Weekly Rundown 6 APR 19: Taiwan Tensions, Deterrence in the South China Sea and a Landmark WTO Ruling

Taiwan Provocations in Play. We’ll be watching the 40th anniversary of the Taiwan Relations Act on April 10 to see whether the Trump administration decides to use the symbolic occasion to dispatch a Cabinet-level official to Taipei. This would add to a series of escalatory moves by the United States and China, including the United States advancing discussions over the sale of F-16s to Taiwan and a rare incursion by Chinese fighter jets into Taiwanese airspace earlier this week.

U.S. Pushback in the South China Sea. We’re starting to see more meaningful U.S. moves to deter China’s military expansion in the South China Sea. The United States is reportedly in discussions with the Philippines to deploy High Mobility Artillery Rocket Systems in the South China Sea and with Vietnam to regularize aircraft carrier visits to Vietnamese ports. We’re monitoring the internal debates in these countries as they weigh U.S. security backing against drawing Chinese ire, as well as any signs of China responding with a naval escalation of its own. A Chinese attempt to block the Philippines access to the disputed Spratly Islands could quickly escalate.

The Elusive U.S.-China Deal. China and the United States so far have been able to prevent rising military frictions from bleeding into their trade talks. We’re still watching for an actual date to be set for Chinese President Xi Jinping and U.S. President Donald Trump to meet and sign a deal, but this past week offered clues on how both sides intend to get around the enforcement dilemma. The draft deal ties U.S. retaliatory measures to China’s pledge to buy U.S. agricultural and energy products by 2025 and to allow 100 percent foreign ownership for U.S. companies operating in China, while the harder structural reforms to address intellectual property violations and state subsidization would not be subjected to snapback punitive measures.

Turkey’s Wake-Up Call. Turkey’s main secular opposition party is prying control away from the ruling Justice and Development Party (AKP) after eking out wins in tight mayoral races in Turkey’s largest cities, including Istanbul and Ankara. Weak economic conditions and the loss of Kurdish swing votes are peeling more urban Turks away from the AKP, but Turkish President Recep Tayyip Erdogan still holds tight control over the country’s institutions. With four years until the next election, the government has some political space to impose austerity reforms at the risk of further weakening its base. And the more desperate Erdogan becomes, the more he will rely on authoritarian means to hold onto power as his grasp starts to slip. There could also be much more drama to come in the near term should the ruling party’s court appeals over the Istanbul and Ankara votes lead to a scenario of a reverse ruling favoring the AKP, mass protests and Western backing for the opposition.

Brexit Watch. With the April 12 Brexit deadline nearing, British Prime Minister Theresa May is in talks with Labour opposition leaders on a softer Brexit while also trying to calm enraged hard-liners in her own Conservative Party by requesting a short Brexit delay until June 30. The European Union will firm up a proposal next week for a flexible extension that would allow the United Kingdom to leave earlier than June 30 in the unlikely event the British Parliament reaches a consensus while planning for a longer extension that would require U.K. participation in European Parliament elections in late May. Another series of indicative votes could be held next week in the House of Commons to test the outcome of May’s negotiation with Labour.

Israel Goes to the Polls. Israel’s April 9 national elections will pit long-term Prime Minister Benjamin Netanyahu and his Likud party against the challenge of former military chief Benny Gantz’s Blue and White Party. But the proportional nature of Israel’s polls will make the results messy, and in a divided Israel, the results are likely to be narrow. That will give small parties a big say in the government formation process, which could take weeks or even months once the results are finalized. In the meantime, external events, like unrest in Gaza, attacks in the West Bank or clashes along Israel’s northern frontier, could further complicate the political process as parties posture for advantage. No matter who wins, however, Israel’s political center has firmly moved to an increasingly nationalist place, as the old political order gives way to an Israel where the old left, which wished to trade occupied Palestinian land for peace with the Arab and Muslim world, is weaker than ever.

Eyes on Washington’s Man in Caracas. Venezuela’s government is laying the groundwork to arrest key opposition figure Juan Guaido. The Supreme Court on April 1 asked the country’s ruling junta to strip Guaido of his parliamentary immunity. The Venezuelan government has for months struggled to directly threaten Guaido for fear of attracting heavier sanctions or talk of military intervention from the United States. But with the military high command remaining loyal and the Russian government sending more troops to Venezuela, President Nicolas Maduro has some space now to arrest Guaido and suck the momentum out of the U.S.-backed opposition while the window for the United States to credibly threaten intervention is quickly narrowing.

