On Monday the Trump Administration reached a deal with Mexico to overhaul the North American Free Trade Agreement (NAFTA). The bilateral pact aims to boost employment and increase wages for car manufacturer employees.
At the same time, President Trump and Chinese leader Xi Jinping are negotiating a trade deal that would reduce the U.S. trade deficit with China. The deficit stands at $375 billion per year. The United States asked China to increase imports of American goods by $200 billion, while China offered to reduce the deficit by $70 billion. A deal is likely to be reached in the coming months because it would benefit both countries.
China is developing a new “Silk Road” to Europe, to boost trade with its main partners, in particular France and Germany, called the Belt and Road Initiative.
Such initiative is divided in two parts: a land-based route, composed of roads and railways across Central Asia, and a maritime route that would connect the Port of Fuzhou with Venice in Italy.
The maritime route crosses the Strait of Malacca and the Suez Canal, which are bordered by countries that are not under Chinese influence, such as Egypt, Singapore, Indonesia, and Malaysia. To bypass the Strait of Malacca, Xi Jinping launched a project with the former Prime Minister of Malaysia, Najib Razak, to build a railroad that crossed the Malaysian peninsula. The project, called East Coast Rail Line, has been canceled by the new Malaysian Prime Minister, Dr. Mahathir Mohamad.
Egypt remains a close strategic partner of the United States even though it has substantial trade with North Korea. Therefore, Xi Jinping is trying to find an alternative route to the Suez Canal to trade with Europe. The first option is the Ice Silk Road, a trade route across the Arctic Sea which bypasses both the Strait of Malacca and the Suez Canal. Recently, an LNG tanker carried cargo from Norway to South Korea along the Northern Sea route without the help of an icebreaker. However, such route is impracticable between October and May. So, the only option for China to bypass the Suez Canal is to circumnavigate Africa through the Cape of Good Hope.
The recent trip of Xi Jinping to Africa highlights the countries that China intends to have as strategic partners in this maritime route: South Africa, Senegal, and Mauritius (plus Kenya, where China financed the rail link that connects the capital Nairobi with the country’s main port in Mombasa).
The recent criticism of President Trump of the South African policy of land seizure from white farmers might well be a warning to the South African government that a further approach to China will not be tolerated.
Even if China developed a maritime trade route through the Cape of Good Hope, it will still need the United States and its allies to trade across the Strait of Malacca, the Suez Canal, and the Strait of Gibraltar.
The United States needs China as well. In fact, the recent turnaround by Kim Jong-un showed that a bilateral nuclear agreement can be breached at any time by North Korea, even if it is ratified by U.S. Congress as a treaty.
In order to be effective and binding, the peace deal with North Korea should be ratified by the five permanent members of the UN Security Council, plus Japan and South Korea. Since North Korea shares the same political ideology with China, plus a common border, the agreement cannot be reached without China’s support.
A trade deal with China would improve the relations between the world’s two largest economies and represent a major foreign policy success for both Trump and Xi.
Francesco Stipo is the President of the Houston Energy Club, a member of the National Press Club in Washington D.C., a Fellow of the World Academy of Art and Science, and recently joined the Bretton Woods Committee. Born in Italy in 1973, Dr. Stipo is a naturalized United States citizen. He holds a Ph.D. in International Law and a Master Degree in Comparative Law from the University of Miami. To read more of his reports, Click Here Now.
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