inward Won’t Work, edited by Richard E. Baldwin, and Simon J. Evenett. London: CEPR press, pp. 49-61. https://cepr.org/publications/books-and-reports/covid-19-and-trade-policy-why-turning-inward-wont-work FEMA. 2020. “Prioritization and Allocation of Certain Scarce or Threatened Health and Medical Resources for Domestic Use.” Federal Emergency Management Agency, 85 FR 20195, 10 April. https://www.federalregister.gov/documents/2020/04/10/2020-07659/prioritization-and-allocation-of-certain-scarce-or-threatened-health-and-medical-resources-for GATT. 1994. “General Agreement on Tariffs and Trade 1994.” World Trade Organization. https://www.wto.org/english/docs_e/legal_e/06-gatt_e.htm Hall, Ben. et al. 2020. “How coronavirus exposed Europe’s weaknesses.” Financial Times. October 2020. https://www.ft.com/content/efdadd97-aef5-47f1-91de-fe02c41a470a Hoekman, Bernard, Matteo Fiorini, and Aydin Yildirim. 2020."COVID-19: Export controls and international cooperation." in Richard E. Baldwin and Simon J. Evenett eds., COVID-19 and Trade Policy: Why Turning Inward Won’t Work. London: CEPR press, pp. 77-87. https://cepr.org/publications/books-and-reports/covid-19-and-trade-policy-why-turning-inward-wont-work Ikenberry, G. John. 2011. Liberal Leviathan: The origins, crisis, and transformation of the American world order. Princeton: Princeton University Press. https://doi.org/10.2307/j.ctt7rjt2 Koppenberg, Maximilian, Martina Bozzola, Tobias Dalhaus and Stefan Hirsch. 2021. “Mapping potential implications of temporary COVID‐19 export bans for the food supply in importing countries using precrisis trade flows.” Agribusiness, 37(1), pp.25-43. https://doi.org/10.1002/agr.21684 Liefert, William .M., Paul Westcott, and John Wainio. 2012. “Alternative policies to agricultural export bans that are less market-distorting.” American Journal of Agricultural Economics, 94(2), 435-441. https://doi.org/10.1093/ajae/aar103 Marlowe, Lara. 2020. “Coronavirus: European solidarity sidelined as French interests take priority.” The Irish Times. 30 March. https://www.irishtimes.com/news/world/europe/coronavirus-european-solidarity-sidelined-as-french-interests-take-priority-1.4216184 Martin, Lisa. 1992. “Interests, power, and multilateralism.” International Organization, 46(4): 765-792. DOI: https://doi.org/10.1017/S0020818300033245 Mearsheimer, John .J. 1994. “The false promise of international institutions.” International security, 19(3): 5-49. https://doi.org/10.2307/2539078 Mölnlycke. 2020. “French export ban for face masks lifted.” Mölnlycke, 4th April. https://www.molnlycke.com/news/news-archive/french-export-ban-for-face-masks-lifted/ Pauwelyn, Joost. 2020. “Export restrictions in times of pandemic: Options and limits under international trade agreements.” In COVID-19 and Trade Policy: Why Turning Inward Won’t Work, edited by Richard E. Baldwin and Simon J. Evenett. London: CEPR press, pp. 103-109. https://cepr.org/publications/books-and-reports/covid-19-and-trade-policy-why-turning-inward-wont-work Pelc, Krzysztof. 2020. “Can COVID-Era Export Restrictions Be Deterred?.” Canadian Journal of Political Science, 53(2), 349-356. https://doi.org/10.1017/S0008423920000578 Selinger, Hannah. 2020. “Stealing masks and stockpiling hydroxychloroquine – What America has become during this epidemic is deeply worrying.” The Independent, 6 April. https://www.independent.co.uk/voices/coronavirus-us-masks-trump-hydroxychloroquine-covid-19-drug-a9450261.html Tanakasempipat, Patpicha. 2020. “Accused of 'piracy', U.S. denies diverting masks bound for Germany.” Reuters, 6 April. https://uk.reuters.com/article/uk-health-coronavirus-masks/accused-of-piracy-u-s-denies-diverting-masks-bound-for-germany-idUKKBN21O0YR The Local. 2020. “Coronavirus: Germany blocks truck full of protective masks headed for Switzerland.” The Local. 9 March. https://www.thelocal.com/20200309/germany-blocks-protective-masks-headed-for-switzerland/ Timmer, C. Peter. 2010. “Reflections on food crises past.” Food policy, 35(1), 1-11. https://doi.org/10.1016/j.foodpol.2009.09.002 Walt, Stephen, M. 1997. “The progressive power of realism.” American Political Science Review, 97(4): 931-935. https://doi.org/10.2307/2952177 Whitehouse. 2020. “Remarks by President Trump, Vice President Pence, and Members of the Coronavirus Task Force in Press Briefing.” Whitehouse.gov., 3 April. https://www.whitehouse.gov/briefings-statements/remarks-president-trump-vice-president-pence-members-coronavirus-task-force-press-briefing-18/ WTO. 2020. “Export prohibitions and restrictions.” World Trade Organization, information Note, 23 April. Available from: https://www.wto.org/english/tratop_e/covid19_e/export_prohibitions_report_e.pdf

Energy & Economics
Page of the book highlighting the words

Disquiet in the world’s middle class

by Homi Kharas

“Originally published by Homi Kharas at Brookings Future Development on 21 November 2023,” “Middle-class life satisfaction rests on two pillars. The first is the idea that hard work and self-initiative will lead to prosperity. The second is that thanks to this prosperity, the children of middle-class families will enjoy even more opportunities for the good life. Both pillars are shaking.” Joining the middle class has been a ticket to the good life for two centuries now, a history I trace in a new book “The Rise of the Global Middle Class.” The American Dream, the glorious years of European reconstruction after World War II, miracle economic growth in Japan and other East Asian countries, Xi Jinping’s great rejuvenation of the Chinese nation, and India’s software revolution each brought hundreds of millions of people into the ranks of the global middle class. Today, thanks to this progress, most of the world, upwards of 4 billion people, enjoy a middle-class or better lifestyle for the first time ever. Yet, across the world there is a clear sense of disquiet in the middle class. In the U.S., Princeton economists Anne Case and Angus Deaton have documented the prevalence of “deaths of despair” due to suicides, opioids, and alcohol poisoning among non-college educated white middle-class males. The Japanese have coined a specific word, karoshi, to describe deaths due to overwork among salaried professionals. China is seeing a campaign of tang ping, or lying flat, to protest the “996” expectations of employers—9 a.m. to 9 p.m. 6 days a week. India ranks 126th out of 137 in the rankings of the 2023 World Happiness Report. What is amiss? Middle-class life satisfaction rests on two pillars. The first is the idea that hard work and self-initiative will lead to prosperity. The second is that thanks to this prosperity, the children of middle-class families will enjoy even more opportunities for the good life. Both pillars are shaking. The first is threatened by the effects of technological change on jobs. The foundations of the second are being undermined by climate change, pollution, and the destruction of nature. For most of history, technology has changed the nature of work by reducing repetitive, routine, and manual labor. During COVID-19 and the ensuing recovery, many workers changed occupations. Those with good jobs, requiring cognitive, non-routine tasks, did better than those engaged in manual, repetitive tasks. There are pathways to high-wage work, but, as my Brookings colleagues Maria Escobari and co-authors have shown, access to these paths is unequal, and that is creating stress and mental health problems for many middle-class workers. Stepping-stone occupations that serve as a bridge between low-and higher-wage occupations, and even high-wage occupations themselves, are increasingly under threat from artificial intelligence. When the Writers Guild of America went on strike in May 2023, they demanded that ChatGPT be used only as a research tool, not for actual script writing, the creative process that is at the heart of their jobs. The wobbly second pillar of middle-class satisfaction is that young people are worrying that the mass consumption of the middle-class is responsible for unsustainable levels of greenhouse gas emissions, pollution and species extinction. On current trajectories, children born today will live in a world that is at least 3 degrees warmer than pre-industrial levels. The impact of such changes, according to the best available science, is terrifying. “Is a middle-class lifestyle consistent with a livable planet? Thankfully, the answer is yes, but only if there is significant change in economic policies.” This science forces the middle class to confront an existential question. Is a middle-class lifestyle consistent with a livable planet? Thankfully, the answer is yes, but only if there is significant change in economic policies. Consider the case of Switzerland, one of the richest economies in the world. The Swiss emit only 5 tonnes of greenhouse gases per person per year, less than one-third the U.S. level. One reason is that Switzerland buys a lot of electricity from France’s nuclear reactors. But on other measures, too, such as building efficiency, moving people on electric trains and buses, and insulating homes, the Swiss middle class outperform many of their peers. True, this is not enough. The 5 tonnes must be reduced to zero by 2050, but Switzerland’s case shows that most of the current levels of carbon emissions are not tied to middle-class standards of living but simply to bad or thoughtless policies in rich countries that can be readily corrected. In similar vein, pollution is a man-made problem, not a necessary corollary of high living standards. In its current form, recycling is not effective. A new concept of a circular economy offers much more promise. The idea is to “design out” waste and pollution, recycle materials and regenerate nature. One of the first problems the circular economy concept is tackling is the issue of plastic packaging. Because of its ubiquity, plastic continues to accumulate in our oceans (and increasingly in our bodies). There are, however, alternative materials that can be used for packaging, and already the European Union is on track to make all packaging recyclable by 2030. A third area of concern is human encroachment into nature. The current global system of food production is based on expanding croplands to grow feed or as pasture for animals, especially cattle and sheep. This system has a double cost. It contributes significantly to greenhouse gas emissions, and it destroys wildlands and biodiversity. The simplest option would be to encourage the middle class to switch to a vegetarian diet. If this magically happened in the world, a land area stretching from Alaska to Tierra del Fuego could be returned to nature. In a less extreme version, if beef and lamb were taken out of our diets, an area the size of North America could be re-wilded. These examples are not offered as realistic policy options in the medium term. They do, however, serve to make a point. If the middle-class is serious about preserving nature, it will require a major change in diet. That could come about through taxes on land-intensive foods or through technology—lab-grown meat is available but only at a higher price point, and it has yet to scale. The common theme in these threats to a middle-class lifestyle is that the values of hard work and personal responsibility that are the hallmark of middle-class success are no longer enough. Policymakers are caught in trying to deliver higher living standards to their citizens and more sustainable living standards for their children. There are long-run strategies where economic growth and sustainability go hand-in-hand, but no countries have yet shown how to manage the transition onto these low-carbon pathways in a rapid, credible way. So the future is uncertain, and the middle-class, which hates uncertainty, will remain disquieted until they are clear about how to best secure the lifestyles and progress to which they have become accustomed.

