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THE PANGOAL REPORT
Mar 12, 2018
Pangoal International Situation Monthly (Vol.11)
Pangoal International Situation Monthly (Vol.11)



US Resumes Cold War Mentality in Defense and Nuclear Policies

On January 19th 2018, the American Trump administration released its first National Defense Strategy. Later on February 2nd, the US Department of Defense rolled out the new Nuclear Posture Review.


Once Trump took office a year ago, he showed signs of attempting a substantial shift in the US defense policies towards a more traditionally confrontational approach. The National Security Strategy, which was unveiled by the Trump administration in December 2017, has set the tone for such a shift.


In these reports and documents, the Trump administration redefines the international situation, super power relations, and security challenges faced by the US, announcing that the focus of its defense strategies will be shifted from fighting terrorism back to inter-state strategic competition. Meanwhile, in order to address existing challenges, it calls for more efforts to enhance national defense and improve the US military’s competitive edge in air, land, sea, space, and cyberspace, among others.


The new American national security, defense, and nuclear policies expressly brand Russia and China as states that seek to “change the status quo,” and they are “revisionist powers” challenging the international order. The Trump administration believes that China and Russia are developing advanced weapons that could threaten the US’s critical infrastructure and command and control architecture, and that they are contesting the US for geopolitical leadership by shaping a world antithetical to US values and interests, and thus have become “the most significant existential threat” to the US. When sorting external security threats, the report places power challenges from China and Russia before terrorism.


It is made clear in the new security and defense policies that the primary threat to the US is competition with world powers, i.e. China and Russia, rather than terrorism, and that such competition is central to its national defense. When addressing the latest national security and defense strategies, US President Donald Trump explicitly stated that, whether the US people like it or not, the country is engaged in “a new era of competition.” US Defense Secretary James Mattis said in his speech that “great power competition between nations” becomes “a reality once again,” and that “we will continue to prosecute the campaign against terrorists that we are engaged in today, but great power competition, not terrorism, is now the primary focus of U.S. national security.” Furthermore, he vowed to “prioritize preparedness for war” in US defense policies while competing with such world powers.


The new nuclear policies concentrate on the nuclear capabilities of Russia and China, holding that Russia’s “nuclear escalation posture” and China’s “nuclear ambiguity posture” have become “security threats” to the US. It is emphasized that the US must accelerate modernization of its nuclear weapons, promote nuclear non-proliferation through enforcement and unilateral actions, and develop “flexible, adaptable, and resilient” nuclear forces, in order to facilitate a “nuclear balance of terror” or “mutually assured destruction,” just as in the Cold War period, and establish a strategic deterrence posture based on “deterrence through strength” across the globe.


The new defense and nuclear policies reiterate the importance of arms expansion, trumpet full-scale modernization of US military, and stress that the US will “restore” its military dominance by streamlining acquisition, eliminating bloated bureaucracy, massively building up the military, countering cyber and electromagnetic attacks, enhancing aerospace competitiveness, and establishing multi-layered missile defense.


The new defense and nuclear policies consider building a Joint Force as the foremost priority in military build-up. To handle “large-scale, high-end, and conventional warfare” between states, the US must facilitate the modernization of its nuclear triad, solidify its forces in warfighting domains in space and cyberspace, C4ISR (command, control, communications, computers and intelligence, surveillance, and reconnaissance), and missile defense, enhance its joint lethality in contested environments, strengthen forward force maneuvers and posture resilience, invest broadly in advanced autonomous systems, and maintain resilient and agile logistics. All these efforts will enable the US to restore its war readiness and sustain a decided competitive advantage.


The new defense and nuclear policies further reinforce the awareness for collective security, reaffirm the US commitment to its allies, and repeats its vow to shoulder its responsibilities. US allies are also required to boost defense spending, promote modernization of their military, and ease the US security burden.


Meanwhile, the new US defense and nuclear policies highlight the strategic coordination concept of “the Indo-Pacific region,” making clear that the US military must deter “acts of aggression” in Indo-Pacific, Europe, and Middle East, as well as terrorism and threats of WMD (weapons of mass destruction) proliferation, and focus its conflict preparedness on the long, narrow, strategic arc extending from the Middle East to the Western Pacific.


The new nuclear policies massively extend US nuclear deterrence to cover both nuclear and non-nuclear attacks, stating that the US is able to assure its allies and partners of their security, and respond to the uncertain strategic environment in the future. Trump is partly trying to break with the vision of “a world without nuclear weapons” called for by his predecessor; partly, conservative Republicans believe that considerable changes have taken place in the US’s national security environment since 2010.


Obama’s 2010 Nuclear Posture Review pledged that the US “will not develop new nuclear warheads.” The new nuclear policies violate the pledge and hammer out plans for developing low-yield nuclear weapons for both the near term and a longer term, vowing to “enhance deterrence with non-strategic nuclear capabilities.” “We must modernize and rebuild our nuclear arsenal…that it will deter any acts of aggression,” said Trump in his State of the Union address on January 31st.


