Reality Check
A daily explanation of what matters and what doesn't in the world of geopolitics.
June 9, 2016
By Jacob L. Shapiro
The two most populous nations have very different relationships with the United States.
Indian Prime Minister Narendra Modi warmly addressed the U.S. Congress today – the high-point of his visit to the United States. Modi will return to New Delhi bearing gifts, among them promises of investment from major U.S. companies like Amazon, an agreement by Westinghouse Electric to move forward on the construction of six nuclear reactors in India and a formal designation as a major defense partner of the United States.
It is hard not to juxtapose the warmth and optimism of Modi’s visit to the U.S. with the recent meetings between senior Chinese and U.S. officials in Beijing, including Secretary of State John Kerry, Secretary of Treasury Jack Lew and Chinese President Xi Jinping. Those talks were cordial and productive – but also contentious. The U.S. and China continue to butt heads over economic matters and competition in the South and East China seas.
There is a temptation to think of India and China as direct rivals. They are the two most populous nations in the world; China has been the high-growth economic engine of the world for the past 30 years, and as it falters, India seems the logical upstart to take over. India also is a player in the general Indo-Pacific region, and some of its moves have aligned it with other countries that are uncomfortable with China’s actions in the South and East China seas.
But U.S.-India ties are not about the U.S. stoking some kind of Sino-Indian rivalry. The U.S. and India find their interests converging. And the U.S. and China, while still dependent on each other, have a few key disagreements about issues important to both sides. To understand the broader implication of these developments, each relationship has to be analyzed on its own.
India
The U.S. relationship with India has been slowly warming since 2001. However, the relationship has not always been a rosy one. After India gained its independence in 1947, it was mostly aligned with the Soviet Union. The root of U.S. support for Pakistan came from the Indian-Soviet relationship. The U.S. feared that the Soviets would be able to either station naval assets at bases in India or help the Indians construct a navy strong enough to challenge American interests in the Indian Ocean.
After the collapse of the Soviet Union, India opened up its economy, but was still wary of the United States. In 1998, India conducted five nuclear test explosions, which led President Bill Clinton to pull out the U.S. ambassador to India and levy economic sanctions against New Delhi.
The dynamic permanently changed after 9/11. The U.S. relationship with Pakistan became strained, and there was no fear of the Soviets or any other power using India against the U.S. Unlike regimes like North Korea or Pakistan, where the U.S. feared that the fruits of their nuclear programs would fall into the wrong hands, India presented no such concern for the U.S.
Less than two weeks after 9/11, President George W. Bush removed the last of Clinton’s sanctions, and economic and defense cooperation between the U.S. and India has been progressing ever since.
India today is still an extremely poor country in the sense that many of its people live in poverty, but it is rich in resources and potential. It therefore has a hunger for U.S. technology and investment. The U.S. has no competition in India now and views it as an important strategic partner in maintaining control over the Indo-Pacific. Washington is willing to look past some of India’s flaws in order to solidify the relationship. What India needs, it can get from the U.S. What the U.S. needs, India can give fairly easily.
China
The U.S.-China relationship is more complicated for two key reasons. The first and by far more important reason is economic. The second is military. On the heels of the eighth China-U.S. Strategic Economic Dialogue and seventh China-U.S. High-Level Consultation on People-to-People Exchange, which concluded on Tuesday, there have been examples of both of these tensions at work.
On the economic front, the People’s Bank of China (PBOC) yesterday announced a second consecutive month of decline in exports slightly worse than Reuters had predicted. On Tuesday, it reported a $27.9 billion decline in foreign exchange reserves (down to a still impressive $3.1 trillion). On the military front, U.S. defense officials told CNN that a U.S. reconnaissance aircraft flying over the East China Sea was intercepted by a Chinese J-10 fighter jet in an “unsafe manner.”
The economic issue is of first-order importance. The U.S. and China are the world’s two biggest economies. Economic difficulties in China radiate out across the globe. When China’s export numbers jumped up in March, markets around the world jumped up along with them. When they decline, it portends negative developments to come for the global economy.
Global investors also continue to fear the potential for further devaluation of the yuan. Goldman Sachs has come out with “an outright negative” view on the yuan and has raised the idea that China’s debt situation is far worse than is currently understood.