Energy & Economics
Emblems of European Union and China

How might China hit back over the EU’s electric vehicle anti-subsidy investigation?

by Alicia García Herrero

China’s silence towards the European Union’s electric vehicle probe could mean that a more harmful retaliation is on its way During her State of the Union address on 13 September, European Commission President Ursula von der Leyen announced that the European Union would undertake an anti-subsidy probe against the Chinese electric vehicle (EV) sector. This signalled a major step in the EU’s shift to a more aggressive trade defence against China and raises the question of how China will react, given the importance of the Chinese market to key sectors of the European economy (including the auto and luxury sectors), and also given China’s crucial role in providing goods to the EU for the green transition? An EU-China High Economic and Trade dialogue on 25 September in Beijing, between EU Trade Commissioner Valdis Dombrovskis and his Chinese counterparts, may have given a glimpse into China’s mindset. There were fears Chinese officials would respond aggressively to von der Leyen’s announcement during Dombrovskis’s visit but this was not the case. Nevertheless, the silence may be deceptive. Three main factors should be taken into account when considering potential Chinese retaliation. Subtle but harmful retaliation First, China might file its own anti-subsidy investigation at the World Trade Organisation against key European sectors. This would not be difficult since Europe has ramped up its subsidies massively since the pandemic, and more recently has attempted to gain more ‘strategic autonomy’ in sectors including semiconductors. There is very little the EU can do about this potential retaliation, which would be costly for the sectors targeted and for the EU’s image as a free-trade and WTO champion. Second, China could try to persuade EU governments that the Commission-led investigation should be withdrawn. A similar probe happened in early 2014, when the EU launched an anti-subsidy investigation into solar panels produced in China. President Xi Jinping visited then Chancellor Angela Merkel right after the anti-subsidy investigation was announced. Subsequently, the issue was settled quickly, with the Commission withdrawing the case from the WTO. Based on this previous experience, China might prefer to take up the issue bilaterally, possibly with Germany again, rather than enter discussions with the Commission. But a major difference this time is the relative importance of the auto sector in the EU compared to solar power. The auto sector accounts for 14 million jobs in Europe and a good part of the EU’s exports. Exports of cars and components are heavily concentrated in a few EU countries, especially Germany. These exports to China have plummeted in 2023, with a close to 30% drop, and Chinese competition in third markets and even the EU market, has become much more intense. Third, also unlike the solar-panel probe, it is the Commission and not the sector being harmed that has filed the case. It will be harder for the Commission to withdraw the investigation because it would lose credibility. Merkel decided to accommodate Xi Jinping’s request in 2014 because she wanted to save the auto sector, even at the cost of hurting a smaller part of the German economy – the solar panel companies. The new investigation aims to protect the automotive sector. There could be consequences for major European auto companies producing electric vehicles in China, but jobs in Europe are now more important than the future of those companies in China. In any case, the future of European manufacturers is bleak; they seem to have already lost the EV race to their Chinese competitors. China will find it much harder to move the EU away from its decision to pursue an anti-subsidy investigation, differently to what happened in 2014. Lessons to learn There might be a lesson for Europe in what happened to Apple in China in September. Days before Apple’s launch of its new iPhone 15, Huawei launched its Mate 60 with upgraded functionalities which require high-end semiconductors. Beyond raising doubts about the effectiveness of US-led export controls on advanced semiconductors, this announcement constituted a direct challenge to Apple’s phone sales in China. Chinese officials were also prohibited from using iPhones and rumours spread in Chinese media in advance of the Apple launch about the underwhelming quality of the iPhone 15. Investors dumped Apple stock globally and the company lost about 6% of its value in a few days. China’s retaliation against the Commission’s anti-subsidy investigation might not be as direct and transparent, but it will still be harmful and might offer less room for the EU to respond. Europe’s strategic dependence on China is greater than in 2014 and this probe has the potential to cause a bigger fall-out for the EU. China has strengthened its position as a global power and uncompetitive behaviour could hit European core sectors harder because China has more power to retaliate. On the flip side, the stakes are higher for the EU given the importance of the auto sector in terms of jobs and exports. For that reason, China may not manage to deter the EU’s investigation as easily as it did in the past. But this may prompt China to threaten even larger retaliation.

Energy & Economics
miniature people figure businessman standing on united states of america map on globe as world leader decision concept

Washington Declaration: Beyond Korea, What it Means for India?