The 2018 Nuclear Posture Review gives the green light to developing and deploying low-yield nuclear weapons — essentially, the US is responding to Russia’s “escalate to de-escalate” doctrine, adding to the credibility of US nuclear deterrence, and, for the most part, blustering to get Russia back to the negotiation table to discuss restrictions on strategic weapons. Meanwhile, by supporting nuclear development, the US attempts to prepare strategy for potential risks in the 2030s when it may suffer a temporary shortage of ballistic missile submarines (SSBN) and a dramatic decline in the number of sea-based warheads.


The new nuclear policies would, again, lower restrictions on developing and exerting nuclear force, which may reverse the positive momentum in the evolution of international nuclear order after the Cold War. By the logic of the Trump administration, as long as US territories, outer space, and cyber infrastructure and those of its allies are subject to massive attacks by opponents — even if the attacks are conventional — the US is allowed to launch nuclear weapons, or, at least, fire back with low-yield nuclear weapons. However, the problem is whether such “flexible” responses will cause miscalculations by its opponents and eventually result in a nuclear war.


According to the statistics released by US Department of State on January 22nd, as of February 5th 2018, the US reported 1,350 nuclear warheads, while Russia listed 1,444. The number of deployed intercontinental ballistic missiles (ICBMs), submarine-launched ballistic missiles (SLBMs), and heavy bombers of the US decreased to 652, while the number of similar Russian weapons rose to 527. The US, as before, claimed 800 deployed and non-deployed nuclear launchers, while Russia decreased the number to 779.


The estimates of the Federation of American Scientists (FAS) suggest that there are nearly 1,000 nuclear weapons which can be adjusted to low-yield versions, roughly half B61 nuclear bombs dating from the Cold War years, and half W80-1 nuclear warheads. The US spends massively on modernizing its nuclear arsenal. Its plan includes refurbishing B61 nuclear bombs into the B61-12, which can yield an explosion equivalent to 0.3 kilotons of TNT, and loading the W80-4, a refurbishment of the W80-1 nuclear warheads, onto the new Long Range Standoff (LRSO) missiles.


The adjustments made by the Trump administration in the national security, defense, and nuclear policies indicate that:


Firstly, the US has officially entered another 10-year cycle of military spending expansion. Its new defense policies emphasize that the US must invest in the modernization of key military capabilities with sustained and predictable budgets, to ensure an “asymmetric strategic advantage” in military modernization that no competitor can match. The new National Defense Strategy lays out a military modernization program for the years 2019-2023, and the Nuclear Posture Review expressly requires Congress to increase funding for a total upgrading of US nuclear forces in accordance with National Defense Authorization Act for Fiscal Year 2018.


Secondly, the US approach to external strategies is again dominated by conventional operations and realistic competition, and thus has put an end to the post-Cold War period centered on international anti-terrorism efforts. For US military and Republicans, the US is not only facing nuclear competition from its traditional rivals like Russia and China, but it is also exposed to the threats of nuclear and missile programs in Iran and North Korea, as well as non-traditional security threats and challenges related to nuclear weapons. The US must face its own problems and the complication of international security environment and regain its competitive edge in nuclear and conventional deterrence. Therefore, traditional competition and operation are undoubtedly the most important concerns.


Thirdly, the new defense and nuclear policies prioritize issues concerning Russia and China. The US stresses that it does not want to consider Russia and China as its enemies and seeks stable relations with the two countries. Meanwhile, the US wishes to have a dialogue with China to enhance the understanding of each other’s nuclear and defense policies, doctrine, and capabilities, as well as to improve transparency and to help manage the risk of miscalculation and misperception. Despite these statements, the US still plays up nuclear capabilities and military deterrence of Russia and China, which is fundamentally detrimental to the development of strategic mutual trust and stable relations between the great powers.


Fourthly, although it has been nearly 30 years since the end of Cold War, American thought on external strategies remains entangled in the Cold War zero-sum game and issues of unilateral security, absolute security and collective security. As it is dominated by outdated notions such as competition, confrontation, and rivalry, the US may resume a Cold War mentality once the pressure from international anti-terrorism campaigns lessens, which is detrimental to not only partnerships with other countries, but the stability of the global strategic landscape.


This sense of competition is one of the significant pillars in US strategic thinking and value system. Throughout the history of US foreign relations, it has been a long-standing practice, and the dynamic source for the US to maintain its world dominance, to stimulate internal motives to adjust and innovate due to imagined enemies.


Despite being one of the countries boasting overwhelming military forces and an enormous nuclear arsenal, the US fails to view contemporary trends correctly. It resumes the zero-sum game thinking of the Cold War and sends signals of extreme irresponsibility, which aggravates the worries of the international community, and risks resulting in new, more complicated nuclear proliferation and nuclear arms competition.


The new security, defense, and nuclear policies have unprecedentedly complicated China-US relations, indicating that the bilateral relations may enter a tough period of resetting and adjustment. A consensus has been reached within the US that it must adopt stronger measures to prevent and restrict the rapid growth of China’s economic, military, and cultural clout across the world. Therefore, in light of this trend, China must reconsider its policies towards US and resort to duly effective responses.


The Trump administration has put forward the concept of “the Indo-Pacific,” a strategic geopolitical coordination. It plans to devote limited military resources to defense in the region extending from the Middle East, through the Indian Ocean and Strait of Malacca, to the Pacific, and identifies the main area for China-US strategic security issues in the future. The US will continue to enhance its military deployment in relevant regions, and more actively leverage the power of its three key allies, i.e. India, Australia, and Japan, to balance the growing influence of China. In this way, the Chinese Belt and Road initiative will be exposed to a more complicated geopolitical landscape.


