U.S.-China Relations Worsen, a Potential Water War, & the Week in Review
The U.S.-China relationship continues to deteriorate.
- On Monday, Nikkei reported that Taiwan Semiconductor Manufacturing Co. (TSMC), which accounted for 54 percent of semiconductor foundry market revenue share in Q1 2020, was halting all new orders from Huawei Technologies. Huawei decried the U.S. regulatory move that forced TSMC’s hand (and that we pointed out last week) as “arbitrary and pernicious.”
- On Wednesday, POLITICO reported that the percentage of U.S. voters who viewed China as an enemy had risen 11 percentage points in the last five months to 31 percent. The U.S. Senate passed a bill by unanimous consent that would require companies listed on U.S. exchanges to disclose whether they are owned by a foreign government and to comply with audits from the Public Company Account Oversight Board. Taiwan’s President Tsai Ing-wen was sworn in for a second term and gave a defiant inauguration address which China criticized immediately. U.S. Secretary of State Mike Pompeo congratulated Tsai and the State Department approved an arms sale to Taiwan.
- On Thursday, China indicated that it would propose a new national security law at the National People’s Congress tomorrow that would reshape Beijing’s relationship with Hong Kong. SCMP reported the law would target “secessionist and subversive activity” and eliminate “external interference” in Hong Kong’s affairs. HK01 offered additional details on how China would bypass Hong Kong’s legislature to enact the law.
What it means: We pick up this week where we left off last week. The deterioration in U.S.-China relations is significant and accelerating. The news about TSMC, while hardly surprising considering last week’s announcement by the U.S. Department of Commerce, threatens China’s most vulnerable and arguably critical import dependency on foreign microchips, and by extension, the firmest guard-rail to U.S.-China relations spiraling out of control and economic decoupling picking up serious momentum. The hardening of U.S. popular sentiment towards China will only encourage President Trump, who is thinking with the upcoming election in mind, to get even tougher on China. The U.S. is treating Taiwan like an independent nation; the only part of the One-China policy that seems to be in place at this point is superficial. China’s move to assert its dominance over Hong Kong is intertwined with all of this and may become yet another sore spot between the two countries.
Keep an eye on Ethiopia and Egypt. Ethiopia and Sudan participated in a two-day political consultation to discuss the latest on Ethiopia’s plan to commence filling of the Grand Ethiopian Renaissance Dam (GERD) in July. Egypt and Sudan held a consultation of their own later in the week. Ethiopia wrote a letter to the UN Security Council on Monday insisting that Addis Ababa is not legally required to secure Egypt’s approval to begin filling. The UN Secretary General António Guterres claimed “good progress” was being made between Egypt, Sudan, and Ethiopia in negotiations over GERD. The Chinese Embassy in Ethiopia released a statement expressing hope that any issues would be resolved through “dialogue and peaceful negotiations.” Egypt is reportedly considering its options, from filing an official complaint with the UN Security Council to some as yet unconfirmed rumors that the Egyptian military was preparing for all contingencies. There are also unconfirmed reports that Ethiopia has deployed anti-aircraft missiles near the dam.
What it means: The GERD has been a hot-button geopolitical issue for almost a decade now, but now that Ethiopia is finally ready to begin filling the dam, the tensions are no longer abstract. At the simplest level, the GERD involves damming one of the two major tributaries of the Nile River – the Blue Nile. The Nile River is the lifeblood of Egypt and any threat to its flow is existential from Cairo’s perspective. It does not take much imagination to consider that Egypt may be exhausting diplomatic options now so that if and when it intervenes, it can credibly say it exhausted all other potential avenues of redress. It is also not hard to imagine the conflict becoming internationalized. Egypt can count Saudi Arabia and the United States as potential allies. Ethiopia, meanwhile, is of great interest to Turkey (which has no love for the Sisi regime in Egypt) and China (which is helping Ethiopia complete the GERD’s construction). Sudan is attempting to play peacemaker, but will it be enough? The next six weeks could get very intense if Egypt and Ethiopia cannot find common ground.
Following up on France and Germany’s joint initiative to reshape the European Union. A Der Spiegel poll found that 51 percent of Germans approve of French President Emmanuel Macron and German Chancellor Angela Merkel’s plan for the European Commission to borrow money and distribute it as grants to EU-member states. Dutch Prime Minister Mark Rutte said his country was working with Denmark, Austria, and Sweden on a “proposal” of their own, and his the PM’s words, the bar for Dutch support was ultimately, “What are you going to do to ensure that you can save yourselves next time?”
What it means: If you missed our take on the biggest development in EU politics since the Brexit vote, you can find it here. That quote from Mr. Rutte is the whole problem neatly summarized in a single question. France and Germany are not just proposing a COVID-19 recovery fund. They are asserting that “yourselves” is an inappropriate way for the head of an EU-member state to be thinking about the problems of other EU-member states: that on a fundamental level, the heads of EU states must begin thinking of all its citizens as “ourselves” if the EU is to survive and thrive in the 2020s and beyond. Expecting all of the EU-27 to go along is likely unrealistic, but if France and Germany are truly committed to the path they laid out earlier this week, the Dutch, Danish, Swedish, and Austrian governments have some soul-searching to do about whether they want to remain. It’s a big “if.” 51 percent of Germans supporting such a radical transformation is not going to cut it in the long-term.
The latest chapter in the Israeli-Palestinian conflict. Palestinian Authority President Mahmoud Abbas said on Tuesday that the PA was terminating all agreements with Israel and the United States. Abbas also reportedly urged Russia to intervene as a mediator and Moscow is reportedly attempting to arrange a meeting in Geneva to enable the PA to propose changes to U.S. President Donald Trump’s so-called “Deal of the Century.”
What it means: This all comes down to whether Prime Minister Benjamin Netanyahu follows through on his promise to annex parts of the West Bank and the Jordan Valley. Some in Israel continue to believe that Netanyahu only played up annexation in the last year because of the election(s) and that Netanyahu is all bark, no bite when it comes to annexation talk. Perhaps, but Abbas is taking it seriously enough that he is burning his last bridges, and even Jordan is warning of the “massive conflict” that would ensue if Israel takes such a step. This is not just another blip in this interminable conflict: if Netanyahu pushes forward, it could have major implications for the overall political and security structure of the Middle East.
Argentina will miss a delayed interest payment of $500 million and is extending the deadline for creditors to consider a $65 billion debt restructuring offer until early June.
The United Kingdom published its “Approach to the Northern Ireland Protocol” and said that “there will be no new physical customs infrastructure and [the UK] sees no need to build any.”
South Korea protested the publication of an annual Blue Book by Japan that repeated Japanese territorial claims to the Dokdo islets.
Nepal published a new political map that showed disputed areas on the border with India as part of Nepal.
Australia is seeking to deepen its trade relationship with India.
Italy raised a record 22 billion euros in a bond sale.
Samsung’s vice chairman traveled to China to inspect a local factory and to meet with senior Chinese government officials in Shaanxi Province.
Food shortages in Chile’s capital of Santiago led to riots and clashes between locals and police.
El Salvador’s Supreme Court suspended a state of emergency imposed by President Nayib Bukele.