6th Jan 2020 : The Hindu Editorials Notes : Mains Sure Shot
Ques- Discuss Spotting an opportunity in changing fundamentals in Detail.
The growing rivalry between the United States and China and the requisite Indian response.
- The U.S.-China relation has been described by academics as the world’s most important bilateral relationship of the 21st century given the economic and military strength of the two countries.
- It has been a relationship of economic cooperation with China being the second-largest foreign creditor of the United States after Japan, hegemonic rivalry in the Pacific, and mutual suspicion over the other’s intentions.
- There has been a deterioration of the relations between the two countries of late.
- In the backdrop of a growing trade deficit with China, the U.S. in 2018 began setting tariffs and other trade barriers on China with the goal of forcing it to make changes to what the U.S. considers China’s “unfair trade practices”.
- The U.S. claims that the trade practices of China have led to the theft of intellectual property, and the forced transfer of American technology to China.
- In response to the U.S. move, China too raised the tariffs on American goods. The Chinese claim that the U.S. move is in violation of the World Trade Organization’s principles.
- There have been increasing tariffs on the goods being traded between the two countries. Repeated attempts to end the trade war have not yielded any tangible results.
- The U.S. has been accusing China of unfairly controlling its currency value in the forex market to aid its export policy. The U.S. has designated China as a “currency manipulator“ further straining the relationship between the two countries.
The U.S.-China rivalry is not limited to the economic sphere and the differences between the two countries have been witnessed in many other domains as well.
- A technology war has erupted in the areas of artificial intelligence, digital space and 5G. Washington has blacklisted the Chinese telecommunications giant Huawei and urged governments not to work with it in developing 5G networks. It accuses China of using Huawei to gather intelligence from other countries. The U.S. has cautioned its allies that using Huawei equipment will lead to less intelligence sharing from it.
- China has blamed the U.S. for targeting the Chinese company just to provide an opportunity for the American companies to expand in the lucrative and high potential technology domain. The Chinese view this development as a U.S. move to counter the Chinese progress which threatens U.S. leadership in next-generation technologies.
- The superpower showdown will likely soon extend into the space economy, another technology area of global importance given that China is making remarkable progress in the domain of space technology challenging the current U.S. hegemony in space technology.
- Tensions between the two countries have risen following the U.S.’s passing of the Hong Kong Human Rights and Democracy Act of 2019 and the proposed Uighur Act. The U.S. accuses China of cracking down on domestic dissent and human rights violations.
- China claims that the U.S. is behind the disturbances in Hong Kong. There is no sign of the protests abating.
- The present U.S. administration’s challenge to the “one China policy” given the growing diplomatic exchange between the U.S. and Taiwan is viewed with suspicion by China.
- The Chinese have accused the U.S. of interfering in its internal affairs and thus challenging Chinese sovereignty.
Power Play in the Pacific region:
- China has asserted its military control over the South China Sea by deploying more military assets to the region and occupying several man-made islands. This is viewed as an arm twisting tactic of the Chinese to resolve the dispute over territorial issues in the South China Sea. The U.S. and its allies have called for freedom of navigation in the South China Sea.
- The U.S. has worked towards a military build-up in Asia by its move to arm its allies like South Korea and Japan with American missile defence systems. The Chinese view this as a provocation to China.
- Despite the military advances made by China, U.S. defence spending is much larger than that of China’s budget. With the creation of a U.S. Space Force as a separate arm under the U.S. Air Force, the U.S. is seeking to increase its superiority in network-centric warfare.
- The Chinese have been increasing their defence budget year on year citing the increased military buildup in the pacific region.
- In the United States and China, the trade war has brought struggles for farmers and manufacturers and higher prices for consumers.
- The slowdown in the global economy is compounded by the U.S.-China trade war. As more sectors get drawn in, costs are rising and disrupting global supply chains.
- China’s economic rise has led to some geopolitical friction between the US and China in the East Asian region. There has been the formation of groups in the region with alignment to China and the U.S.
- Any impact on clean energy targets in China due to U.S. technology restrictions in the nuclear field could be a setback to efforts to reduce emissions and mitigate climate change in the entire region.
- For other countries, being squeezed between Washington and Beijing presents avoidable challenges. Acceding to U.S. pressure by banning Huawei hurts competition, delays network rollouts and disrupts commerce. In practice, Huawei is already too entrenched in many countries for bans to be feasible.