Nevertheless, we should note that shifting the focus of US external strategies back to traditional strategic competition may be a long-term process extending across multiple administrations. Catering to strong domestic political needs, Trump and his administration continue rhapsodizing about the “China challenge” and “China competition.” Their actions are not a “claim” to contain China with full force; it will take time for the US to put the policies into effect. Furthermore, because the Trump administration is not equipped with a sufficient number of professionals, they are unlikely to form a joint force to curb China’s rise. Most importantly, China and the US are in the same global economic system, and the interests of both sides are deeply intertwined. Hence, China-US competition will not necessarily lead to conflicts, and existing dialogues and cooperation will remain vital parts in the basic structure of bilateral relations.


China remains committed to the path of peaceful development, firmly pursues a national defense policy that is defensive in nature, upholds the policy that it would not initiate the use nuclear weapons at any time and under any circumstances, and makes an unequivocal commitment of unconditionally avoiding the use or threat to use nuclear weapons against non-nuclear-weapon states or nuclear-weapon-free zones.


As the US is aggressively engaged in competition and may adjust its policies towards China, China must give top priority to stability, steady growth, and maintain sufficient strategic resolve.


China should stay focused on managing its own affairs and maintain commitment to its own reform and development path. China should not alter its basic understanding of the trend of the times, i.e. peace and development, and its overall judgment of globalization simply because the US resumes Cold War mentality in a pointed manner. Even if the US considers China as its principal rival in strategic competition, China should remain committed to the policy of reform and opening-up, and refrain from involvement in a vicious arms race which China should not and cannot afford to participate in. China must sustain its peaceful rise and steady development, regardless of changes in external factors.


Meanwhile, China must constantly improve its comprehensive security, strategic security, and international influence. It must participate in strategic competition and super power intrigues in a circumspect, intelligent manner, and foster its capabilities in handling international affairs, safeguarding long-term national interests, and ensuring common interests of the international community. Gradually, China will become a capable, global military force with enough clout, radiating capacity and contribution capacity.


For the foreseeable future, no matter how China positions itself with the US, China-US relations will continue to be a top priority in China’s external relations, especially bilateral relations. There exists a great gap between China and US in terms of composite national strength. Hence, properly handling China’s relations with the US, the sole superpower in the world, is of critical importance to maintain the overall stability of China’s global strategies. It is necessary for China to further expand bilateral dialogue channels on strategies, economy, and culture while sensibly competing with the US. China should make every possible effort to put China-US relations on the track of benign competition and constructive cooperation as a responsible state. This is conducive to sound development of China, the US, and the whole world.


Inter-Korean Relations Improve Albeit with Shaky Foundation

On February 9th, the opening ceremony of the 23rd Olympic Winter Games was held in Pyeongchang, South Korea.


Over the two months since the New Year began, South and North Korea prepared for a bilateral talk. Eventually, both sides decided to capitalize on the Pyeongchang Winter Olympics for rapprochement. Athletes from the two Koreas marched together under a “unification flag” during the opening ceremony, and a joint North and South Korean women’s ice hockey team competed. Meanwhile, North Korea sent a high-level delegation led by Kim Yong-nam, the President of the Presidium of the Supreme People’s Assembly, to the opening ceremony. Cheerleaders and artistic performers from North Korea also arrived in Pyeongchang to cheer at the event.


Kim Yo-jong, the younger sister of Kim Jong-un and Deputy Director of the Propaganda and Agitation Department of the Workers’ Party of Korea (WPK), was dispatched as the North Korean Supreme Leader’s envoy to the Olympics. On February 10th, she met with South Korean President Moon Jae-in in Seoul, delivered a holograph from Kim Jong-un to Moon, and invited him for a visit to Pyongyang at his convenience. Moon asked the North Korean delegation to more actively seek dialogue with the US, to create the environment for his visit to North Korea.


The South and North shared an understanding that they should continue the positive mood for peace and reconciliation created by the Pyeongchang Olympics, and promote inter-Korean dialogue, exchanges, and cooperation.


The engagement between South and North Korea has eased the extreme tensions on the Korean Peninsula, which were aggravated by North Korean nuclear and missile issues in recent years.


Early in June 2017, Moon Jae-in invited North Korea for the first time to the Pyeongchang Winter Olympics when greeting North Korean officials of the International Taekwon-Do Federation. In November 2017, after forming its first cabinet, the Moon administration unveiled “Moon Jae-in’s Policy for the Korean Peninsula” based on comprehensive visions for the Korean Peninsula in the future, including taking the lead in promoting inter-Korean relations, achieving peace and unification, and building a new economic community. In his 2018 New Year address, Kim Jong-un signaled that North Korea was ready to participate in Pyeongchang Winter Olympics. In January 2018, South and North Korea resumed bilateral talks by holding three rounds of high- and working-level dialogues, and reached an agreement on the North’s participation in the Pyeongchang Winter Olympics. Meanwhile, the two sides agreed to restore inter-Korean military communication channels on the western coast of the Peninsula (i.e. in the Yellow Sea).


