China

Secretary of State Mike Pompeo recently completed his first trip in his current role to Africa. Over three days, he visited Dakar in Senegal, Luanda in Angola, and Addis Ababa in Ethiopia, where he also visited the head of the African Union. During the trip, Secretary Pompeo advocated for a stronger U.S.-Africa relationship amidst China’s growing role on the continent.  Though President Trump appears to have no interest in Africa beyond seemingly unfiltered insults, some in his administration have visited, thought not to the same extent as previous administrations. His wife Melania, his daughter Ivanka, Secretary of Commerce Wilbur Ross, and former Secretary of State Rex Tillerson have all visited the continent, though the latter was fired by Trump during his trip. Unlike past administrations, the Trump administration has no high profile, signature Africa policy initiative, such as President Bill Clinton’s Africa Growth and Opportunity Act (AGOA), President George W. Bush’s campaign against HIV/AID (the President’s Emergency Plan for Aids Relief, or PEPFAR), or President Barack Obama’s electric power initiative (Power Africa).  The Trump administration’s Africa strategy, Prosper Africa, envisages facilitating greater American private sector investment and trade with Africa. Its Development Finance Corporation has significant potential, building on and ultimately replacing the Overseas Private Investment Corporation, but it is underfunded and is only just now becoming operational. Prosper Africa’s roll-out rhetoric by then National Security Advisor John Bolton seemed more concerned with countering China’s political and security influence on the continent than on political, social, or economic development. Meanwhile the Trump administration’s new “travel ban,” suspending immigration to the United States from Eritrea, Nigeria, Sudan, and Tanzania because of alleged security shortcomings, is unlikely to encourage American private sector involvement with Africa.  But in general, American policy toward Africa—encouraging democracy and the rule of law, facilitating economic development, and supporting the development of African security initiatives and capabilities—remains consistent with that of previous administrations, driven below the cabinet level and from outside the White House. Assistant Secretary of State for Africa Tibor Nagy and USAID Administrator Mark Green get high marks for management, and Congress has blocked Trump administration efforts to eviscerate the various assistance programs from which Africa benefits.  Moreover, American soft power endures, going from strength to strength. China may have peppered the continent with Confucius Institutes designed to expand its influence through the study of Chinese language and culture, but the National Basketball Association’s (NBA) Africa league and the enduring power of Hollywood promote American mass culture to a much larger popular audience. Aubrey Hruby observes that the movie “Black Panther” and the NBA do more to build American influence than cabinet visits. And that is even leaving aside Oprah! It is always worth keeping in mind that the American relationship with Africa is much more than presidential administrations.

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The first priority in addressing the coronavirus is preserving global health. Lessons from the past show that the herculean task requires timely and credible action by governments, coordinating leadership from the World Health Organization, and constructive cooperation among nations. But as containment of the respiratory illness continues to face uncertainties, the fallout of the coronavirus is spreading beyond national and global health systems into the economic sphere. The coronavirus has also taken center stage as a black swan in global oil and gas markets, and first signs are that its influence could be dramatic. Depending how long the health crisis lasts, it is worth considering whether there could be larger ramifications than just a few weeks of market volatility. Many analysts are referencing the Severe Acute Respiratory Syndrome (SARS) epidemic of 2003 in thinking about how long and how extensive the outbreak could be on international travel. Studying similar past events can often provide clues for how a new black swan event can accelerate or decelerate existing trends. One unexpected outcome of the SARS epidemic was that it accelerated the surge in car buying in China in 2003 as urban populations began to shun public transit. Car culture was definitely on the upswing in China at the time. But car sales in China rose by over 30 percent in 2003 compared to a year earlier, as anxiety about being in crowded places elevated. With over 46 million people in China under a temporary quarantine order due to the coronavirus, it is worth considering what unexpected consequences could result this time around. For example, telecommuting could become more accepted and widely practiced post-coronavirus, not because people remain afraid to go to work, but because working or holding meetings remotely could be found to offer productivity gains to businesses, especially where employees are in different locations or time zones. Several Wall Street banks have lowered their oil price expectations for the first half of 2020 based on the coronavirus. Barclays is suggesting the effects could be transitory, with a loss in oil demand from China in the range of 600,000 to 800,000 b/d in the first quarter of 2020, resulting in about a $2 a barrel lower price expectation over the year. Citi’s projections are more dramatic, suggesting current freight and passenger traffic could be down substantially for several weeks, totaling a loss of about 1 million b/d of oil demand off China’s norm of 13.1 million b/d for oil use. Citi estimates freight is running 40 percent lower than usual, with consumer use even more substantially affected. As a result, Citi is lowering their oil price forecast for the first quarter of 2020 from $69 a barrel for benchmark Brent crude to $54 a barrel, warning that a dip to $40 could be possible, especially when combined with current warm winter temperatures. The fall in the volume of global tourism is also hitting jet fuel demand. Chinese tourists made over 150 million overseas trips in 2018, double the rate of the next largest nation of travelers, and were expected to account for a quarter of all tourism by 2030. Beyond flagging oil use, China is currently turning away cargoes of liquefied natural gas (LNG). China’s temporary exit from the LNG market has worsened oversupply in the LNG market already hit hard by ample new production and weaker than usual winter demand. Asian LNG prices hit an all-time record low last week. These projections raise the question of how transitory the weakness in China’s energy importing will be in the coming weeks and whether there will be any long run ramifications for energy use that are not yet anticipated. The U.S.-China trade deal had targeted $50 billion in energy purchases by China of U.S. oil, natural gas, and coal. That figure already looked like a stretch and could be even harder to reach now. Even before the coronavirus outbreak, falling global spot prices for LNG had prompted Chinese state firm Sinopec to delay signing a $16 billion multi-year supply arrangement with American firm Cheniere to purchase U.S. LNG. Trade volumes in global goods, in general, had already taken a hit in 2019 as companies looked to reorganize supply chains to reduce geopolitical risk. That trend is unlikely to be reversed this year, with ramifications for projections that global freight demand would support greater oil use and offset any losses in oil demand that could come from an upsurge in sales of electric automobiles and other inroads for energy efficient technology adoption. For the time being, supply disruptions from Libya and a possible new round of cuts from the Organization of Petroleum Exporting Countries (OPEC) could bail out U.S. independent producers whose revenues, and to some extent, production rates are highly sensitive to oil price trends. But the boost expected to come to the U.S. energy sector from new trade deals could evaporate quickly if China is unable to get its economy back on its feet quickly as a result of the coronavirus outbreak.

