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Trump alters world view

The 45th US President Donald Trump has not only upset China with his various pronouncements, his ascendency has also fired nationalist sentiments in Europe. India needs to tighten its act to cash in on the opportunities that present themselves in this altered scenario,,   by MK Shukla

G“eography does not argue. It simply is.”
-Dutch-American geopolitical thinker Nicholas Spykman

NOTHING happens overnight. Major global events are merely culmination of long-drawn-out geo-political processes. Even before Donald Trump had settled into the East Room of the White House, winds of global changes had begun to cause ripples in the Pacific, Indian, and Atlantic Oceans. India, Israel, and Europe had begun to experience the onset of the Third Jihad following the rise of the ISIS (the first being in the seventh century and the second being in the 16th century). At the same time, it’s also clear that the process of economic globalisation has come a full circle following the rise of nationalism worldwide, triggered chiefly by China stealing the jobs and profits worldwide and Islamic Jihad threatening the way of life of the free world.

One of the main beneficiaries of globalisation has been the People’s Republic of China (PRC). Having accumulated $27 trillion through unfair trade practices (of which $10 trillion it lost in stabilising its currency and stock markets in 2015 and 2016), it started off stirring the waters of the Pacific and Indian Oceans by weaponising a series of atolls in the South China Sea (SCS) and taking on lease a series of ports for rebuilding purposes in several Indian Ocean rim countries. Beijing’s move has had cascading impact on the US, Japan, ASEAN countries, and India, which have been constrained, individually and collectively, to reconsider their security calculus.

Michael Pillsbury, senior adviser to the new US president, told an Indian newspaper that “People don’t know that Chinese economists forecast in writing that by 2020 they will pass us, for sure, by 2030 they will be double, and by 2049, the end of the marathon, they will be three times the size of the American economy. This is really staggering.”

This makes it clear why the Americans voted for Trump. His win might have already disrupted and upset China’s ambitions to become the world’s No. 1 one power. This seems to get confirmed from its official and non-official media’s berating the new US President, following his 10-minute telephonic conversation with Taiwanese President Tsai Ing-wen. It’s no longer sure whether Trump will respect Beijing’s core interest represented by its one-China stand. Trump’s statements so far make it clear that he regards the one-China policy as a relic of the Cold War and worth revisiting. What may come as a double whammy to China is that even as the Trump administration keeps Beijing on the tenterhooks on the one-China policy, he intends to update Washington’s relationship with Moscow that has been for the past few years humouring China to attract its investment in the face of Western sanctions following its annexation of Crimea and insurgent activities in eastern Ukraine.

EXCEPT for the hiccups in the US-Russian relationship born out of shift in European geopolitics, Washington is no longer fighting an existential ideological battle with Russia that may justify Cold War-era collective security commitments. On the other hand, Russia is no longer obsessed with setting up an ideological empire at war with Western democratic capitalism. On the contrary, Moscow is focused on the more basic task of restoring its 300-year old national identity and insulating the State and its borderlands from Western encroachment in fear of greater domestic turmoil to come. As Henry Kissinger recently put it, Russian President Vladimir Putin is like one of Fyodor Dostoevsky’s characters, for whom “the question of Russian identity is very crucial because, as a result of the collapse of communism, Russia has lost about 300 years of its history.” If Russia were to try to build a State by expanding its already sprawling territory, nationalism would not be enough to hold it together. Its nationalism would have to be funded by a lot of foreign capital. That’s the reason why Putin is moving close to Japan that can not only fund its nationalism, but also insulate it from the land-grabbing ambition of the dragon. In the west, Putin is trying to defend the areas surrounding his country and compel the West to recognise and respect its sphere of influence. In this Russian desire, the Trump administration sees an opening to develop a new understanding with Moscow, one that could put to rest the question of Crimea and perhaps recognise Russia’s influence over eastern Ukraine. This will free Trump to deal with the largest currency and trade manipulator called China.

Except for the hiccups in the US-Russian relationship born out of shift in European geopolitics, Washington is no longer fighting an existential ideological battle with Russia that may justify Cold War-era collective security commitments. On the other hand, Russia is no longer obsessed with setting up an ideological empire at war with Western democratic capitalism

IN dealing with China, India could be of immense help to the new US administration. But to avail of Trump’s trade crackdown on China, India will have to pull up its socks and move in with speed to make India the manufacturing hub of smart phones, televisions, toys, textiles, footwear and light bulbs-items no longer manufactured domestically in the US and are imported from China. The problem is, if Trump targets these items with heavy tariff rates, their imports would become expensive and hurt American consumers. If at all US companies may be compelled to produce these items domestically, it would take time and they may find that their cost of production is not that competitive and lucrative.