by Jagannath P. Panda

In April 2023, South Korea and the United States released the Washington Declaration to reiterate and upgrade their treaty alliance. In outlining a joint nuclear deterrence strategy, the Declaration reaffirmed that South Korea would not pursue independent nuclear capabilities, and instead continue to rely on the alliance-based approach. This paper considers the strategic impact of the Washington Declaration beyond the U.S.-ROK nexus. Highlighting the importance of the agreement on security and stability in the broader Indo-Pacific region, this paper focuses on India’s stake in the new development. In particular, this paper emphasizes that despite its stated focus on the North Korean nuclear threat, the Washington Declaration also considers the Chinese and Russian threats in the region, making it of immense interest to India. It analyzes whether and how the Washington Declaration can complement India’s interests, and the potential for it to pave the way towards a closer India-U.S.-South Korea trilateral partnership in the Indo-Pacific.  Introduction  The release of the Washington Declaration in April 2023 has not just temporarily halted the Republic of Korea’s (ROK or South Korea) ambitions of developing its own nuclear weapons, but has also given more attention to the debates on nuclear deterrence in the Indo-Pacific. Even as the United States is concerned about growing nuclear developments in China, Russia, and North Korea (or the Democratic People’s Republic of Korea, DPRK), it is primarily focused on countering China – “the most comprehensive and serious challenge to U.S. national security.” Given that China’s military activities in its extended neighborhood, including in the Taiwan Strait, South and East China Seas, and the Himalayan borderwith India, have attained built greater momentum in the past decade, the Declaration assumes greater significance: As a forward-looking step to mollify U.S. treaty allies and partners in the region with the larger aim of bolstering a “cooperative” approach against the growing nuclear threat.  In this context, even as the Washington Declaration does not directly impact India, its implications for the IndoPacific amid India’s substantial role in the budding IndoPacific security architecture compels a closer examination into the new debates centered on South Korea’s extended deterrence. India is a “special strategic partner” for the ROK: Post the launch of the ROK’s Indo-Pacific strategy in December 2022, the two are exploring their increasing strategic convergence via respective inclusive policies as “pivotal” Indo-Pacific partners. Therefore, the security concerns in East Asia are not just important for India because of the domino effect on South Asia—home to near-perpetual instability due to the three nuclear states of China, India, and Pakistan—but also in terms of the negative impact on India’s (as yet) nascent efforts to boost multilateralism, middle power coalition, and regional integration.  Can New Delhi capitalize on South Korea’s gains from the U.S.’ latest declaration against North Korea’s and China’s nuclear threats? Could the Washington Declaration complement an envisioned India-ROK-U.S. trilateral in today’s divisive geopolitics? Could the new nuclear debates focusing on extended deterrence engender mechanisms for strengthening South Asian nuclear stability? Contextualizing the Washington Declaration Beyond the Peninsula Undoubtedly, the bilateral summit, including the Declaration will have an impact not just on the ROK but also on all stakeholders in the region—from U.S. partners like Japan and India to nuclear rivals China, Russia, and North Korea. What does the new pact bring to the fore for the ROK? In what ways will the latest U.S. approach to the Korean Peninsula affect the Indo-Pacific security landscape and partnerships, particularly for India?  Parsing the Declaration – (Not) New Significance for ROK?  In April 2023, the ROK-U.S. bilateral summit in Washington commemorated the 70th anniversary of the ironclad U.S.-ROK alliance—the duo’s dynamics have evolved from security treaty allies under the Mutual Defense Treaty, signed in October 1953, to global comprehensive strategic allies in May 2022. Presidents Joe Biden and Yoon Suk-yeol, through their joint statement, press conference, and a separate “Washington Declaration”, reiterated the shared commitment under the Mutual Defense Treaty, as well as toward establishing peace and stability in the IndoPacific. Moreover, Yoon’s state visit resulted in a stream of “political understandings” that ranged from billion-dollar economic and environmental tie-ups to technological and developmental cooperation. However, the event that has grabbed the maximum eyeballs is the Washington Declaration—unveiling new measures to concretize the “ambitious path” to secure the U.S.-ROK defense and global security cooperation and advance shared priorities in the Indo-Pacific.  This new pact claims to further the credibility of U.S. extended deterrence measures—referring to modernizing the U.S. capabilities, including nuclear forces, to deter attacks on allies, as also discourage allies from going nuclear, in the increasingly threatening regional security environment. For instance, the U.S. has constituted at the assistant secretary level a Nuclear Consultative Group (NCG) to assuage the ROK about the U.S.’ intent to formulate a consensus-based approach to handling the North Korean threat. This includes not just enhancing deployment of U.S. strategic assets, including nuclearcapable platforms, in and around the Korean Peninsula, but also augmented information-sharing, joint contingency planning, and an inter-agency table-top simulation. One of the most important objectives of this comprehensive outcome was to showcase to the domestic public in South Korea that the U.S. is a long-term reliable security partner—while also exemplifying the same for the other U.S. allies and partners in the region, such as Japan.  The U.S.-Japan-ROK trilateral is a central aspect in the Northeast Asia deterrence measures given that they face common threats from North Korea. Yoon has already opened the doors for a “three-way” strategic and nuclear planning “at any time” in the future to boost the combined response to a nuclear contingency: “The Washington Declaration is a bilateral agreement between Korea and the U.S., but we do not rule out Japan’s participation.” Already, there are speculations about Japan joining the NCG. For the present, the three countries have agreed to strengthen trilateral military cooperation including regularizing ballistic missile defense exercises and antisubmarine warfare exercises. They have also initiated efforts toward a “data sharing mechanism to exchange realtime missile warning data before the end of the year,” in line with the November 2022 trilateral leaders’ summit commitments.  At the same time, the Declaration has put on hold, even if temporarily, South Korean goals to build autonomous nuclear weapons. Yoon, who has been facing criticism at home for not heeding the extraordinary public support for acquiring an indigenous nuclear weapons program, had earlier this year stirred up a hornet’s nest by openly declaring nuclear weapons development as a possible policy option, which at the very least pushes the U.S. to re-deploy nuclear weapons. However, the Declaration clearly reaffirms the ROK’s continued commitment to the Nuclear Non-Proliferation Treaty (NPT) and the new 123 Agreement, with the U.S. president as the “sole authority” to launch nuclear weapons. It has therefore curtailed any independent nuclear notions for the near future and only served to strengthen the ROK’s alignment with the U.S. view of the global non-proliferation regime.  Consequently, the response in the South Korean media was subdued, if not sweepingly critical. Despite Yoon hailing the alliance as “nuclear based”, polls conducted during April-May 2023 (by the Korea Institute for National Unification, KINU) showed a significant drop in public support for the ROK going nuclear, especially in cognizance of the risks involved. The ROK government describing the Declaration as a Mutual Defense Treaty 2.0 or attesting to its “nuclear sharing” aspect have been touted as “false claims”; U.S. officials have also noted that the Washington Declaration is not a “de facto nuclear-sharing” agreement.  Importantly, questions have been raised domestically about South Korea paying a “high price” in return for “hardly … any substantive changes” in the U.S. nuclear policy on South Korea—sharply referred to by some domestic critics as “a redundant declaration produced by mutual distrust in the South Korea-U.S. alliance.” In concrete terms, the pact has been likened to the “jettisoning” of South Korea’s right to protect itself from the nuclear threat from North Korea—U.S. President Biden has categorically stated that he has the “absolute” authority as commanderin-chief to use nuclear weapons even though it would be in consultation with the allies. There are also legitimate concerns about the agreement having turned China and Russia into “de facto adversaries”. Misgivings have also been raised about the lack of U.S. assurance on increased business and investment ties, including in semiconductors and green technologies—areas where closer ties with the U.S. could help reduce Korean dependence on China.  The Chinese state media has raised serious concerns about the ROK “sacrificing” its “win-win” economic ties with China, but at present, maintains that “cooperation remains an irreversible trend in the long run.” Regarding these worries, some political observers in Seoul have contended that the ROK need not go back to its “strategic ambiguity” approach to pursue economic ties with China. This is primarily because countering China’s rise as a strategic challenge while maximizing economic benefits is a concern faced not only by the ROK but all liberal democracies in the present complex, transitional geopolitical scenario. Notably, the North Korean response has been predictable, calling it an opportunity for the DPRK to “perfect” its nuclear option; the official DPRK statement labeling it a “nominal” declaration highlights that the Kim regime sees it as business as usual.  A disconcerting aspect of the Declaration, even though it is in line with the sentiment of the times, has been the relegation of “pursuit of dialogue and diplomacy” with North Korea to a byline at the end. It indicates a closing of doors on diplomacy, albeit with a rogue state (namely the DPRK) unwilling to compromise, but nonetheless important given the near-consensus about the Declaration being an “evolution” in deterrence but not a panacea for the peninsular concerns. Some have also contended that “these outcomes will likely not provide enduring solutions to the North Korea challenge.”  Another notable issue that would have impacted the U.S.- ROK summit is the fallout from leaked U.S. intelligence documents, days before Yoon’s state visit, which suggested that the United States was spying on one of its foremost treaty allies. There are concerns in South Korea that the U.S. has “already penetrated into the Korean government’s networks and intercepted communications, possibly including phone and email.” As the U.S. has been accused of spying on the ROK in 2013, too, when its extensive surveillance program was exposed in press reports, the mistrust between the allies is likely to re-surface time and again. Therefore, in view of the South Korean government’s restlessness and nuclear claims prior to the April joint statement, there is some truth to the assertion that the Declaration arises out of the need to downplay the U.S. allies’ misgivings and trust issues. Its importance hence lies in shoring up of the U.S.