Besides the Winter Olympics, since January of this year, South and North Korea have also tentatively discussed other issues, which might serve to ease bilateral relations, and it has been found that the two sides have different focuses. North Korea suggested a “family reunion” for the Lunar New Year to reunite relatives separated in both countries and pushed for talks between Red Cross agencies on both sides. South Korea, however, proposed military talks to help prevent accidental conflicts, and stated that the two countries should cooperate, based on mutual respect, and end any acts that would raise tensions on the Korean Peninsula. South Korea emphasized that it is necessary to resume talks on denuclearizing the Korean Peninsula as soon as possible, but North Korea showed no special reaction to the statement and made no remarks on denuclearization.


At the request of the Moon administration, the US Trump administration agreed to postpone the annual joint military exercises until after the Winter Olympics. During the Foreign Ministers’ Meeting on the North Korean Nuclear Issue held in Vancouver on January 16th, South Korean Foreign Minister Kang Kyung-wha, on behalf of the Moon administration, asked the US to resume its humanitarian aid to North Korea. However, the US declined the request, and reaffirmed its commitment to imposing sanctions on North Korea. In addition, South Korean and the US military have reportedly agreed to begin plans for their annual joint military exercises on April 1st.


As of February 1st, the South Korean government had spent more than KRW 250 million (around RMB 1.46 million) towards the cost of hosting North Korea’s delegation to the Winter Olympics.


Apparently, by leveraging Olympic diplomacy, North Korea intends to ease the pressure of external sanctions and prompt the US to directly talk with Pyongyang. However, the complex and multi-layered competition behind inter-Korean relations may limit the effect of Olympic diplomacy, which was jointly initiated by South and North Korea. It remains to be seen whether the thaw in inter-Korean relations can be sustained till after the Olympics and extend into other fields.


The US Vice President Mike Pence also made a three-day visit to South Korea, during which he attended the opening ceremony of Pyeongchang Winter Olympics.


Before visiting South Korea, Pence stopped over in Japan on February 7th. After meeting with Japanese Prime Minister Shinzo Abe, Pence publicly declared that the US plans to unveil “the toughest and most aggressive” sanctions against North Korea.


In Pyeongchang, Pence skipped a reception dinner hosted by Moon Jae-in for the heads of state delegations before the opening ceremony. At the ceremony, Pence invited the father of Otto Warmbier — the college student who was returned in a coma by North Korea in June 2017 and died shortly after his return — to join him and his wife as a special guest, and reportedly avoided making eye contact with North Korean officials during the ceremony. During his stay in South Korea, Pence had a special meeting with North Korean defectors and visited a memorial to the ROKS Cheonan, a naval vessel of the Second Fleet Command in Pyeongtaek that was sunk in March 2010.


Information from all sources suggests that Trump is unhappy with the Moon administration for accelerating talks with North Korea without making full consultations with the US. At present, South Korea-US relations appear relatively strained.


Despite that, Pence, in an interview on the way home from the Winter Olympics in Pyeongchang, told the Washington Post that in two substantive conversations with South Korean President Moon Jae-in during his trip, the US and South Korea agreed on terms for further engagement with North Korea — first with South Korea and potentially with the US soon thereafter. The US is open to talks without preconditions with North Korea. Yet Pence also emphasized that the “maximum pressure” campaign is going to continue and intensify, until North Korea does something representing “a meaningful step” toward denuclearization.


On February 20th, Nick Ayers, Pence’s Chief of Staff, issued a statement saying that Pence was scheduled to meet North Korean officials, including Kim Jong-n’s sister Kim Yo-jong, while in Pyeongchang for the Winter Olympics. But after Pence condemned North Korean human rights abuses and announced plans for new economic sanctions, North Korea cancelled the meeting at the last minute or “perhaps they were never sincere about sitting down.”


If what Ayers said is true, it suggests that North Korea and the US, as the parties most directly concerned about tensions on the Korean peninsula, are still trapped in the mindset of “political correctness.” Therefore, they cannot begin plans for further engagement, or plan seriously for possible face-to-face talks in the future. Even if such talks are possible, they have no issues to agree on. So to speak, the thaw in inter-Korean tensions, which is based on South-North engagement, has a shaky foundation.


On February 23rd, Trump announced “the largest-ever set of new sanctions” on the North Korean regime. The US Department of Treasury then released a unilateral sanctions list covering 27 trading and shipping companies, 28 vessels, and one individual. The actions block assets held by entities and individuals within US jurisdiction and prohibit US citizens from dealing with them. The US Department of Treasury, along with the US Department of State and US Coast Guard, issued an advisory alerting the public globally to significant sanctions risks to those continuing to enable shipments of goods to and from North Korea.


On February 25th, Moon Jae-in met with Kim Yong-chol, Vice Chairman of WPK Central Committee and Director of the WPK United Front Department, at the Pyeongchang Olympics closing ceremony. Moon stated that both sides would work to facilitate talks between North Korea and the US, to improve inter-Korean relations and fundamentally solve the Korean Peninsula issue. Kim responded by saying that North Korea had “enough” willingness to conduct talks with the US, and that inter-Korean relations and North Korea-US relations should develop in tandem.