Even before Trump threatened a trade crackdown, many US and Western companies have been moving their manufacturing operations from China to cheaper destinations such as Indonesia, Bangladesh, and India. Apple and other US companies have been camping in India to seek incentives to start off their operations in the country. India, perpetually hamstrung by its myopic politics, just does not show the sign and ability of the unfolding situation. It has to know that the US and its companies don’t have inexhaustible reserve of patience in dealing with its serpentine policy bottlenecks.

FURTHER, many of the products that the United States imports from China include components produced elsewhere in Asia. Most computer chips in exported Chinese electronics products, for instance, come not from China’s tiny superconductor industry but from other producers in the region, such as Taiwan. And with Taiwan, India has a relationship just for namesake. One does not know why India should remain committed to one-China policy when Beijing has no compunction in questioning India’s rights over Arunachal Pradesh and J&K, besides annoying it everywhere from the NSG to UNSC. Provocative weakness has become the hallmark of India’s policy towards China.

Trump’s win might have already disrupted and upset China’s ambitions to become the world’s No. 1 one power. This seems to get confirmed from its official and non-official media’s berating the new US President, following his 10-minute telephonic conversation with Taiwanese President Tsai Ing-wen

Trump’s erroneous suggestion of the US not footing the security bill in future has raised questions over the US security commitments in the Far East. The new US President is not exactly right in making this point, because, Japan, for instance, pays as much as $4.5 billion for maintenance and upkeep of US marines in Japan.

Further, Tokyo has been progressively upgrading and modernising its self-defence forces at its own cost. If Trump pulls out the US from its security commitments to Asian States, China may be provided with a tempting opportunity to grab the US sphere of influence. The nations stretching from the Indochina mainland to the island chains of Southeast Asia are caught between China’s overbearing reach and Japan’s reawakening. Even before the US election, these countries were trying to chart a course forward without the firm assurances of their long-time US protector.

For instance, both Vietnam and Indonesia have shown great spine in standing up to Chinese naval encroachments into their seas. Indeed India has become the lynchpin in the Indian Ocean area to deter Chinese misadventures even as Japan and South Korea join hands to deal with an overbearing China in the Pacific. With or without the US, Japan, South Korea, Vietnam, Indonesia and India are capable of deterring China from any misadventure in the South China Seas (SCS) and the Indian Ocean.

They have refrained from taking any action against China even as it captured and weaponised a few atolls and reefs in the SCS because they have been looking to the US to take a lead in the matter. If it becomes clear that the US isn’t interested in containing China’s hegemonic role in the SCS through which trade merchandise worth $5 trillion passes every year, the Indian Ocean and Pacific rim countries will resort to their own methods, collectively or unilaterally.

Despite the changes that Trump will doubtless bring to the presidency, his foreign policy is not as unprecedented and disruptive as many argue. The greatest difference between the Obama and Trump foreign policies may lie in what may be Trump’s biggest virtue-unpredictability. Obama was seen as overly cautious and all adversaries-Russia, China, and ISIS-took advantage of it. Trump, on the other hand, gives the impression that he is willing to throw caution to the wind and rely on instinct in shaping foreign policy. His 10-minute telephonic conversation with the Taiwanese president is one critical example of his unpredictability. For China, Taiwan is a red-line issue being the last unconquered post of the Chinese civil war and nothing short of its annexation by China would mark an unequivocal and final victory for the Communist Party of China. Any action that alters the island’s status quo or pulls it further from the mainland’s grasp necessarily calls for an immediate and robust response from Beijing. China has already re-absorbed Macao and Hong Kong, leaving Taiwan the only holdout, unique for its history as a stronghold for the defeated Kuomintang army rather than as a colonial holding of a foreign power.

