Where to Next in the Trade War?
China’s military power; the Philippines votes; “rocket man” returns
The Big One.
The trade war escalates.
We’re finding out just how well global markets had priced in the odds of a total collapse in U.S.-China trade negotiations leading to escalation. The answer, as of this writing, is reasonably well. The sell-off in Asia has been more dramatic than in the United States, but, still, the events of early May have not entirely caught investors off-guard.
U.S. President Donald J. Trump, his trade representative Robert Lighthizer, and other U.S. officials have been clear that this is not the time to back down. Yes, Trump has talked about giving balm to U.S. farmers hurt by what the escalation promises, but short of that, there’s little sign that markets getting spooked will get the White House to alter course. (Indeed, farmer discontent might have a better shot of moving this administration’s positions.)
In many ways, that’s a central question in the coming weeks: Will falling stock index numbers give pause to the U.S. president and help him chart a course toward yet another truce? Jim Biano at Bloomberg thinks so, hypothesizing that markets, in effect, will exercise a veto on even this administration’s policy.
That’s suggesting that Lighthizer and some other figures, like Peter Navarro, are the true believers, and that Trump, despite his recent spate of comments on the trade war, is more conditioned to keep markets happy—especially as the election season in the United States continues to heat up.
The prospective next round of tariffs on $300 billion in goods—the full list of goods under consideration is here, courtesy of the USTR—is not popular even among Trump’s own party, but Republicans aren’t lining up to take the president on just yet. They may have learned their lessons after the abortive attempts to walk the administration back on steel and aluminium tariffs earlier in the term.
Either way, it looks like we’re back in another round of escalation that’ll run through June. On June 1, China will increase tariffs on $60 billion in U.S. products in retaliation for the 10-to-25 percent increase that Trump just authorized. The big moment to look forward to, then, will be the G-20 Japan summit meeting, where Trump will possibly meet Chinese President Xi Jinping (no confirmation from China just yet) on the sidelines.
Bottom Line: Markets have mostly absorbed trade war escalation for now, but the tension will persist through the end of June, culminating in the G-20 summit meeting between Trump and Xi.
Your Portal to the Asia-Pacific.
I’m excited to introduce a new offering from The Diplomat. Diplomat Risk Intelligence is the new consulting and analysis division of The Diplomat, the Asia-Pacific’s leading current affairs magazine. To learn more, click here.
East Asia.
Kim Jong Un is back to his old ways. After a pause of 521 days, the North Korean leader oversaw the launching of a new type of short-range ballistic missile alongside long-range artillery on May 4. He followed that up with additional launches of that same missile and more artillery on May 9. “Rocket man” is back.
The new missile has generated quite a bit of buzz and I’m still working to wrap my head around what it represents. I’d long predicted that North Korea would look to test the system: I wrote as early as February 2018 that this missile would be on Kim’s to-do list, shortly before any further tests would be put on hold while diplomacy got underway.
Almost every analyst has commented on the missile’s resemblance to the Russian Iskander-M short-range ballistic missile. The chief question that remains is where does the resemblance begin and end? We should be careful about concluding that any proliferation of actual Iskander technology has taken place. After all, what makes an Iskander notable is what happens after the missile’s launch—not its appearance or the launcher design. Given the launcher design and the appearance of the missile itself—not to mention the quasi-ballistic trajectory—the missile does appear to be the Songun Iskander, North Korea’s take on the precise, aeroballistic maneuvering Russian missile. Serious questions remain, however, about its performance. Regardless, it will be a useful capability for North Korea, providing a highly survivable conventional strike capability with a high chance of simultaneously posing a challenge to South Korea-based missile defense systems.
Setting aside the technostrategic implications of the tests and the new missile, Kim’s resumption of weapons testing is an ominous sign for diplomacy. Of course, as I noted in the previous edition of this newsletter, Kim told us that we should likely have expected North Korean military activities. In his April speech to the Supreme People’s Assembly, Kim warned of “corresponding acts” from Pyongyang for the springtime U.S.-South Korea exercises. That’s exactly what has happened now.
The U.S. reaction for now has been restrained, with U.S. Secretary of State Mike Pompeo even reminding Fox News’ Chris Wallace that Kim’s launch did not violate his own April 20, 2018, moratorium (never mind United Nations Security Council Resolutions, which bar North Korea from any ballistic missile testing). Trump, too, has underplayed the tests, calling them “very standard stuff.”