The White House issued a statement on the same day, saying that the US, South Korea, and the international community broadly agree that denuclearization must be the outcome of any dialogue with North Korea, and that the “maximum pressure” campaign against North Korea must continue until it abandons its nuclear and missile programs. “We will see if Pyongyang’s message today, that it is willing to hold talks, represents the first steps along the path to denuclearization. In the meantime, the United States and the world must continue to make clear that North Korea's nuclear and missile programs are a dead end.”


Meanwhile, on the day of the closing ceremony, sources said that North Korea plans to resume reunions of separated families


Although the Pyeongchang Winter Olympics helped to ease inter-Korean relations, the real conflict, in fact, lies between the US and North Korea. South and North Korea have improved their bilateral relations by capitalizing on the Olympics, but as they continued to bypass North Korean nuclear issue, it’s unlikely that they soften US policies towards North Korea. Crucially, even if the North Korea-US talks are realized, what they will discuss and how they will discuss issues remains unclear. Meanwhile, if the US and South Korea start their joint military exercises after the event, or the US slaps more new sanctions on North Korea, or new conflicts take place on the Korean Peninsula, tensions will rise instantly. At present, information in this regard remains ambiguous and messy, and there is not enough evidence indicating that the Trump administration plans to relax its “maximum pressure” policy. The Moon administration, which continues to pursue reconciliation with the North, now faces emerging political pressure in South Korea.


The US midterm elections are scheduled for November this year. Republicans now face nasty campaigns and are likely to lose control of the Senate — Trump has entered a half-crippled presidency in advance. More than ever before, he must strengthen his political base by playing tough in foreign affairs such as economy and trade and the North Korean nuclear issues. The likelihood that a major conflict breaks out on the Korean Peninsula remains and will keep growing as US midterm elections approach.


China hopes that South and North Korea can sustain their actions for bilateral relations improvement, to create a good start in calming the tense situation. China also hopes that the international community, the US included, can cherish the opportunity brought by Pyeongchang Winter Olympics and work harder for a peaceful world.


Munich Security Conference Badmouths Security Outlook in Europe

The 54th Munich Security Conference (MSC) was held from February 16th to 18th.


Under the heading “To the Brink – and Back?”, the Munich Security Report 2018 raised concerns about the pressure of global nuclear disarmament agreement and the security situation in Central and Eastern Europe.


Possibly influenced by the keynote of the Report, or simply reflecting reality, the 54th MSC did not go beyond the Eurocentric mentality, and even went backwards in comparison to last year’s global vision of “Post-Truth, Post-West, Post-Order?” It provides insights mainly into the following four aspects:


Firstly, as the US-Russia relations keep deteriorating, Europe struggles to deal with regional security issues. In regards to the future of Ukraine conflicts, the European defense representatives have rather pessimistic views, and attributed them to the further escalation of tensions between Russia and the West.


The year 2018 is an election year in Russia. Barring unanticipated circumstances, Putin will start another term as president. During the election campaign, the retaliatory intervention of the US and the anti-retaliation actions of Russia will be unavoidable. There is no return from the downward spiral of US-Russia relations as political scandal ferments in the US and new sanctions against Russia go into effect. European defense authorities are extremely worried about the security situation in Central and Eastern Europe, a region very close to Russia.


They are worried that, as the US provides more weapons of mass destruction for Ukraine, and imposes new sanctions on Russia, the current stalemate will be reinforced. Meanwhile, in times when the EU’s “Eastern Partnership” policies (Note: a joint initiative firstly proposed by Poland and Sweden at EU Summit 2008 and approved to be established in 2009. It is aimed at promoting integration between EU and six ex-Soviet states, namely Georgia, Azerbaijan, Ukraine, the Republic of Moldova, the Republic of Belarus and Armenia) lose their momentum, and the North Atlantic Treaty Organization (NATO) seems unlikely to admit new members for the near term,  Eastern European countries tend to drift deeper into the fantasized “competitive safe environment” with EU and NATO on one side and Russia on the other, and thus endanger the stability of Western Europe.


Secondly, influenced by a recovering world economy, the return of the Cold War mentality, and the increase of US military expenditure, Europe - especially Eastern Europe - also quickens its pace to raise defense spending, which is a necessary response to the continued turmoil in key areas neighboring Russia. However, this may extend economic recovery in Europe, and hamper regional security and stability.


The UK Jane’s Defence Budgets Report released at the end of 2017 forecasts that annual global defense spending would increase 3.3% to reach USD 1.67 trillion in 2018, the highest level since the end of the Cold War. US defense spending — poised to show an increase of 4.7% over the previous year — is about 40% of all global defense expenditures. Eastern Europe will be the fastest growing region in the world in 2018 as several countries pursue goals to increase defense spending to 2% of GDP. By next year, Baltic defense spending will have more than doubled in real terms compared to 2014 levels; and Estonia, Latvia, and Lithuania will all be spending 2% of their GDP or more on defense.


According to the latest NATO data, currently only six members of NATO, namely the UK, Greece, Romania, and three Baltic states, had reached the target of spending 2% of their country’s GDP or more on defense. France and Germany missed the target. The Report also predicted that if all EU countries and Norway were all to realize the 2% defense spending target, the total annual defense spending would increase by around 50% to reach 386 billion euros.