No matter how much China might rail against any change in the US dialogue with Taiwan, Beijing set a precedent, however unintentionally, for Taipei’s recognition as an independent nation when it agreed to open a relationship with South Korea in 1992. Before that, most countries perceived only one government-whether in Pyongyang or Seoul-as Korea’s legitimate seat of power. With the end of the Cold War, however, trade arrangements among former Soviet countries collapsed. China had also resumed its plans for economic opening and reform after briefly putting them on pause in the wake of the Tiananmen Square crackdown. Forming a relationship with the rising South Korea was an economic and political win for China, since it meant that Seoul had severed its connection to Taipei, presenting China with a way to take advantage of Korea’s industrial and economic growth.

HOWEVER, instead of recognising only one Korea, China and Russia accepted both North and South into the United Nations in 1991. In doing so, Beijing inadvertently opened the door to both sides of a civil war. But China wants Taiwan barred from most international groups and organisations and not recognised as a country.

Similarly, China’s stance on the Dalai Lama is bereft of any logic because it’s arrogant enough to believe that Tibet is another country under its forced occupation.

On the other side of globe in Western Europe, Trump’s victory has paved the way for a rally of nationalist forces. Nigel Farage, the politician who led the effort for the United Kingdom to leave the EU, was one of the few Europeans to understand the magnitude of Trump’s rise. He wrote: “There is a genuine feeling that Trump taking over the White House is part of a bigger, global movement. Our critics, looking at Trump’s candidacy and his speech yesterday, would call it the rise of populism. I would say it’s simply a return to nation state democracy and proper values. For this inauguration is not just a change from the 44th President to the 45th President of the United States. This is a genuine political revolution.”

Marine Le Pen who may well become the next President of France said: “Clearly, the victory of Donald Trump is another step toward the emergence of a new world, whose vocation is to replace an old order.”

Jean-Marie Colombani, the former editor-in-chief of Le Monde, analysed France’s geopolitical predicament, which is the direct consequence of a failure to prioritise French defence spending: “Indeed, Trump’s European policy is inspired by Nigel Farage, who spearheaded the campaign for Brexit, and whose political aim is now to achieve the dismantling of the European Union. This explains the prediction formulated by Trump on the soon-coming demise of Europe, and his anti-German undertones. In the new American president we find the language and elements of all the populist and extremist parties whose common doctrine is hostility towards the European project. Here, then, in the East and the West, Europe is squeezed as in a vise!”

In Germany, which is wholly dependent upon the United States for defence, and which has steadfastly refused to meet its commitment to pay 2 per cent of GDP on defence, reaction to Trump’s speech was overwhelmingly negative.

Chancellor Angela Merkel pledged to work with Trump to preserve the trans-Atlantic relationship. “The trans-Atlantic relationship will not be less important in the coming years than it was in past years,” she said. “And I will work on that. Even when there are different opinions, compromises and solutions can be best found when we exchange ideas with respect.” Vice Chancellor Sigmar Gabriel was far less diplomatic. He said: “We have to take this man seriously. What we heard today were highly nationalistic tones. I think we have to prepare for a rough ride.” He called on Europeans to unite to “defend our interests.”

Writing for Deutsche Welle, commentator Max Hofmann admonished Europeans to stop complaining about Trump and instead put their own house in order. “What do you do when your closest partner just disappears on you? You do what the EU should have done long ago: you fix up your home, regardless of what ‘The Donald’ is doing in the USA. There is enough work that needs to be done in Europe with regard to ‘putting your own house in order’-Brexit, migration and refugee policies, the euro. If Europeans were honest to themselves and viewed what is happening on the old continent from the American perspective-and not just that one-then the situation would not be comprehensible to them. If US parliamentarians were to call European dissent ‘madness’ or ‘nonsense,’ no one could blame them.”

COMMENTATOR Hubert Wetzel said that Trump posed a threat to European security and called for European unity to weather the next four years. In an essay laced with hyperbole, he wrote: “Europeans will have to adapt to a new tone in dealing with America. Trump has made it clear in his speech that he will pursue a nationalist foreign policy, and his speech contained no reference to America’s allies. (Trump actually said: ‘We will reinforce old alliances and form new ones,’ and ‘We will seek friendship and goodwill with the nations of the world’). His willingness to spend money on the defence of other countries is limited. He does not see the USA as a protective power of democratic values in the world; and he is the first US president since the end of the Second World War who has openly expressed doubts about the value of European unity and the existence of NATO. At a time when Russia is trying to weaken the West by means of diplomatic, intelligence, and military means, it is an attitude that is a serious threat to united Europe.”