-ROK partnership amid fears of the current security situation in Northeast Asia and the Indo-Pacific becoming worse due to the growing divisions in global geopolitics. Nonetheless, Yoon’s embrace of “strategic clarity” for the Indo-Pacific construct; sanctions on Russia during the Ukraine war; the success in resuming the U.S.-ROK-Japan trilateral in the past year; and the importance accorded to Yoon’s state visit, including the broad-ranging joint statement and the not-so-definitive yet formidable Washington Declaration, all highlight that the upward trajectory of the U.S.-ROK bonhomie is not a superfluous achievement. It points to a steady, forwardlooking alliance with implications for the wider IndoPacific. Ascertaining India’s Interests At a broader level, for the Indo-Pacific, especially for U.S. allies and partners in the region, the 2023 Washington Declaration is a sign of the U.S.’ willingness to negotiate the partners’ growing need for an inclusive, if not entirely equal, cooperation mechanism. Such an approach will not only strengthen the respective bilaterals with the United States but also present a stronger coalition in the fight against both North Korea and China. The latter is intent on destabilizing the existing status quo through its military aggression—from the Taiwan Strait to the Himalayas.  For India, which has been facing the brunt of China’s military tactics along the Line of Actual Control (LAC) with an increased frequency in the past decade, the Washington Declaration highlights a strengthening of like-minded partnerships in the continuing democratic face-off against China. Thus, the Declaration’s impact is felt in Indo-Pacific geopolitics, including India’s immediate neighborhood— particularly as it compels the ROK to sharpen its global pivotal leadership by embedding itself deeper in the U.S.- led Indo-Pacific construct. Though the Declaration is specifically targeted against North Korea, not China, the evolving alliance is a response to the ever-growing threats in and around the Korean Peninsula, as well as in broader Asia: From Central Asia to the Middle East; the Himalayan States to the Indian Ocean; the South China Sea to the East China Sea, China’s diplomatic-economic clout and military presence is growing. In short, the Chinese threat is the main concern for the U.S.  As a result, China’s Foreign Ministry Spokesperson Mao Ning was stringent in his criticism of the new pact: “What the U.S. is doing ... provokes confrontation between camps, undermines the nuclear nonproliferation regime and the strategic interests of other countries.” China was also immediate to voice its opposition against Japan’s potential involvement through the Washington Declaration, after Yoon was positive about turning the bilateral agreement into a trilateral one in the future. The inclusion of the phrase “peace and stability in the Taiwan Straits” and critical technologies cooperation in the joint statement also raised hackles in China in terms of South Korea isolating China and crossing its red lines.  China sees this agreement as another U.S. tool to strengthen a values-based security coalition in the region à la Quadrilateral Security Dialogue (Quad comprising Australia, India, Japan, and the United States). The Quad’s successful bonhomie has not only inspired other such U.S.- led platforms (e.g., the latest with Australia, Japan, and the Philippines and the West Asian one with India, Israel, and the UAE) but has also become a thorn in the side of China’s goals of regional dominance. Any deterrence for China’s growing ambitions is in India’s interests, which is not only facing a continental threat but also recognizes China’s growing reach in India’s traditional stronghold of the Indian Ocean region.  Consequently, despite not being directly connected to this agreement, India may nonetheless benefit from the Washington Declaration in a number of ways both in the Indo-Pacific and the Korean Peninsula. Firstly, the Declaration is critical to increasing the Quad’s strength. The reaffirmation of U.S. commitment to its Indo-Pacific allies and partners, including India, will not only boost the Quad but also set the stage for renewed deliberations on the Quad “Plus” framework, of which the ROK is a part, thereby opening up more avenues of India-ROK collaboration. In turn, such integration of South Korea with the Quad will further push the North Korean agenda onto the Quad’s table.  Secondly, in response to Chinese (and North Korean) aggression, the Washington Declaration emphasizes the need for maintaining the status quo in the Indo-Pacific and rejects any illegitimate maritime claims, militarization of reclaimed features, and coercive actions. This might be seen as normal diplo-speak; however, it will further concretize the ROK’s aims to build greater maritime collaborations, including naval deterrence capabilities, in the Indo-Pacific. For instance, the Chungnam frigate (FFX), launched by South Korea’s Hyundai Heavy Industries (HHI) in April 2023, will be incorporated into the ROK Navy— its second-largest naval expense. Such an investment is poised to contribute to stronger South Korean presence in the Indo-Pacific in line with its newly launched IndoPacific strategy. It is a positive development for India, which is looking to bolster its IOR presence through likeminded partners like the ROK, the European Union and its members, and Japan.  Here, it is also important to note that even though the ROK has traded off its nuclear development ambitions for “deeper, cooperative decision-making on nuclear deterrence” in the Washington Declaration, the road to fulfilling its nuclear-based ambitions has not closed down. In the future, for instance, Seoul might still be inclined to renew its post-AUKUS (Australia-UK-U.S. defense pact) demands to gain access to the U.S.’ nuclear-power submarine technology. India, which is one of the few countries to have nuclear-powered submarines with ballistic missile launch capabilities, can use this opportunity to further increase naval exercises with the ROK, along with making a stronger push towards defense technology and manufacturing collaborations.  Thirdly, India and South Korea are strengthening their bilateral and regional relationship based on democratic and inclusive visions, characterized by the centrality of the Association of Southeast Asian Nations (ASEAN). Their future-oriented partnership has a sound foundational convergence, namely the Act East Policy (AEP)-New Southern Policy (NSP) Plus connect. Notably, the degree to which the Yoon government embraces India’s AEP (and Indo-Pacific vision) will not only determine the natural progression of India-South Korea regional relations but also provide momentum to diversification goals. The latter is important in light of the ROK’s growing security and techno-economic dependence on the United States at the cost of neglecting its long-standing economic partner China, as underscored by the latest joint statement and China’s response to it.  In this context, India’s and the ROK’s quest for economic security, through participation in various regional and panregional forums, will enable them to build strategic links, and work together to balance regional developmental goals and their own economic-military growth. Both countries can use their participation in platforms like the Asian Infrastructure Investment Bank (AIIB) and the Indo-Pacific Economic Framework (IPEF) to build a stronger economic partnership. For example, the ROK, which joined the AIIB in 2015 and is the fifth-largest stakeholder of the AIIB with its shares at 3.86 percent, is looking to expand ties and find new joint project opportunities. India, as a founding member and the second largest shareholder with the largest project portfolio within AIIB, could facilitate the ROK’s enhanced contributions in the bank’s turn toward green infrastructure for providing “high-quality development finance.” India and ROK’s participation in forums like the Supply Chain Resilience Initiative (SCRI) and the U.S.- led Minerals Security Partnership (MSP) respectively, can help them coordinate their actions as they look to diversify critical value chains. The contested Asian and Indo-Pacific landscape has made supply chain diversification a priority. As U.S.-China trade and technological competition makes economic security vital, India and South Korea can build on their natural complementarities and work together to restructure their supply chains to reduce reliance on Chinacontrolled supply chains. While South Korea can support India’s goal of emerging as a manufacturing hub for key industries, India can be an important partner in South Korea’s aim to diversify its economic partnerships beyond China under the NSP.  Lastly, if South Korea heeds to domestic criticism about “jettisoning” its strategic autonomy (that is, deferring to the U.S. by not acquiring a nuclear weapons development program), it will continue to diversify its partners, particularly in defense manufacturing and new technologies. Given that India and the ROK have expanded their defense cooperation, including joint production and export of military hardware, in recent years, the new pact will allow the ROK to push boundaries. For instance, the ROK could continue supporting India’s membership bid for the Nuclear Suppliers Group (NSG) or the MSP and India could facilitate South Korea’s increased participation in the Quad, a much-desired goal for Yoon.  Moreover, ROK-India could partner for peaceful nuclear purposes. At present, India does not allow foreign direct investment in the nuclear power sector, but as per Indian media reports, the government is mulling changes in the near future. Their coming closer together, which is already in motion, will consolidate the middle power-dominated multipolar Asia architecture, primarily to mitigate the constraints due to the growing bipolar rivalry. It will further their common goal to achieve a global standing while preserving strategic autonomy. U.S.-ROK-India: A Trilateral Inches Closer? The latest U.S.-ROK summit and the Washington Declaration have certainly strengthened the U.S.-led alliance structure in the region, giving partners outside this alliance hope for a consultative and cooperative security mechanism for the region, U.S. primacy notwithstanding. What is clear is that a democratic values-based coalition will be able to successfully maneuver the ups and downs through the times and give impetus to the new-era security, economic, technological, and diplomatic cooperation. In this vein, the Declaration could be seen as a clarion call for unity to deal with the current hostile regional and global geopolitical circumstances. The boost to the Japan-ROKU.S. trilateral through this pact, as well as the bilateral summit’s assertion to implement their respective IndoPacific strategies while enhancing “Indo-Pacific voices in multilateral forums, especially in addressing climate change, sustainable energy access, and food insecurity,” could pave the way for other minilateral coalitions.  India as a vital cog in the Indo-Pacific security network will naturally play a significant role. India’s increasing closeness to the United States as a counterweight to China and a strategic partner, especially in defense and technological areas, for a free and open Indo-Pacific (FOIP) makes it an important component in today’s U.S.-led liberal order, which is at a transition stage. Moreover, the bonhomie with South Korea is based on growing common values and interests of assertive middle powers, including strategic autonomy and global governance aspirations.  