In December 2017, EU approved the establishment of a “Permanent Structured Cooperation” (PESCO) by 25 member states, and initially proposed 17 collaborative defense projects to be undertaken under PESCO, which marked a solid step to strengthen the EU’s Common Security and Defence Policy (CSDP). Nevertheless, to maintain effective military forces, every European country still needs to enhance communications with one another, which alone would take up a large proportion of additional defense spending. It is also necessary for them to integrate military industry enterprises in different countries. The Trump administration, while urging EU countries to ramp up the ratio of defense spending to overall GDP, seems have a dismal outlook on PESCO, for fear that this structural integration may divert EU countries’ efforts from NATO.


Thirdly, though the “Islamic State” is close to demolition, with the fleeing of terrorists and the transmission of extremist thoughts on the Internet, Europe will remain baffled by a greater threat of terrorism in the next five to ten years. The main threat comes from those sentenced extremists who have affiliation with the “Islamic State,” militants returned from war, and others repatriated back to Europe. They may reunite as an action group, and plot directly or participate in terrorist attacks targeting Europe.


Fourthly, the international nuclear non-proliferation regime is in danger of collapse. The North Korean nuclear problem remains prominent, and the Iranian nuclear deal is still full of uncertainties. Additionally, the US has amended its own nuclear policies after reviewing its nuclear posture, which might lead to a US-Russia nuclear arms race once again. The Europe-led Comprehensive Nuclear-Test-Ban Treaty Organization (CTBTO) called for accelerating the preparation of relevant treaties on the conference, which is, despite all the factors, overly idealistic at present.


Recently, the North and South Korea seized the Pyeongchang Winter Olympics as an opportunity and promoted improvement of inter-Korean relations. However, European defense authorities viewed this step as trivially relevant to maintaining the stability of the international nuclear non-proliferation regime, as the root cause of tension easing was achieved through bypassing the nuclear issue. It was widely shared during the conference that the key contradiction lay between the US and North Korea. Meanwhile, many Europeans blamed China for not exhausting means in pressuring North Korea. The US attendees showed no interest in the improvement of inter-Korean relations and held tight to their “maximum pressure” policy. Nevertheless, representatives from Russia and South Korea called on the international community to offer North Korea necessary humanitarian aid outside the sanctions framework of UN Security Council.


Apparently, the widely witnessed inter-Korean relations improvement during the opening ceremony of Pyeongchang Winter Olympics not only failed to bring much optimism to the Munich Security Conference this year, but also drove the representatives to ponder other motives in handling the North Korean nuclear issue in post-Olympics days with a more worried mindset.


Regarding the above-mentioned four concerns, MSC Chairman Wolfgang Ischinger warned in a highly gloomy tone: Besides frequent communication among countries, there are also contradictions and conflicts. At no time since the collapse of the Soviet Union has the risk of armed conflict between major powers been as high as it is today. The mutual mistrust between the US and Russia could not get any worse, and the possibility for the two powers going to war is at the highest since the Cold War. The incidence rate of misjudgments for each party also soars.


One reality that the European representatives might be reluctant to face is that this anxiety felt in Munich actually stemmed from the US. The three fundamental reasons are:


Firstly, the US, believing that the terrorist force of “Islamic State” has been ended, was determined to end the “period of strategic opportunity” for China and Russia, and formulated new defense policies and nuclear policies with a Cold War mentality, which undoubtedly aggravated tension.


Secondly, the Trump administration recklessly acknowledged Jerusalem as the capital of Israel, refused to expressly endorse the Iranian nuclear deal, decided not to play as the “world police” on multiple hotspot issues, and demanded its European allies become more self-reliant in national defense. Imperceptibly, Europe, north of the Middle East and west of Russia, is put under a greater security pressure.


Thirdly, the US was trapped in zero-sum game mentality when addressing regional hotspot issues. For example, rather than consider North Korea’s rational concerns about security, or showing some willingness to talk, it is focused on intensifying pressure to prompt changes in the situation. This is probably one of the root causes why substantive progress is still unlikely for the time being, and why the international nuclear non-proliferation regime risks a collapse.


The MSC this year, still taking the perspective of eurocentrism, cannot offer a “world solution” for universal security issues. At the conference, some European powers, especially Germany, still tried to find the answer in a stronger Europe as a whole. To maintain peace and stability of the region, military means are not enough. It is essential to strengthen the role of international organizations and establish stable political and economic order in turbulent areas, so that the vicious cycle in these areas can be broken. However, even the Europeans themselves find such rhetoric feeble. A Europe that has lost the leading role in establishing a global security mechanism is unlikely to find a practical and feasible solution. Moreover, this kind of thinking goes against the US’s unilateral intention of strengthening its army, preparing for war, and engaging in strategic competition, hence its lack of appeal for the Trump administration.


There were two main items concerning China during the conference: What could China do to promote the settlement of the North Korean nuclear issue; and is China seeking to become a new leader of the global system.