The WTO Asserts Its Authority on National Security. The World Trade Organization’s first ruling on a national security-related case involving Ukraine and Russia puts the United States in an awkward spot. In short, the ruling said the WTO — and not individual countries — will determine what constitutes a national security threat in imposing trade barriers. But the United States, which wants the WTO to stay out of national security matters, has been accused of using steel, aluminum and potential auto tariffs as a weak cover for straight-up protectionism. Rather than respect the WTO’s jurisdiction and potential challenge to the United States on national security tariffs, the Trump administration is likely to continue working unilaterally on trade issues and block appointments to the WTO’s appellate body, potentially grinding the dispute settlement process to a halt.

Saudi Arabia Threatens To Go Nuclear on the Dollar. Saudi Arabia is threatening to use its nuclear option — ditching the petrodollar system and start selling oil in other currencies — against the United States if the so-called NOPEC bill is passed and signed into law. The bill would strip away OPEC members’ immunity from U.S. antitrust laws and would represent a significant threat to Saudi Arabia. The bill itself is unlikely to get past Congress and a presidential veto, but Saudi Arabia is wary of the Trump administration using the NOPEC threat to pressure it into creating the conditions for lower oil prices. Saudi Arabia is unlikely to make any big moves to rupture its long-standing strategic relationship with Washington at this stage, but building strain in the U.S.-Saudi relationship in the longer term will compel Riyadh to continue diversifying its oil sales away from the dollar. If this trend gains real traction in the coming years, the United States will not be able to take dollar primacy in the global economy for granted.

A Pivotal Indian Election Kicks Off. As India’s five-week-long elections kick off on April 11, Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) will face a critical test as it eyes a second term. India’s $2.6 trillion economy is rapidly expanding, but growth has been uneven. Stagnant crop prices have fueled angst among India’s politically consequential farmers, while the government’s demonetization campaign in 2016 hurt the small and medium business sector, a key voting constituency. A broader failure to create millions of jobs under the “Make in India” campaign has compelled Modi to emphasize national security in the aftermath of his February airstrikes against Pakistan, which have boosted his profile domestically. The BJP’s 2014 parliamentary majority eased its ability to pass the Goods and Services Tax, a landmark tax reform, as well as a key bankruptcy code. But the more challenging land and labor reforms remain unfinished, and a return to a coalition era of government would further complicate this task (the BJP’s minority in Parliament’s upper house also remains an impediment). The Indian National Congress, leading an unwieldy opposition alliance, is pitching a development agenda offering a guaranteed minimum income to the country’s poorest 20 percent of families. For the BJP, which is already implementing income support for up to 120 million farmers, the development debate will factor heavily in the final election results.


Welcome to the board @NAVY and thank you for this comprehensive run down. Very impressive stuff.

So what currency will the Saudis sell oil in, the Euro or maybe the Yuan?

I doubt that will happen - what bonds would they hold in reserve, the negative interest rate Euro area countries?

Germany and China will not want their currency impacted by fluctuations in oil prices…

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So is Saudi saying they failed in creating alternative economic reforms outside of oil and are now flexing what little is left to secure a future? Turn the ship around. We’re more than capable of producing our energy needs…and still compete on global scale. See ya!

US shale mixed with that nice heavy Venezuelan oil makes for some good oil independence :wink:

SP500 will hit new high first. Then Saudis may have their play.

How does the mixed mutt West maintain ourselves against organised race nations, like China?

Strike first, hard, and fast.

A counter-force strike aiming to destroy the majority of their long-range nuclear assets.

Cruise missile barrages numbering in the low thousands, stealth bombers from Diego Garcia and Guam dropping precision nuclear bombs, nuclear submarines ready to devastate the coastal cities; the saturation of their air defense and airborne elements.

The US carrier groups and the submarine fleet can do it, the aid of the JSDF would be even better, France and the UK could put their bombers on patrol as well.

Seal off the South China Sea to the Arab tankers and starve China of oil, close the eastern Pacific approach as well, either redirect them back to their ports or outright steal/sink them; NATO navies could do this collectively.

The problem is the West isn’t completely covered in ballistic missile defense, so they would probably retaliate with a couple dozen surviving warheads or less; not the end of the world, but it would cause damage and death.

You can also simply trade with them and they leave us alone; but I doubt that.

The same way we have in every major war.

We don’t have the stockpiles necessary to do even 1/4 of that. We don’t have the CM’s, planes, ships, tanks, or infantry necessary to even begin to conduct a major theater sized operation against a modern military power without going nuclear.

We also lack the ability to successfully interdict more than a handful of incoming warheads.