India will be closely watching to see whether Seoul’s emphatic turn to “strategic clarity,”—first with its “Strategy for a Free, Peaceful, and Prosperous Indo-Pacific Region” and now the Washington Declaration—will enable the ROK to fulfill its middle power potential as a “technological, economic powerhouse.” In other words, for India, the new ROK approach could enable a deeper strategic connect between the two partners by moving beyond economic and limited regional ambitions. The new goals would have to include extended joint military exercises, joint manufacturing of defense equipment, expanded connectivity (digital and physical), regional integration initiatives, global supply chain resilience, increased green technology sharing, effective critical mineral collaborations (to lower dependency on China and Russia), and technological norms building, among others.  Importantly, as both India and the ROK have signed the respective 123 Agreement with the U.S. on peaceful uses of nuclear energy, there is potential for cooperation in the power sector, as well as via technical exchanges, scientific research, and safeguards discussions. In March 2018, India and South Korea signed a bilateral civil nuclear agreement that allowed Korean companies to participate in India’s civil nuclear industry (including in atomic power plant projects and selling nuclear reactors to India). With energy security front and center on the global agenda in wake of the Ukraine crisis, trilateral cooperation in the civil nuclear sector can be an important step forward. Notably, nuclear exports are an important part of China’s Belt and Road Initiative (BRI). By 2030, China plans to build about 30 nuclear reactors abroad, worth $145.5 billion; it has already built four nuclear reactors in Pakistan (and is now building two more), has signed agreements to build reactors in Argentina, entered the UK nuclear market, and is currently negotiating with several other countries including Saudi Arabia and Kazakhstan. Amid the ongoing energy crisis, China’s foray into the global nuclear market could give it greater influence and potentially enhance its coercive power. In this context, the U.S., South Korea, and India have reason to bolster cooperation in this area and ensure they can stand as competitive nuclear vendors against China’s offer of advanced technology, competitive prices, and rich financing.  India, the ROK and the U.S. have several shared interests and are already engaged in high-level cooperation at bilateral and multilateral levels; as such, a trilateral between the three powers would help coordinate their actions in pursuit of their regional goals. At the same time, for India and the ROK, any such trilateral cooperation could serve to provoke China and make managing the U.S.-China equation much more difficult. Nevertheless, while India faces a belligerent China on its border and South Korea is dealing with an economically coercive China, a trilateral partnership could be necessary to bolster collaborations and further shared interests. Furthermore, the benefits of a U.S.-ROK-India trilateral would be equally distributed to not just the three countries, but also other regional powers. Improvement of ties between Japan and South Korea—which is shaping up to be a focal point of both Yoon’s and Fumio Kishida’s leadership legacies—will gain smoother and faster traction owing to Japan’s close ties with India and the alliance with the U.S. Australia and Indonesia, too, have responded positively to South Korea’s Indo-Pacific strategy. The establishment of a new U.S.- led defense-ministerial level quadrilateral mechanism with Australia, Japan, and the Philippines is another shot in the arm for “allied and like-minded” countries. Therefore, the U.S.-India-ROK trilateral would draw on the bilateral gains and their common belief in ASEAN centrality to further regional integration aims. This will also give impetus to Seoul and Delhi (and also Canberra) emerging as strong candidates for an extended G-7. Overall, the Declaration sets the stage for a strong U.S.-ROK camaraderie that will extend beyond nuclear deterrence goals, impacting broader regional multilateral dynamics of the Indo-Pacific. Lessons for South Asian Nuclear Dynamics: Potential for Reassurance and Deterrence? In many ways, the Washington Declaration seeks to be a show of strength—and a reprieve—against the North Korean nuclear threat that has rapidly escalated over the past year with the sudden rise in missile tests and an expanding nuclear program. Since his election for presidency, Yoon has frequently expressed willingness for South Korea to be a more active player in the Indo-Pacific, including by being a part of the Quad framework. The Declaration is a part of Seoul’s efforts to meet its security goals. While it is certainly a significant step to counter the North Korean threat, it is also an indication of a stronger alliance against provocative actions by China. The bolstered U.S.-ROK partnership under the Declaration is a step towards a more proactive and stronger South Korea in the region, and could eventually ease the way for Seoul’s productive involvement in the Quad, perhaps through a Plus framework. While South Korea will still need to establish itself as a reliable partner with the other members of the Quad, the Declaration certainly demonstrates its commitment to regional (and global) security, and by extension, the important role it can play through greater interaction and burden-sharing with the Quad.  Undoubtedly, this new bilateral agreement between the U.S. and the ROK (potentially also involving Japan through the trilateral) will usher in new lessons for the wider Indo-Pacific, and in turn for India, too. For instance, the prospects of closer consultations that will strengthen the combined defense posture are relevant for not just U.S. treaty allies like the ROK and Japan but central strategic security partners like India that is facing a two-front border escalation with China and Pakistan. However, could this new deterrence declaration in Northeast Asia pave the way for a common strategic mechanism between the U.S. and India that enhances deterrence and provides a degree of reassurance against the growing nuclear risk in South Asia?  As much as it is possible that the U.S. extended deterrence for ROK would fuel an arms race, as also underscored by Russia and China in their response to the Declaration, not just in Northeast Asia but also in nuclear-heavy South Asia, it is often contended that “the drivers of nuclear instability in the region have more to do with conventional warfighting strategies.” The grave escalation in 2019 between India and Pakistan is one such example, and the accidental firing of a missile into Pakistan’s territory in 2022 that fortunately did not result in a retaliatory attack is another—both highlight the need to pursue definitive de-escalation and crisis management measures, and the latter puts a spotlight on the current fragility of the South Asian situation. The danger of an accidental nuclear war in such tense conflicts has not been stressed enough, and it bears repeating that such a threat was a constant refrain during the Cold War posturing.  Broadly speaking, today, India and Pakistan are not signatories to the NPT but have been gradually increasing their nuclear arsenals. China is a nuclear weapons state recognized by the NPT, and has accelerated its nuclear development program. All are developing newer “ballistic missile, cruise missile, and sea-based nuclear delivery systems.” As of January 2023, Pakistan’s nuclear arsenal was about 170 warheads (by some estimates the stockpile might go up to about 200 by 2025), China’s about 410 nuclear warheads; and India’s about 164 nuclear weapons.  Moreover, while India and China both have declared nofirst-use (NFU) policies, Pakistan has no such policy; its “full spectrum deterrence posture,” especially the development of tactical nuclear weapons capabilities for use on the battlefield to offset India’s (superior) conventional military tactics has been of concern to not just India but the United States as well. At the same time, recently questions have been raised about China shifting its nuclear policies, including the NFU, because of the nuclear expansion and modernization. Vis-à-vis India, too, there are speculations that “India could be transitioning towards a counterforce nuclear posture to target an adversary’s nuclear weapons earlier in a crisis, even before they could be used.”  In this context, controlling escalation is not a conclusive plan of action, and dialogue, too, has limitations when the live-wire conflict, as it is with both India-Pakistan and IndiaChina, has historical roots and nuclear leverage. Also, India has called nuclear risk reduction an “interim” strategy; and as per its security review in 2003, India retains the option of nuclear weapons in the event of an attack by chemical and biological weapons. However, as part of its doctrine of credible minimum nuclear deterrence, including the NFU and non-use against non-nuclear weapon states, India is “prepared to convert these undertakings into multilateral legal arrangements.”  Therefore, for South Asia, the U.S. and its partners, including India, need to focus on building creative, reliable mechanisms for limiting the possibilities of crossing the nuclear threshold, as well as controlling the use of highprecision conventional weapons. For example, India, Japan, South Korea, and the U.S. should either as a new minilateral or in conjunction with Quad (Plus) strengthen a strategic dialogue that looks into ways of information sharing, including intelligence on nuclear threats in the sub-region, as well as take into account India’s pursuit of “global, verifiable and non-discriminatory” multilateral legal arrangements for a nuclear weapon free world.  Importantly, a vital tool that should be widely used is the dissemination of information about the dangers of nuclear weapons and the limitations of ballistic missiles among the public and policymakers. Lessons must be drawn from the South Korean scenario where public survey results in the recent past have highlighted a concerning trend of a high degree of support for nuclear weapons deployment without fully being made aware of the pitfalls. A recent study revealed that even in the U.S. and the UK, there is a lack of awareness about “nuclear winter”—a term used to illustrate the potential “catastrophic long-term environmental consequences from any exchange of nuclear warheads”— and that even brief exposure to these risks reduces the public’s support for nuclear retaliation. The dramatic lowering of public support for nuclear development is seen in the latest (aforementioned) KINU survey in the ROK, too, when presented with different possibilities of risks. Raising awareness and educating the public and decision-makers about such risks should also be part of the state’s strategy to reduce the heightened perceptions about nuclear weapons: the responsibility surely lies to a large degree on national governments and relevant multilateral organizations, which seem to have been caught napping.  In the wake of the Washington Declaration, which has rekindled the nuclear debates in the Indo-Pacific, it is imperative that concerted efforts be made by all stakeholders, especially the nuclear states and the ones desirous of autonomous nuclear weapons capabilities, to first raise regional public awareness about the ramifications of nuclear armament, and only then pursue responsible deterrence measures.