Europe seems to be very distrustful of China. German Vice-Chancellor and Foreign Minister Sigmar Gabriel asserted that China is developing an alternative system inconsistent with the Western world’s imagination of a liberal world order. Sigmar Gabriel, Chancellor Sebastian Kurz of Austria, and President Jean-Claude Juncker of the European Commission directly called on Europe to band together in response to competition with China. Kurz remarked that, as the US withdraws from the international arena, “China is filling this political vacuum.” In the past, “the large states no longer absorb the small ones”; but now “fast states swallow those too slow to act,” he added.


Political leaders of Europe are greatly influenced by the Trump administration’s intention to downgrade China as a revisionist power in the international order, hence their widely touted misunderstandings of China’s role in this regard.


To dispel such misunderstandings, China needs to persevere. Most importantly, the two sides should synergize development strategies, open wider to each other, promote negotiations for agreement on China-Europe investment, and work to improve trade and investment cooperation. It’s also necessary to strengthen cooperation in fields such as infrastructure construction, aviation, and information and cyber security, so as to improve connectivity between China and Europe; to expand cooperation in finance, maritime issues, renewable energy resources, and small and medium-sized enterprise growth; to collaborate with the G20 in responding to climate changes, advancing the “2030 Agenda for Sustainable Development,” and promoting works concerning anti-terrorism, defense and security, and hotspot issues; and to deepen common interests in improving global economic governance, thus jointly living up to the historic responsibility of advancing multi-polarization.


China-US Trade Enters a Highly Risky Stage of Frictions

Since Trump assumed office, the focus of US trade policies shifted from championing free trade to seeking fair trade. The “fair trade” championed by the Trump administration is ultimately aimed at maximizing US national interests instead of safeguarding common interests of the world, and thus is essentially different from the “fair trade” promoted by other developed economies.


In adherence to the principle of “America First,” Trump’s trade policies, more focused on China, take reducing the trade deficit with China as the paramount task in promoting fair trade. The US has adopted multiple measures in this regard, which resulted in the current situation where a China-US trade war might break out in several areas.


In April 2017, as required by President Trump, the US Department of Commerce initiated a probe into countries exporting steel and aluminum into the US market under Section 232 of the Trade Expansion Act of 1962. As of now, two investigation reports have been submitted to the White House on January 11th and 19th 2018, respectively. And the President needs to make two decisions, one by April 11th 2018, and another by April 19th 2018.


In August 2017, the Trump administration formally initiated an investigation into China based on the intellectual property issue under Section 301.


On October 26th 2017, the US released the latest edition report of China’s Status as a Non-Market Economy. With a systematic analysis of policy characteristics in China’s economic system, the US concluded that “the state’s role in the economy and its relationship with markets and the private sector results in fundamental distortions in China’s economy,” and that China vested itself with unfair competitiveness through intense intervention, and thus resulted in problems such as unfair trade between China and the US. As a result, the US called on pressures against China so that it would solve such problems.


On January 12th 2018, the Office of the United States Trade Representative (USTR) released 2017 Out-of-Cycle Review of Notorious Markets. Altogether 25 online markets and 18 physical markets worldwide were put into the “Notorious Market List,” nine of which were Chinese markets, including Taobao.com and the Silk Market in Beijing.


According to a report released by USTR on January 19th 2018, after its acceptance into the World Trade Organization (WTO) in 2001, China has forsaken its efforts in market-oriented reforms — not only controls over market activities are tightened, but more barriers are enforced against foreign competitors. The report asserted that WTO rules are not sufficient to correct China’s behaviors; it is wrong to approve China’s entry into the organization; and China is further drifting away from a market economy.

Three days later, based on the assessment of USTR and the US International Trade Commission (ITC), Trump slapped protective tariffs on imports of washing machines and solar energy cells and panels.


Then on January 30th, in his State of the Union address, Trump stressed that, “America has … finally turned the page on decades of unfair trade deals that sacrificed our prosperity and shipped away our companies, our jobs, and our wealth;” and that “the era of economic surrender is totally over. From now on, we expect trading relationships to be fair and very importantly to be reciprocal. We will work to fix bad trade deals and negotiate new ones.”


On February 14th, the US Department of Commerce announced preliminary results in the anti-dumping duty investigation against China. It determined that exporters from China have sold cast iron soil pipe fittings in the US at 68.37% to 109.95% less than fair value, and thus would peg the goods with tariffs ranging from 68.37% to 109.95%. After the announcement, the US Department of Commerce instructed US Customs and Border Protection (CBP) to require cash deposits based on these preliminary rates from all involved cast iron soil pipe fittings importers. It is scheduled to announce its final determination around June 28th, 2018.


On February 16th, the US Department of Commerce released its Section 232 investigation reports regarding the impact on national security from imports of steel mill and aluminum products, in which it is noted that such imports may harm the US domestic economy and impair national security. Based on this, the Secretary of Commerce recommended that the President constrain these imports through quotas or tariffs.


On February 22nd, the US Department of Commerce announced the initiation of new anti-dumping and countervailing duty investigations on rubber bands imported from China, Sri Lanka, and Thailand. Since Trump took office on January 20th 2017, the US Department of Commerce has launched 102 anti-dumping and countervailing duty investigations, marking an increase of 96%.