The U.S. has an interest in a stable Chinese economy for other reasons as well. U.S. companies want access to Chinese markets, and the U.S. wants China to stop producing massive quantities of steel and aluminum in a saturated global market.
These U.S. desires, however, are not in the best interests of the Chinese. China must protect its domestic companies for the same reason that it has continued to produce various products and commodities in spite of oversupply.
The first priority for China is ensuring social stability, and China will not leave stability in the hands of profit margins or market swings. China will continue to pump money into the system, prop-up companies and maintain high levels of employment because not doing so is a direct threat to the Communist Party’s rule.
As for events in the South and East China seas, despite all the noise, China and the U.S. have the same fundamental interest: to keep the sea lanes open to global trade. What China fears is that if there were a conflict right now, the U.S. Navy would have the upper hand and could effectively cut off China from the global trade routes on which it is so dependent.
It is also useful for China to bang its chest to take advantage of patriotic feelings on the mainland. The sentiment is useful as the Communist Party tries to maintain growth levels while also completely refocusing the economy from exports to domestic consumption.
What that means, in the short term, is loud but inconsequential disagreements and annoyances traded back and forth between the two sides. The U.S. doesn’t want China to dominate the South and East China seas any more than China wants the U.S. to. But China cannot afford a real conflict over this without confidence that it could keep those sea lanes open, and it is a long way from developing such confidence.
So there won’t be a serious military confrontation anytime soon – but there won’t be a softening of the rhetoric either. China can’t afford to look weak and neither can the U.S. So this dance will continue despite all the strategic dialogue.
This then is more complicated than a simple zero-sum game. Modi’s optimism and Xi’s caution with the U.S. should not be read together. The U.S.-China relationship is, overall, a cooperative one, despite their strategic differences.
And while the U.S. seeks an element of maritime cooperation with India to maintain naval dominance at the expense of the Chinese, for the most part, the U.S.-India relationship is strengthening because of economic and strategic interests that have been slowly bringing India and the U.S. together for over 15 years.
The recent developments suggesting a tighter U.S.-India relationship coming out at the same time that some of the underlying tensions flare between the U.S. and China is a rare phenomenon in geopolitics: a coincidence.
A daily explanation of what matters and what doesn't in the world of geopolitics.
June 9, 2016
By Jacob L. Shapiro
The two most populous nations have very different relationships with the United States.
Indian Prime Minister Narendra Modi warmly addressed the U.S. Congress today – the high-point of his visit to the United States. Modi will return to New Delhi bearing gifts, among them promises of investment from major U.S. companies like Amazon, an agreement by Westinghouse Electric to move forward on the construction of six nuclear reactors in India and a formal designation as a major defense partner of the United States.
It is hard not to juxtapose the warmth and optimism of Modi’s visit to the U.S. with the recent meetings between senior Chinese and U.S. officials in Beijing, including Secretary of State John Kerry, Secretary of Treasury Jack Lew and Chinese President Xi Jinping. Those talks were cordial and productive – but also contentious. The U.S. and China continue to butt heads over economic matters and competition in the South and East China seas.
There is a temptation to think of India and China as direct rivals. They are the two most populous nations in the world; China has been the high-growth economic engine of the world for the past 30 years, and as it falters, India seems the logical upstart to take over. India also is a player in the general Indo-Pacific region, and some of its moves have aligned it with other countries that are uncomfortable with China’s actions in the South and East China seas.
But U.S.-India ties are not about the U.S. stoking some kind of Sino-Indian rivalry. The U.S. and India find their interests converging. And the U.S. and China, while still dependent on each other, have a few key disagreements about issues important to both sides. To understand the broader implication of these developments, each relationship has to be analyzed on its own.
India
The U.S. relationship with India has been slowly warming since 2001. However, the relationship has not always been a rosy one. After India gained its independence in 1947, it was mostly aligned with the Soviet Union. The root of U.S. support for Pakistan came from the Indian-Soviet relationship. The U.S. feared that the Soviets would be able to either station naval assets at bases in India or help the Indians construct a navy strong enough to challenge American interests in the Indian Ocean.
After the collapse of the Soviet Union, India opened up its economy, but was still wary of the United States. In 1998, India conducted five nuclear test explosions, which led President Bill Clinton to pull out the U.S. ambassador to India and levy economic sanctions against New Delhi.