Energy & Economics
Collision of shipment containers with Chinese and US flags

Drivers of U.S.-China Strategic Competition

by Stephen R. Nagy

Understanding the Chinese Perspective The relationship between the United States and China is one of the most important and mutually beneficial bilateral relationships in the world. Nonetheless, it is also complex and contentious, with both countries vying for geopolitical influence and economic dominance. This brief examines drivers of U.S.-China strategic competition from the perspective of Beijing incorporating the prism of MarxistLeninist ideology, domestic politics in the U.S., China's needed alignment with Russia, nationalism, technological advancements such as AI, the role of regional players such as ASEAN, Japan, and the E.U., and Comprehensive National Power (CNP). Understanding this analytical lens contributes to deeper comprehension of China's security anxieties and world view that may provide insight to enhance engagement, resilience, and deterrence in bilateral relations with China. Introduction The relationship between the United States and China is one of the most important and mutually beneficial bilateral relationships in the world today. To illustrate, according to data published by the U.S. Bureau of Economic Analysis (BEA), total imports and exports grew 2.5 percent year-on-year to reach US$690.6 billion in 2022, breaking the previous record of US$658.8 billion set in 2018. This increase is despite the divisions associated with the COVID-19 pandemic and mutual unfavorable ratings. Nonetheless, the U.S.-China relationship is also complex and contentious, with both countries vying for geopolitical influence and economic dominance. Whether it is the rules-based Free and Open IndoPacific or the realization of Xi Jinping’s China dream, the competition for primacy between the U.S. and China will impact friends, partners, and foes of both states. Viewed from Beijing, Chinese scholars and analysts base their assessment of the trajectory of the U.S.-China strategic competition through several lens including the prism of Marxist-Leninist ideology, domestic politics in the U.S., China’s needed alignment with Russia, nationalism, technological advancements such as AI, the role of regional players such as ASEAN, Japan, and the EU, and Comprehensive National Power (CNP). Shaped by Marxist-Leninist Ideology Marxist-Leninist ideology has played a leading if not central role in shaping the Chinese Communist Party's (CCP) approach to governance and foreign relations. The CCP came to power in 1949 following a successful revolution led by Mao Zedong. Mao was heavily influenced by Marxist-Leninist thought. Since then, the CCP has maintained a commitment to Marxist-Leninist ideology, although its interpretation and application have evolved over time. Today, as former Australian Prime Minister Kevin Rudd and author of The Avoidable War: The Dangers of a Catastrophic Conflict between the US and Xi Jinping's China writes, Xi’s China leans left in terms of Marxist-Leninist socio-economic organization and right in terms of nationalism. Rudd’s analysis echoes President Xi’s speech on “Hold High the Great Banner of Socialism with Chinese Characteristics and Strive in Unity to Build a Modern Socialist Country in All Respects” in his report to the 20th National Congress of the CPC. In that speech, Xi stressed that “Marxism is the fundamental guiding ideology upon which our Party and our country are founded and thrive. Our experience has taught us that, at the fundamental level, we owe the success of our Party and socialism with Chinese characteristics to the fact that Marxism works, particularly when it is adapted to the Chinese context and the needs of our times.” At its core, Marxist-Leninist ideology emphasizes the importance of class struggle and the need for the working class to overthrow the ruling class to achieve a classless society. In the Chinese context, this has translated into a focus on creating a socialist society and promoting the welfare of the Chinese people under the umbrella term ‘Socialism with Chinese Characteristics’. In terms of China’s relationship with the U.S., Marxist-Leninist ideology has contributed to a view of the U.S. as a capitalist and imperialist power that seeks to undermine China’s socialist system. This view is rooted in the Marxist-Leninist belief that capitalist powers are inherently expansionist and seek to dominate other countries to secure their own economic and political interests. They see the U.S. as an imperialist power seeking to maintain its hegemony over the world, while China represents a rising power challenging the established order, as written by Graham Allison in his book Thucydides’ Trap. Chinese analysts believe that the U.S. is threatened by China’s rise and is seeking to contain it through various means, including economic sanctions, military posturing, and diplomatic pressure as evidenced by the Trump administration’s trade war, its network of alliances throughout the region, the advent of minilateral cooperation such as the Quad and AUKUS, and the perceived fomenting of independent movements in Hong Kong, Xinjiang, and Taiwan.  They argue that the U.S. is using its military alliances and partnerships with countries such as Japan, South Korea, and Australia to encircle China and limit its influence in the region. These perspectives ignore that the U.S. alongside with Japan and others openly supported China’s entry into the WTO, the 2008 Summer Olympics, and gave China a leadership position at the Paris Climate Accord. These initiatives demonstrated that the U.S. and other countries were willing to work with China on global issues and support its development. Destabilizing Influence of U.S. Domestic Politics While Marxist-Leninist perspectives of U.S.-China relations offer a macro-level understanding of how China views the inevitability of great power rivalry between Washington and Beijing, Chinese analysts also pay close attention to domestic politics in the U.S. and its impact on U.S.-China relations. Chinese analysts believe that the current political climate in the U.S. is highly polarized, and that these domestic political dynamics are affecting U.S. foreign policy, including its stance towards China. They see the Trump administration’s trade war with China as a reflection of this polarization, and argue that it has damaged the relationship between the two countries. They also note that the Biden administration has continued many of the same policies as the Trump administration, including maintaining tariffs on Chinese goods and pursuing a tough stance on technology transfer and intellectual property theft. The build-up to the 2024 presidential election for most will be one of intensifying securitization of relations with China. President Biden will not be in a position to show any weakness in his China policy. Equally so, the Republicans, whether it is former President Trump or an alternative GOP candidate will take an “All because of China” approach, when it comes to foreign policy, like advocating for a hard decoupling of the economies or even more provocatively, possibly migrating away or redefining the “One China” policy. Developing China-Russian Alignment Chinese analysts also view the relationship between China and Russia as an important factor in the trajectory of U.S.-China relations. They see the two countries as natural partners, sharing a common interest in challenging U.S. dominance of the world. They believe that the China-Russia all-weather partnership is growing stronger and that it poses a significant challenge to U.S. interests. For Russia, Pax Sinica would offer it a much more hospitable environment than the one provided by the Pax Americana, according to the authors of The Beijing-Moscow Axis: The Foundations of an Asymmetric Alliance published by the Centre for Eastern Studies (OSW). For China, a tightening of the alignment with Russia will be critical to ensuring that U.S. does not drive a wedge between China and Russia by pursuing a policy of containment against both countries, a policy that Chinese analysts view as unlikely to succeed. The invasion of Ukraine is a case in point. Despite Russia’s invasion violating the U.N. Charter and China’s Five Principles of Peaceful Co-existence, Beijing has taken a pro-Russian neutrality position refusing to condemn Russia. This is not an endorsement of the invasion or of Putin. It is a clear indication of the importance China places on the deepening Sino-Russian alignment and the reality that neither country can afford a geopolitical divorce. In fact, the recent paper ‘China’s Position on the Political Settlement of the Ukraine Crisis’ continues to echo President Xi’s Workers Report at the 20th Party Congress in October 2022, which explicitly used the expression that “no country’s security should come at the expense of another country’s security,” an explicit rejection of the U.S. and Western countries’ views that Russia has engaged in an unprovoked attack against the sovereign state of Ukraine.  Intensifying Nationalism Chinese nationalism is another important factor by which Chinese analysts understand the trajectory of U.S.