The growing protectionist sentiment in the US also affected Chinese-invested projects. At the very beginning of 2018, Ant Financial’s plan to acquire US MoneyGram International ended in failure; Huawei’s planned deal with AT&T to sell its smartphones in the US was halted; and Hubei Xinyan Equity Investment Partnership’s attempt to buyout the American semiconductor firm XCERRA was called off, indicating more potential barriers imposed on Chinese enterprises’ investment in the US. Furthermore, as US Trade reports, the US is considering the creation of a “reciprocal investment regime” with China.


Intensifying restrictions on trade with China and Chinese investment is the basic direction that the Trump administration follows in implementing its “America First” policies. Its trade and economic policies toward China have taken shape under hawkish leadership, and its negative effects, irreversible in the short term, would mostly unfold in 2018. In doing so, the Trump administration not only wants to stimulate some short-term demands for its economic recovery, but also hopes to shift the causes of some domestic political realities such as the unfavorable midterm election onto nationalism. Linking China-US trade problems with China’s actions on the North Korean nuclear issue also increases the risk of trade frictions.


However, intertwined economic interests between China and the US mean that a full-scale trade war is still avoidable. After all, China also has several effective countermeasures that could constrain the US’s protectionism, including the balance sheet of China’s central bank. Once a trade war breaks out, there will be no winner, but two losers, a battered world economy, sluggish investment, and rising costs, among other problems.


China has shown its determination to beat back Washington’s trade pressures and pleaded with the WTO about the new tariffs imposed on solar cell panels and washing machines. On February 4th 2018, China’s Ministry of Commerce announced the initiation of anti-dumping and countervailing duty investigations on imports of US-originated sorghum.


The protectionist trade measures Washington adopts would produce no positive effects for the US, as they will, in the first place, raise the prices of imported goods and thus lower the living standards of US people, and secondly shrink job opportunities instead of directly creating new jobs.


The division of labor in China and the US in the global production system is not fiercely contradictory, and their approaches to trade statistics are different. The recent growth in the US’s trade deficit is mainly derived from the robust momentum of economic recovery, i.e. considerable rally of imports. The US economic structure determines that even though the major counterpart of exports and imports could be altered from one country to another through changes of trade policies, it’s unlikely to reduce the overall trade deficit.


According to statistics of China Customs, in 2017, China’s exports to the US amounted to USD 429.7 billion, an increase of 12% year over year (YOY); China’s imports from the US reached USD 153.9 billion, an increase of 15% YOY; the China-US trade value stood at USD 583.6 billion, an increase of 15.2% YOY, and 14.2% of China’s gross value of imports and exports. Though China has made great efforts to slash the China-US trade deficit in 2017, including the “100-day trade plan” and the USD-235.3-billion deal concluded, China’s trade surplus with the US still witnessed an increase of 13% YOY, with the gross value totaling USD 275.8 billion.


According to statistics released by the US Department of Commerce on February 6th, in 2017, the trade deficit in goods and services of the US surged by 12.1% over the previous year to reach USD 566 billion, setting a new high since 2008; its share of GDP was 2.9%, higher than 2.7% in 2016. This means that the Trump administration’s “America First” policies aiming at narrowing trade deficit have failed completely. Additionally, the US goods deficit with China alone rose 8.1% to USD 375.2 billion.


The Study of Oxford Economics reveals that China’s market supports roughly 2.6 million jobs in the US and has a market worth of at least USD 400 billion.


Therefore, there is still time to rein in intensifying China-US trade conflicts. Liu He, member of CPC Central Committee Political Bureau and director of the Office of the Central Leading Group for Financial and Economic Affairs, will visit the US from late February to early March to coordinate China-US economic and trade relations.


Confronted with so-called “fair trade” pressure from the US, China should make proactive adjustments to mitigate relevant risks. For example, China can properly lower tariffs for some imports in light of the adjustment in domestic consumption structure, promote the execution of the USD-235.3-billion deal concluded under the 100-day trade plan in November 2017, prepare an anti-sanction list so as to be fully prepared, proactively appeal to WTO according to multilateral rules, and forge a “united front” against trade protectionism with countries who have a trade surplus with the US or support globalization.


The intensification of China-US trade conflicts means not only pressure but also motivation to China.


Recent years have witnessed soaring labor costs in China, while the working-age population keeps declining. Hence, it is urgent to promote industrial innovation, which is an important part of the supply-side reform. China should turn the pressure arising from China-US trade conflicts into motivation for deepening domestic reform, press ahead with the transformation from “Made in China” to “Made by China,” and actively increase the added value of exported goods.


As China enters a stage featuring high-quality growth, it is wise to share development opportunities with other economies worldwide. China should seize opportunities to promote domestic reform, persist in deepening reform and opening up, take initiatives in advancing the Belt and Road initiative, and thus counterbalance the US’s unilateralism and protectionism.


Just as Chinese Premier Li Keqiang noted when he met British Prime Minister Theresa May at the annual China-UK Prime Ministers’ meeting in Beijing on January 31st, in the current context of global economic recovery, both sides should cherish the opportunity, and be committed to upholding free trade and pushing forward with economic globalization. Without free trade as premise, fair trade goes nowhere.


Li also stressed that the achievements that China has made in its 40 years of reform and opening up are first brought about by opening-up. It was opening up to the world that forced China to reform. China will never cease opening up and reforming but continue to promote two-way opening-up and free, convenient trade and investment.






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