In Spain, geopolitical analyst Rafael Bardají wrote: “President Trump promised that a new era is beginning today. In his inaugural speech he made it very clear that he despises Washington and hates the way the establishment has ruled the country up until now, defending its privileges at the expense of citizens. Yes, a speech that can be called populist, but one that nevertheless is true. Democracy, after all, emerged as the government of the people for the people, something that, at present, is far from being a reality in America as well as in Europe. The great social contract of liberal democracy, namely, growing prosperity and peace and security for the citizens, is no longer being fulfilled. This is due to the inability of our elites to deal with the (economic) crisis, due to their obsession with pacifism and due to the subordination of the interests of nationals in favour of immigrants.”

US economy in 2017

by MK SHUKLA

US President Donald Trump has promised to accelerate economic growth to 4 per cent in 2017 from the estimated 1.9 per cent. That may trigger irrational exuberance that creates damaging booms and busts. How Trump manages a 4 per cent growth will depend on a host of policy initiatives he’s yet to unleash.

Many experts, though, believe the US GDP growth will rise to 2 to 3 per cent in 2017. Jan Hatzius, chief economist and head of Global Economics and Markets Research at Goldman Sachs, wrote: “Our expectations for economic policy under the Trump administration and under unified Republican control… are that there will be tax reform coupled with some fiscal easing and also some increase in infrastructure spending. And we do expect that to provide a positive impulse to economic growth… If you look at the parts of the global economy, I think the US has led the improvement and we do expect continued 2-3 per cent growth in the US,”

IMF said in a January update: “The projection for the US is the one with the highest likelihood among a wide range of possible scenarios. It assumes a fiscal stimulus that leads growth to rise to 2.3 per cent in 2017 and 2.5 per cent in 2018, a cumulative increase in GDP of half percentage point relative to the October forecast”. Bill Conerly wrote in Forbes: “The US economy will enjoy a mild cyclical rebound in 2017, then return to a lower growth rate more in line with long-term potential. Gross domestic production, inflation-adjusted, grew at fairly tepid rates over the past three-quarters. But jobs are increasing at a moderately good pace, with unemployment below 5 per cent. Some of this year’s negative factors will turn around, enabling the rebound next year.”

Kimberly Amadeo wrote: (A growth of 2.1 per cent estimated for 2017) “is better than the 1.9 per cent estimated for 2016 and the same as 2015’s growth rate of 2.1 per cent. The increase in Gross Domestic Product will flatten to 2 per cent in 2018. That’s according to the most recent forecast released at the FOMC meeting on December 14, 2016.

That does not yet take into account the impact of Trump’s possible policies.”

The strongest part of US GDP reports has been consumer spending, up 3.8 per cent over the past 12 months. That compares to a 3.6 per cent gain in take-home pay, resulting in a minuscule drop in the savings rate. Consumer attitudes are stable at a good level, a bit above the long-run average.

The unemployment rate is forecasted to drop to 4.5 per cent in 2017 and 2018. That’s better than the 4.7 per cent rate in 2016, and the Fed’s 6.7 per cent target. Most job growth is reported to be in low-paying retail and food service industries. Many people have been out of work for so long that they’ll never be able to return to the high-paying jobs they used to have. That means structural unemployment increases. Federal Reserve Chair Janet Yellen has admitted a lot of workers are part-time and would prefer full-time work. That makes the unemployment rate seem artificially low. She considers the real unemployment rate to be more accurate. That rate is usually double the official rate. But that situation may change. US manufacturing is forecast to increase faster than the general economy. Production may grow 3 per cent in 2017, and 2.8 per cent in 2018. Growth will slow to 2.6 per cent in 2019 and 2 per cent in 2020.

As to inflation, much will depend on how the FOMC (Federal Open Market Committee) acts. It first raised the Fed funds rate to 0.5 per cent in December 2015 and raised interest rates again in December 2016 to 0.75 per cent. It expects the rate to rise to 1.5 per cent in 2017, 2 per cent in 2018 and 3 per cent in 2019. The Fed funds rate controls short-term interest rates. These include banks’ prime rate, the LIBOR, most adjustable-rate and interest-only loans, and credit card rates.