International attention—and panic—are focused on the coronavirus. In Africa, observers are acutely aware of how ill-prepared most countries are for responding to a major pandemic. With more than a billion people undergoing rapid urbanization, stuck with weak healthcare systems, and with growing economic ties to China (it is estimated that there are more than a million Chinese immigrants on the continent) Africa would appear to be highly vulnerable to the spread of the coronavirus. Ethiopian Airlines continues its China service, and some 1,500 passengers arrive in Addis from China every day, many of whom transit to other African destinations. Yet, as of February 12, there have been no reported cased of the disease in Africa. Nor have there been any cases in South America.  It may be that the virus is present but thus far has been undetected. Africa’s weak medical infrastructure makes detection of mild forms of the disease especially difficult. There may be other factors at play specific to the virus. For example, there has been media speculation that the continent’s hot and humid climate is inhospitable to the disease. On the other hand, there are many parts of Africa where the climate is temperate, and two major international airports—Johannesburg and Addis—which both serve cities of about 8 million each, including a significant slum population, enjoy cool, dry climates. Still, neither city has reported any cases of corona virus. Ebola appears to be much more deadly than coronavirus, but it has been concentrated in eastern Congo. The disease has killed some 2,300 people since 2018, with death rates of those who contract Ebola often over 50 percent. Coronavirus has thus far killed 1,107 worldwide as of February 12, with about 2 percent of those who contract the virus dying. The World Health Organization (WHO) is cautiously optimistic about Ebola, and its Emergency Committee will meet soon to discuss whether the disease still constitutes a global health emergency. That is good news.

The coronavirus represents the biggest challenge to the Chinese Communist Party since the 1989 Tiananmen protests.

The coronavirus outbreak is on track to become the worst humanitarian and economic crisis of Xi Jinping's tenure, but the Chinese president is certainly not likely to resign.