Bottom Line: North Korean missile testing is back. The odds for a swift return to diplomacy do not appear high.
Bonus: Prashanth Parameswaran and I dug deeper into the latest North Korean missile tests in the latest Asia Geopolitics podcast.
Don’t Miss It: The U.S. has seized a North Korean sanctions-busting ship, the Wise Honest. Read the U.S. Department of Justice release here; the vessel had been impounded by Indonesian authorities last year in the course of Jakarta implementing its UN member state obligations under UNSC resolutions on North Korean illicit maritime activity.
South Asia.
Nepal joined China’s Belt and Road Initiative in 2017, sparking concern in India that Kathmandu was pivoting away from its historical reliance on New Delhi. The decision to join BRI followed a major period of difficult bilateral relations between Nepal and India over the former’s promulgation of its September 2015 constitution. Amid significant domestic discontent over that constitution in Nepal, India ended up enacting an unofficial blockade and was perceived by Kathmandu elites as interfering heavily in the country’s politics. While relations partly recovered between the two countries by 2017, Nepal’s leaders had decided that China would prove a useful hedge.
That context brings us to 2019. At the recent Belt and Road Forum, which met in late April in Beijing, Nepal and China concluded a number of memoranda on increasing their cooperation. Nepal’s President Bidya Devi Bhandari participated in the second BRF. As Kamal Dev Bhattarai reported for The Diplomat:
A joint communique issued after the leaders’ roundtable mentions the Nepal-China Trans-Himalayan Multi-dimensional Connectivity Network, including the Nepal-China cross-border railway, an ambitious connectivity project which is drawing international attention. China wants to develop this railway line as a gateway to South Asia. This is a first time that Nepal’s specific project has been mentioned in official BRI documents, but it is still not listed among the deliverables.
Another significant development during Bhandari’s China visit was the signing of a protocol related to the Transit and Transport Treaty signed back in 2016 in the previous tenure of the Oli government. The signing of the protocol allows Nepal to use China’s sea and road infrastructure for third country trade. However, Nepal needs to build some relevant infrastructure to actually make use of Chinese ports.
Both countries have already concluded a pre-feasibility study of the proposed Keyung-Kathmandu railway and are all set to begin the task of preparing a Detailed Project Report (DPR); it is estimated that it will take around two years and 35 billion Nepalese rupees (about $312 million) to complete the DPR. Cost-sharing plans for the DPR have not yet been finalized. Talks on the railway project are scheduled to take place next month.
This list of outcomes and ongoing progress in Nepal-China economic cooperation may look interesting, but the extent of Kathmandu’s reliance on India is not likely to change overnight. India remains Nepal’s top trade partner and an overwhelming amount of Nepal’s trade with a third country currently has to traverse Indian territory. The two countries’ 1950 Peace and Friendship Treaty remains the foundation of the relationship, but there are growing calls in Nepal to revisit that treaty; Kathmandu is eagerly anticipating the outcome of India’s ongoing Lok Sabha elections.
Bottom Line: Two years after joining China’s Belt and Road Initiative, Nepal doesn’t appear to be turning back. That’s stoking concerns in New Delhi.
Southeast Asia.
On Monday, May 13, voters in the Philippines cast their ballots for a range of offices at all levels of government in the country. These elections come three years after the 2016 elections that resulted in incumbent President Rodrigo Duterte’s victory, and while Duterte himself was not on the ballot, the elections are widely seen as a referendum on his administration. Final election results will be announced next week and could be determinative of the rest of Duterte’s term.
Generally speaking, pre-election polling has shown that Duterte-backed candidates remain strong across the country. “A May 3-6 survey by independent pollster Pulse Asia showed 11 Duterte-backed senatorial candidates and four other aspirants in the winning circle, including only one from the opposition,” the Associated Press noted.
Once the results are officially in, Duterte may be emboldened to further expand his illiberal agenda, doubling down on his most controversial policies, including the internationally condemned “drug war.” Despite the “drug war” and economic stagnation in the Philippines, Duterte has managed to retain popularity.
Bottom Line: With results around the corner, the Philippine mid-term elections are set to give Duterte a platform for further political consolidation.