- If the U.S.-China trade war develops into a broader cold war, as some observers fear, it will have a devastating effect on the world at large.
- Given the slowdown in the global economy, there has been a slack demand for oil globally. The surplus production of oil and shale gas output mainly by the U.S. has further lowered oil prices.
- Given the high dependence of India on imported oil, the present slump in oil prices is a good development for India as it will help reduce its import bills and subsequently its current account deficit. Lower energy prices will also make India’s export sector more competitive in the global markets.
- The oil prices have increased more than 4% following the U.S. airstrike killing Iranian General Qassem Soleimani. The present escalation may lead to an outbreak of hostilities in the region between Iran and its regional proxies on one side and the U.S. and its allies on the other side. This would send oil prices soaring.
- India has stopped its oil imports from Iran following the tightening of U.S. sanctions on Iran. Unlike India, China continues to buy Iranian crude oil and is its largest buyer. Reports also suggest that China will invest $280-billion in developing Iran’s oil, gas and petrochemicals sectors. The Chinese have also enhanced their defence cooperation with Iran by the stationing of Chinese security personnel in Iran. There has been the strengthening of China-Iran relations while the India-Iran relation has been on the downswing.
- India, to meet its oil demand has ramped up energy imports from the U.S. which are likely to amount to $10-billion in 2019-2020. China has been forging closer ties with oil producers in the west Asian region. This will help facilitate Chinese naval presence in the western Indian Ocean, including the Strait of Hormuz.
- According to a State Bank of India “Ecowrap” report of July 2019, unlike the countries of Taiwan, Mexico, Vietnam and the European Union, India has not benefited much from U.S.-China trade war.
- Of the $35-billion dip in China’s exports to the U.S. market in the first half of 2019, about $21-billion (or 62%) was diverted to other countries. The rest, $14-billion, was made good largely by the U.S. producers.
- Going by a UN Conference on Trade and Development report of November 2019, additional exports from India to the U.S. market in the first half of the year due to trade diversion amounted to only $755-million.
- The U.S.-China high-tech war threatens India’s strategic autonomy.
- Given the “Pivot to Asia policy” of the U.S., the Chinese anxieties in the Asia-Pacific theatre have only grown over time. This may lead to a condition where India may have to contend with a greater Chinese military presence on its periphery.
- The Western Theater Command created in 2016 is responsible for the border with India. It is the largest of China’s military regions, and the Tibet Military Command under it has been accorded a higher status than other provincial commands to widen its scope for combat preparedness. This may lead to increased militarization on the Indo-China border.
Lack of participation in multilateral forums:
- India’s domestic concerns and the principle of maintaining equidistant from all powers have resulted in India not being part of the Belt and Road Initiative (BRI), the Regional Comprehensive Economic Partnership, the Indo-Pacific Business Forum created by the U.S., Japan and Australia, as also from the Blue Dot Network.
- This stand of India might affect India’s influence in the long run in the Indo-Pacific region.
Way forward for India:
- Given that the U.S.-China tensions have driven supply chains out of China, India should come out with the right policies and incentives to attract industries to invest in India. This will not only help India come out of the current slowdown in growth rates but will also, in the long run, make India an important player in the global supply chains.
- The big three Chinese high-tech companies, Baidu, Alibaba and Tencent, together have poured in $5-billion in Indian startups in 2018. India could use this opportunity to try and force China to open its market to India’s IT and other technology exports.
- Though India has no role in negotiating the “Code of Conduct” for the South China Sea, India’s participation in the “Quad” dialogue on broader issues in the Indo-Pacific should be used as a leverage to protect India’s interest in the region. India reserves the right to sail and fly unhindered through the South China Sea in accordance with the principles of freedom of navigation and overflight.
- The U.S. criticism of the China-Pakistan Economic Corridor is in India’s favour given that it traverses Pakistan Occupied Kashmir. The U.S.’s position is helpful to India. India would have to reconcile its own regional connectivity initiatives with the BRI projects that have mushroomed in the neighbourhood.
- U.S.-China rivalry coincides with an upward trajectory in India-U.S. relations. This could help India have some leverage over negotiations with the Chinese even as India and China try and build the much-needed trust and cooperation which will ensure equilibrium and multi-polarity in Asia.