The dynamic permanently changed after 9/11. The U.S. relationship with Pakistan became strained, and there was no fear of the Soviets or any other power using India against the U.S. Unlike regimes like North Korea or Pakistan, where the U.S. feared that the fruits of their nuclear programs would fall into the wrong hands, India presented no such concern for the U.S.
Less than two weeks after 9/11, President George W. Bush removed the last of Clinton’s sanctions, and economic and defense cooperation between the U.S. and India has been progressing ever since.
India today is still an extremely poor country in the sense that many of its people live in poverty, but it is rich in resources and potential. It therefore has a hunger for U.S. technology and investment. The U.S. has no competition in India now and views it as an important strategic partner in maintaining control over the Indo-Pacific. Washington is willing to look past some of India’s flaws in order to solidify the relationship. What India needs, it can get from the U.S. What the U.S. needs, India can give fairly easily.
China
The U.S.-China relationship is more complicated for two key reasons. The first and by far more important reason is economic. The second is military. On the heels of the eighth China-U.S. Strategic Economic Dialogue and seventh China-U.S. High-Level Consultation on People-to-People Exchange, which concluded on Tuesday, there have been examples of both of these tensions at work.
On the economic front, the People’s Bank of China (PBOC) yesterday announced a second consecutive month of decline in exports slightly worse than Reuters had predicted. On Tuesday, it reported a $27.9 billion decline in foreign exchange reserves (down to a still impressive $3.1 trillion). On the military front, U.S. defense officials told CNN that a U.S. reconnaissance aircraft flying over the East China Sea was intercepted by a Chinese J-10 fighter jet in an “unsafe manner.”
The economic issue is of first-order importance. The U.S. and China are the world’s two biggest economies. Economic difficulties in China radiate out across the globe. When China’s export numbers jumped up in March, markets around the world jumped up along with them. When they decline, it portends negative developments to come for the global economy.
Global investors also continue to fear the potential for further devaluation of the yuan. Goldman Sachs has come out with “an outright negative” view on the yuan and has raised the idea that China’s debt situation is far worse than is currently understood.
The U.S. has an interest in a stable Chinese economy for other reasons as well. U.S. companies want access to Chinese markets, and the U.S. wants China to stop producing massive quantities of steel and aluminum in a saturated global market.
These U.S. desires, however, are not in the best interests of the Chinese. China must protect its domestic companies for the same reason that it has continued to produce various products and commodities in spite of oversupply.
The first priority for China is ensuring social stability, and China will not leave stability in the hands of profit margins or market swings. China will continue to pump money into the system, prop-up companies and maintain high levels of employment because not doing so is a direct threat to the Communist Party’s rule.
As for events in the South and East China seas, despite all the noise, China and the U.S. have the same fundamental interest: to keep the sea lanes open to global trade. What China fears is that if there were a conflict right now, the U.S. Navy would have the upper hand and could effectively cut off China from the global trade routes on which it is so dependent.
It is also useful for China to bang its chest to take advantage of patriotic feelings on the mainland. The sentiment is useful as the Communist Party tries to maintain growth levels while also completely refocusing the economy from exports to domestic consumption.
What that means, in the short term, is loud but inconsequential disagreements and annoyances traded back and forth between the two sides. The U.S. doesn’t want China to dominate the South and East China seas any more than China wants the U.S. to. But China cannot afford a real conflict over this without confidence that it could keep those sea lanes open, and it is a long way from developing such confidence.
So there won’t be a serious military confrontation anytime soon – but there won’t be a softening of the rhetoric either. China can’t afford to look weak and neither can the U.S. So this dance will continue despite all the strategic dialogue.
This then is more complicated than a simple zero-sum game. Modi’s optimism and Xi’s caution with the U.S. should not be read together. The U.S.-China relationship is, overall, a cooperative one, despite their strategic differences.
And while the U.S. seeks an element of maritime cooperation with India to maintain naval dominance at the expense of the Chinese, for the most part, the U.S.-India relationship is strengthening because of economic and strategic interests that have been slowly bringing India and the U.S. together for over 15 years.
The recent developments suggesting a tighter U.S.-India relationship coming out at the same time that some of the underlying tensions flare between the U.S. and China is a rare phenomenon in geopolitics: a coincidence.
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