Good News: A bit of terrific news emerged from Southeast Asia in early May. The Pulitzer-winning Reuters journalists Wa Lone, 33 and Kyaw Soe Oo, 29—imprisoned in Myanmar for their intrepid reporting on the Tatmadaw’s atrocities against the Rohingya—were finally released.
Central Asia.
Following the resignation of the presidency by Nursultan Nazarbayev, the only post-Soviet leader Kazakhs have known, the country is heading toward elections. On May 1, authorities in Kazakhstan arrested 80 people from among the few hundred protesting in Nur-Sultan (the capital formerly known as Astana, renamed in Nazarbayev’s honor) and Almaty, as The Diplomat’s Catherine Putz reported. (In April, there were other prominent arrests of activists.) The June 9 snap election is setting up to be a potential watershed for the country.
Kassym-Jomart Tokayev, Nazarbayev’s successor as interim president, is running for the office as the Nur Otan party’s candidate. (Nur Otan is Nazarbayev’s party.) The expectation that most analysts appear to have at this point is that little will change on the other side of the elections; rather, as in the past, the elections will be designed to confer additional legitimacy on Tokayev as he seeks to lead the post-Nazarbayev era.
The big question, however, is how Tokayev’s opponents and supporters of real political change and reform in Kazakhstan will treat this transition. Remember too that Nazarbayev himself remains well in charge in Kazakhstan. With all this, the prospects for instability in June may be high.
Bottom Line: Kazakhstan heads toward its first post-Nazarbayev presidential election amid growing popular discontent.
Trendlines: Catherine Putz takes a look at the opposite directions in which Uzbekistan’s media and Kazakhstan’s media are heading: “Kazakhstan may still have a more vibrant media sphere than Uzbekistan; but the trends in each country are moving in opposite directions. As Uzbekistan looks to find ways to open, Kazakhstan continues to use the same tactics it has for years to keep control on the tone of national conversations.”
Asia Defense.
The U.S. Department of Defense has released its annual report on China’s military power. Read the report here [PDF]. Three important findings this year jumped out to me.
China’s second domestically designed and built aircraft carrier, the probable Type 002, is under construction. Reports had suggested this last year, but the U.S. has confirmed that this carrier is under construction near Shanghai, at the Jiangnan shipyard. The Diplomat’s Robert Farley examines the significance of the new carrier shifting from a STOBAR-style launch mechanism to a more advanced CATOBAR configuration.
The People’s Liberation Army Navy has constructed six Type 094 ballistic missile submarines, expanding the sea leg of China’s nuclear deterrent. This was something open source reports had hinted at in the fall of 2018, but the Pentagon report confirms it for the first time.
A more obscure, but interesting finding this year is that China’s new air-launched ballistic missile, code-named CH-AS-X-13 by the U.S. intelligence community, will be the first nuclear capability for the People’s Liberation Army Air Force since the end of its nuclear mission in the late-1970s/early-1980s. Read more here.
On the nuclear forces issue, it’s worth underscoring that the Chinese Foreign Ministry has ruled out any suggestion that it might participate in trilateral strategic arms control talks with the United States and Russia. “We oppose any country’s attempt to make an issue out of China on arms control and will not participate in any negotiation for a trilateral nuclear disarmament agreement,” a Chinese Foreign Ministry spokesperson said, just days after Trump said “China [would] be added down the road” to a possible extended U.S.-Russia New START Treaty.
Bottom Line: Chinese military modernization continues to pose a challenge to U.S. goals in the Indo-Pacific.
View from Australia: Over at the Lowy Institute, Iain Henry writes on the Australian domestic political debate around the wisdom of the RAN conducting its own freedom of navigation operations in the South China Sea.
Extras.
We’re coming up on the two-year anniversary of the start of the India-China border standoff at Doklam in 2017—one of the most serious incidents between the two countries in years. Using commercial satellite imagery, I decided to visualize the change in the strategic environs at the so-called “turning point” where the armed forces of the two sides found themselves that summer. As the latest imagery shows, the area is more heavily militarized than ever, with both sides of the border full of new structures and roads.
We all enjoy a good photo edit. Kazakhstan’s interim president has received particular care and attention recently, with his official photos dramatically altered. Just take a look (via RFE/RL).
Please do feel free to reach out with comments, tips, and feedback at ankit@thediplomat.com and follow me on Twitter at @nktpnd and The Diplomat at @Diplomat_APAC.