-China relations. They view Chinese nationalism as a natural response to the country’s history of humiliation at the hands of foreign powers, including the U.S. Carefully curated since the Tiananmen Square incident in 1989, Zheng Wang writes in his book Never Forget National Humiliation: Historical Memory in Chinese Politics and Foreign Relations that Beijing has placed the century of humiliation at the center of China’s national building process and a nationalist movement in which victimhood, national rejuvenation, and a perineal sense of insecurity concerning the West and particularly the U.S. is the major pillar. These narratives have been meticulously manipulated and deployed to build a national identity in which China must resist anti-China forces and those states that wish to prevent “China’s rightful rise.” Events such as the 70th Anniversary of Victory of Chinese People’s War of Resistance Against Japanese Aggression and World Anti-Fascist War, 100th anniversary of the founding of the Chinese Communist Party, or national aspirations such as the China Dream are all constructed with the purpose of infusing into Chinese citizens a nationalism linked to the CCP’s selective understanding of history. Based on these selective views of history, scholars such as Qin Pang in their co-authored article on “China’s Growing Power Makes Its Youth Hawkish?” Evidence from the Chinese Youth’s Attitudes toward the U.S. and Japan’ find that Chinese citizens view the United States as seeking to contain China’s rise and limit its influence in the region, and that this is seen by many Chinese as an affront to their national pride. Chinese analysts believe that Chinese nationalism is a powerful force that will shape the country's foreign policy for years to come, and that it will continue to be a source of tension in U.S.-China relations. For the U.S. and other like-minded states, Chinese nationalism that is based on victimhood, national rejuvenation, and a perennial sense of insecurity concerning the West will not be a platform for stabilizing and creating constructive relations, especially if this nationalism drives territorial expansion in the South and East China Seas, the Himalayan plateau or across the Taiwan straits.  Dominating AI and Other Technologies  The rapid advancement of technology, particularly in the areas of AI and 5G, is another factor that Chinese analysts believe will shape the trajectory of U.S.-China relations. They see China as a leader in these areas, with the potential to surpass the United States in terms of technological innovation and economic growth. Chinese analysts argue that the U.S. is threatened by China’s technological progress and is seeking to limit its access to advanced technology, particularly in the areas of AI and 5G. They also believe that the United States is using national security concerns as a pretext for restricting Chinese access to these technologies. The U.S. Chips Act and the growing first tier semiconductor and technology firewall that is being erected around China by the U.S. in cooperation with Japan, South Korea, the Netherlands and Taiwan demonstrate the centrality the U.S places on dominating these spheres of technology. The consequence for China according to analysts in and out of China is that it will no longer have access to the most sophisticated semi-conductors, semiconductor producing machines and the associated expertise to keep up in the race to be the first mover when it comes to AI and other technologies that rely on first tier semi-conductor chips. In concrete terms, this means that as the U.S. and its allies will form a chips coalition among like-minded countries resulting in their collective abilities to generate scientific breakthroughs that can be translated into military and economic advantages that will preserve U.S. dominance and the existing rules-based order. Beijing is aware of this challenge and has attempted to reduce its reliance on the U.S. and Western states through its Made in China 2025 strategy and Dual Circulation Strategy. Whether these initiatives will be sufficient to outmaneuver U.S. initiatives to dominate semi-conductors and ultimately AI and other sensitive technologies is yet to be determined. Role of ASEAN, Japan, and the EU Chinese analysts also pay close attention to the role of regional players such as ASEAN, Japan, and the EU in the trajectory of U.S.-China relations. They believe that these countries have a significant influence on the balance of power in the region and that their relationships with the United States and China are critical. Japan’s release in December 2022 of three strategy documents—the National Security Strategy (NSS), National Defense Strategy (NDS), and Defense Buildup Program aims to uphold the current rules-based order and prevent the emergence of Chinese hegemony in the IndoPacific region. Meanwhile, the new Washington Declaration between the United States and the Republic of Korea (RoK) commits to engage in deeper, cooperative decision-making on nuclear deterrence, including through enhanced dialogue and information sharing regarding growing nuclear threats to the ROK and the region. The recent meeting between U.S. President Biden and Philippine President Marcos reaffirms the United States’ ironclad alliance commitments to the Philippines, underscoring that an armed attack on Philippine armed forces, public vessels, or aircraft in the Pacific, including in the South China Sea, would invoke U.S. mutual defense commitments under Article IV of the 1951 U.S.- Philippines Mutual Defense Treaty.”. These are explicit examples of how U.S. allies, through their cooperation and partnerships with the U.S., are aiming to preserve U.S. hegemony. In short, Chinese analysts argue that the United States is seeking to use its relationships with these countries to contain China’s rise, while China is seeking to build closer relationships with its neighbors and BRI partners to expand its influence and build win-win relationships based on its Five Principles of Peaceful Co-existence. Lastly, U.S. and ASEAN watchers in China believe that the United States is losing influence in the region, particularly with ASEAN countries, and that China is poised to fill the power vacuum owing to its extensive economic ties in the region, ties that many in Southeast Asia are dependent on for sustainable development despite reservations over the possible negative ramifications of increased Chinese economic and diplomatic influence in the region. Heft of Comprehensive National Power (CNP) Sensitive to the changing power balances and what this means for China’s ability to achieve its core national interests, China places enormous weight on Comprehensive National Power (CNP) as a key measure of a country’s overall strength and capability in all aspects of national development, including economic, military, technological, cultural, and diplomatic power as Hu Angang and Men Honghua write in their article title “The rising of modern China: Comprehensive national power and grand strategy”. The concept of CNP has been used by Chinese leaders since the 1980s to assess China’s relative strength compared to other countries, particularly the United States. In recent years, China has focused on increasing its CNP as part of its strategic competition with the U.S. Beijing aims to surpass the U.S. in terms of overall power and influence, believing that a higher CNP will enable the country to better protect its national interests, enhance its global influence, and achieve its long-term strategic goals. To increase its CNP, China has pursued a range of policies and initiatives. One of the key areas of focus has been economic development, with China becoming the world’s second-largest economy and a major player in global trade and investment. Through the Made in China 2025, the Belt Road Initiative (BRI), and the Dual Circulation Model, China has also invested heavily in science and technology, with a particular emphasis on emerging technologies such as artificial intelligence, quantum computing, and 5G networks.  In addition, China has modernized its military and expanded its global military presence based on the civil-military fusion (MCF), with the goal of becoming a world-class military power by the middle of the century. China has also pursued a more assertive foreign policy, seeking to expand its influence in key regions such as Southeast Asia, Africa, and the Middle East. Concurrently, China has also sought to promote its soft power, through initiatives such as the Belt and Road Initiative (BRI), which aims to enhance connectivity and economic cooperation between China and other countries. China has also sought to promote its culture and values through the Confucius Institutes and its latest Global Civilization Initiative calling for “called for respecting the diversity of civilizations, advocating the common values of humanity, valuing the inheritance and innovation of civilizations, and strengthening international people-to-people exchanges and cooperation.”  China’s focus on increasing its CNP is driven by its desire to become a major global power and to challenge the U.S.’ dominant position in the international system. While China’s rise has brought many benefits to the country and the world, it has also raised concerns among some countries, particularly the U.S., about the potential implications of China’s growing power and influence. This is especially true as we have seen a growing track record of economic coercion, grey zone tactics, and rejecting international law such as the Permanent Court of Arbitration’s July 2016 decision against its claims in the South China Sea.Conclusion Chinese analysts clearly view the relationship between the United States and China through a complex lens. They see the relationship with the United States as one of the most important in the world and believe that it will continue to shape the trajectory of global politics and economics for years to come. While there are significant challenges and tensions in the relationship between the two countries, Chinese analysts also see opportunities for cooperation and collaboration, particularly in areas such as climate change and global health.