Since the phase one trade deal between China and the United States was inked on 15 January, much of the commentary has focused on the overly ambitious targets for Chinese purchases of US goods. Critics charge that the deal amounts to ‘managed trade’ or ‘central planning’ that substitutes government diktats for market forces. The real danger of the new agreement, however, is that it replaces a trading system based largely on agreed rules with one based purely on negotiating muscle. The United States long championed a rules-based system, but is now discarding it in favour of a power-based system where the strong do what they can and the weak suffer what they must. Weakening rules put smaller economies—such as Canada, Australia, the ASEAN nations and Latin America—in an increasingly vulnerable position. Despite some happy talk of revitalising the World Trade Organization (WTO) at the gathering of business and government leaders at Davos on 20–24 January, prospects for shoring up multilateral rules look grim. In a world of bilateral negotiations, smaller countries will no longer have the protective umbrella of those rules, and will at best be able to cut unbalanced deals with the big players like the United States, China and the European Union. The phase one deal, negotiated after months of escalating tariffs by the United States and measured retaliation from China, is a glimpse of that future. It is long on measures that favour the United States but disadvantage other countries. The heart of the deal is a commitment by China to purchase an additional US$200 billion in imports from the United States over the next two years. China was unlikely to meet those targets, even without the recent disruption caused by the spread of the coronavirus, and the only way it can get close is by diverting purchases—buying US rather than Brazilian soybeans, for example, or US rather than Australian beef. Recourse for the affected countries will be limited. They can complain to the WTO that the China–US deal violates the core principle of non-discrimination in trade, but neither the United States nor China is likely to pay attention to a WTO ruling. The death of the appellate body—after the United States vetoed new appointments—effectively gives large countries a veto on WTO panel rulings. Any decision can now be blocked, and smaller countries cannot risk retaliating against bigger ones without the cover of a WTO decision. Reforms that would have benefitted all of China’s trading partners, such as limitations on Chinese industrial subsidies or restrictions on state-owned enterprises, have been left to phase two of the negotiations. But expectations for a second round are already low. US President Donald Trump indicated that any deal must wait until after the November US elections. Since China withstood tariffs on three-quarters of its exports to the United States without agreeing to such reforms, it is hard to see how the Trump administration can bring enough pressure in the future to force a change. Canada is a good case study in the dangers that await as international rules erode.  Hearings began on 20 January in Vancouver in the extradition trial of Meng Wanzhou, the Chief Financial Officer of the Chinese telecoms giant Huawei, who is wanted in the United States on allegations that the company violated US sanctions on Iran. Amid scrutiny of the phase one agreement, the hearings drew little notice. The Trump administration has scarcely paid attention despite Chinese retaliation against Canada, which has included jailing two Canadian citizens and cutting off US$2 billion in Canadian canola imports. Trump’s only public comment has been that he might intervene if he thinks it would help secure a better trade deal with China. The Huawei case in Canada shows just how vulnerable smaller countries have become. Meng was arrested in Vancouver over a year ago at the behest of US authorities, by a Canadian government determined to abide by the rules of its extradition treaty with the United States. In the past, China’s furious retaliation would have been met with a vigorous response from the United States in support of its Canadian ally. But the Trump administration has looked the other way, leaving Canada in the impossible position of choosing between meeting its obligation to the United States and weathering Chinese retaliation, or cutting a deal with China to release Meng and infuriating the United States. In the new global trade regime, every country will now face similar dilemmas. The United States is pressing other countries to stop all business with Huawei. They must decide whether to oblige and face Chinese retaliation, or refuse and anger the United States. Many countries, including Canada and the United Kingdom, are looking at new taxes on digital companies. But the United States has warned—using France as the example—hat it will slap unilateral sanctions on any country that tries. Without a clear and generally agreed upon set of global trade rules, every trade issue is now up for negotiation. In such negotiations, the bigger countries usually get their way. The phase one deal with China is a taste of things to come.

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As the new coronavirus has spread from Wuhan to the rest of China, Chinese technology firms have played a prominent role in the battle against the epidemic. These efforts have tied tech companies closer to the Chinese government and increased surveillance in the name of public health.

The People’s Liberation Army is aiming to become the dominant force in the Asia-Pacific, strengthening China’s hand toward Taiwan and international disputes in the South China Sea.

Each week I’m talking with two experts with differing views on how the United States should handle a foreign policy challenge it faces. These special episodes are part of CFR’s Election 2020 activities, which are made possible in part by a grant from the Carnegie Corporation of New York.

The CDC and other U.S. agencies are working to stop the spread of a new coronavirus that originated in China. But public health resources could become stretched if the outbreak worsens.

The coronavirus which originated in Wuhan, China, continues to spread around the globe. New cases are being discovered every day. Last week, the first domestically transmitted cases were reported in Japan, in the United States and in Germany. On Sunday, the Philippines reported the first confirmed death from the virus outside of China. The nations of Southeast Asia have extensive trade, transport and border links to China, and the region is a major travel destination for Chinese tourists, particular during Lunar New Year.  It was thus no surprise that the region was one of the first outside of China and Hong Kong to face coronavirus cases. Nonetheless, multiple several Southeast Asian governments have responded poorly to the spreading pandemic. Thailand in particular has bungled the response, but it is hardly unique. These failures, in turn, have raised the risk of larger outbreaks in their countries. For more on my analysis of how Southeast Asian states are responding to the outbreak, see my new piece in the Globalist.