The Fed has said it would start selling $4 trillion in Treasuries after the Fed funds rate has normalised to about 2 per cent. The Fed acquired these securities during quantitative easing, which ended in 2014. When it does start selling them, there will be more supply. That should raise the yield on the 10-year Treasury note. That drives up long-term interest rates, such as fixed-rate mortgages and corporate bonds. But Treasury yields also depend on demand for the dollar. If demand is high, yields will drop, and vice-versa. As the global economy improves, demand for this ultra-safe investment is falling. As a result, long-term and fixed interest rates will rise in 2017 and beyond.

Overall, US Inflation is pegged at 1.9 per cent in 2017 and 2 per cent in 2018. Both are higher than the 1.5 per cent rate in 2016 and 0.7 per cent in 2015. Both were caused by low oil prices. The core inflation rate (without gas or food prices) is estimated at 1.8 per cent in 2017 and 2 per cent in 2018. That’s close to the Fed’s 2 per cent target inflation rate. Much of inflation may depend in 2017 on how fuel prices behave.

In Switzerland, Roger Köppel, editor-in-chief of Die Weltwoche, warned against efforts by European elites to belittle Trump. He wrote: “Trump’s election was a healthy shock. The shock was necessary. Not only power cartels, but also worldviews are breaking down. This disruption is fruitful. The taboos of the last few years are now fully on the agenda: illegal immigration, Islam, the nonsense of open borders, the dysfunctional EU, the free movement of people, jobs, law and order. Trump’s predecessors did not want to talk about it, but the majority of voters did. This is democracy.”

For the NaMo administration, all this can’t but be good news. Even before the US and Europe gave thumbs up to nationalism, Prime Minister Narendra Modi swept to power in 2014 on widespread disillusionment with liberalisation of economy wreaking havoc on the people of India, hugely infective corruption of business, political, intellectual, and media elites’ and absolutely criminal negligence to the matters of national security. To take advantage of the unfolding situation in the US and Europe, the Prime Minister is expected to visit both Washington and Moscow this summer; both Trump and Putin are eager to host him at the earliest to keep India on their right side while they both engage China and Europe to turn the situation in their favour. National Security Adviser Ajit Doval has been appointed the point man for setting the stage both in Washington and Moscow for the summer summit of PM Modi with President Trump and President Putin. Doval has already held meetings with his new US counterpart Michael Flynn and at the time of writing this report in early February, he was scheduled to visit Moscow to hold conversation with his Russian counterpart Nikolai Patrushev, who is known to be a long-standing aide to President Putin, and a top Kremlin politician at the policy making level. Since this disclosure was made at the level of Russian Deputy Foreign Minister Igor Morgulov, it indicated the high importance Moscow attached to the forthcoming consultations between two NSAs.

Doval is considered highly in Moscow as he has for decades dealt with the Russian intelligence, enjoying deep connections with functionaries and agencies in Moscow. The Russians view Doval as a stubborn believer in the centrality of India’s time-tested relations with Russia.

In dealing with China, India could be of immense help to the new US administration. But to avail of Trump’s trade crackdown on China, India will have to pull up its socks and move in with speed to make India the manufacturing hub of smart phones, televisions, toys, textiles, footwear and light bulbs-items no longer manufactured domestically in the US and are imported from China

By the way, this is the first time that the US, Russia and India would have ace intelligence hands holding the position of national security advisor-definitely, for the first time ever in the case of both India and the US.

Unlike some of the US’ European allies such as Britain or Germany who would caution Trump against moving forward with Putin, India’s interests lie more with Japan favouring an overall easing of tensions between Washington and Moscow as this could help create a more optimal setting to rev up their respective cooperation with Russia and free Russia from its dependence on China. India also favours better US-Russian relations to make its move in the regional security matter of Afghanistan and Central Asia. Russia is also keen to protect its stakes in Afghanistan and Central Asia and has already urged the new Trump administration to maintain its security coverage for Afghanistan. This makes it clear that Russia wishes to halt the axis of Afghan Taliban, Pakistan, and China from making any encroachments into Kabul whose security and stability is a necessary precondition for peace in Muslim parts of Russia.

As Russia positions itself as the champion of Eurasian security and peace, the Indian diplomacy security agencies and businesses have to work hard to develop multi-vector relationships with the US, Japan, Europe, Gulf states, and Central Asian countries to project the country’s soft power that could also be hard when the occasion demands it.

VOL. 10 | ISSUE 11| FEB 2017

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