Energy & Economics
concept of lithium mine extraction and international commodity prices. Supplier of minerals for production.dice with 'lithium' word,miniature workers digging

Global Lithium Supply and Australia's Role

by Dr. Marina Yue Zhang

Australia plays a pivotal role in global Lithium supply chains. While joining initiatives like the Minerals Security Partnership may in the short term provide strategic security, this must be weighed against the broader interests of global development and climate change mitigation.  Lithium is both a critical element and strategic resource as nations strive to achieve their decarbonisation goals. Amid increasing geopolitical tensions, nationalism, and protectionism, investments in strategic resources are subject to security reviews to assess potential political risks and safeguard national security interests. Such scrutiny reflects the growing importance of protecting critical resources and assets as countries strive to maintain their sovereignty in an uncertain global environment where trust and adherence to a rules-based order are diminishing. China currently dominates the global lithium supply chain with over 60 percent of processing capacity, 65 percent of lithium-ion battery component manufacturing, and 77 percent of battery manufacturing. The concentration of the lithium supply chain in China has raised concerns in the United States (US) and the European Union, resulting in a shared priority of reducing dependence on China in their respective industrial and trade policies. Accounting for 55 percent of global lithium production – with 96 percent of it exported to China in 2022 – Australia holds a significant position in the “de-risking” effort of the US-led Minerals Security Partnership, which aims to strengthen commercial ties between strategically aligned nations. Australian Resources Minister Madeleine King has emphasised the importance that Australia participate in this alliance. Jim Chalmers, Australia’s Treasurer, has called for caution and selectivity in foreign investments in critical minerals. While not explicitly stated, it is evident that Australia intends to impose restrictions on investments from China in critical minerals. At the recent G7 Summit in Japan, President Joe Biden and Prime Minister Anthony Albanese reached an agreement to build an independent supply chain for critical minerals. As part of this agreement, Australian companies will have the opportunity to benefit from US subsidies if they establish value-adding facilities within Australia. Building onshore lithium processing facilities in Australia can provide benefits such as reduced shipping costs and job creation. However, it requires significant investment in building processing technology and waste management facilities. Meanwhile, aligning with the US-led alliance could risk escalating tensions with the potential for retaliation from China. But, accepting China’s investment and technology for onshore lithium processing may raise concerns about aligning with China’s political identity. The definition of “likemindedness” and the alignment of interests in foreign investment have become subject to debate. Tianqi Lithium, a Chinese company, portrayed itself as a “likeminded” foreign investor during its attempt to acquire equity in ASX-listed Essential Metals (ESS), emphasising its potential contribution to Australia’s moving up the value chain. However, this interpretation contradicts the evolving understanding of the term held by Australian politicians and the public, which is more narrowly focused on political identity. Benefits and costs Within this competition, a primary concern is that China will leverage its dominant position as a geopolitical  “chokepoint,” similar to the way Russia did over energy resources during its invasion of Ukraine. However, reciprocity is also true in a chokepoint strategy due to interdependence. Possessing eight percent of known global lithium reserves, China relies on imports for about 65 percent of its lithium production. This dependence exposes China to its own potential chokepoint. In this respect, Australia plays a pivotal role in China’s supply chain security. The fear of being “strangled” in the supply of lithium has led to a growing  security dilemma – nations strive to secure a stable and uninterrupted supply for decarbonisation efforts; however, this pursuit  could trigger a cycle of competition for production and processing capacity, potentially resulting in redundancy in the supply chain and, more importantly, increased pollution. The US, despite being a major consumer of lithium batteries, has limited control over the global lithium supply, with only one percent of known lithium reserves. To ensure energy security during the clean energy transition, the United States is actively pursuing strategies to strengthen its position in the lithium supply chain. This may involve decoupling or de-risking strategies that come with economic, social, and environmental costs but can provide advantages in terms of global influence, political leadership, and technology sovereignty compared to China. While clean energy technologies like solar panels, wind turbines, and electric vehicles offer carbon-neutral benefits during use, their production processes can have a substantial environmental impact – lithium extraction and processing, for example, is energy-intensive and can contribute to carbon emissions. A recent opinion article in Nature highlights the importance of considering the entire life cycle of clean energy technologies, from production to application, to effectively mitigate their environmental impact. Driven by the need for energy security and its commitment to achieving its carbon peak and carbon neutrality goals, China has made remarkable strides in developing clean energy technologies over the past decade. Notably, China has gained a significant advantage across the supply chain. This competitive edge has been achieved through substantial investment in research and development, but also significant environmental costs. In 2022, China’s investment in clean energy technology exceeded – by more than 50 percent – that of all of the G7 nations, plus South Korea, and India, combined. China is strategically investing in future technologies, including the full cycle of lithium production. Chinese lithium giants are constructing solar power stations for clean lithium extraction in South America, and Chinese researchers are working on battery recycling technologies and exploring new materials and innovative processes in battery making. Riding on an established wheel or inventing a new one? When it comes to fighting climate change and the urgent need for action, nations have the choice to build upon established technologies or explore new ones. Countries need to adopt an open-minded approach and avoid repeating past mistakes that have harmed the environment in the search for sustainable solutions. This requires a global effort based on collaboration and cooperation, transcending political divisions. China, as a developing country, has benefited from technology transfer and foreign investment during its industrialisation. In the emerging area of clean energy transition, it has gained first-mover advantages, although it has incurred significant costs, especially environmental damage. Chinese investment is often referred to as “red capital,” indicating the potential for political influence, particularly by its state-owned enterprises (SOEs) in foreign investment projects. Though most of Chinese lithium companies are private businesses, they are still collectively categorised as red capital, and not viewed as likeminded investors. It would be short-sighted to reject Chinese technologies and investments solely on the basis of political divisions. Instead, countries should learn from both the successes and challenges of China’s experience to achieve their decarbonisation goals. For Australia, it is important to go beyond simplistic policies and carefully assess the benefits and costs of joining a US-centered geopolitical bloc in the lithium supply chain. Such a decision could have repercussions, including retaliations and disruptions in global supply chains and trade. Moreover, it is crucial to both fully assess the environmental consequences and carefully calculate the necessary investments in technology and infrastructure in order to develop a strategic plan that benefits Australia, contributes to global decarbonisation efforts, and promotes the well-being of humanity.