The signing of a “phase one” trade deal between China and the US on January 15 appears to herald the beginning of the end of a tense period in bilateral relations. Markets are breathing a sigh of relief and, with this signing, the world’s two largest economies are likely to feel the effects immediately.
And they are not the only ones. The trade war has already had a long-lasting and profound impact and is symptomatic of a much broader competition that is beginning to play out around the world. As a Swahili proverb puts it, “When two elephants jostle, it is the grass that gets hurt.”
The region most affected beyond China’s immediate neighborhood is without doubt the Middle East and Africa. As host to some of the world’s most dynamic economies and largest entrepots, the region has also become increasingly interdependent with the Chinese economy. China now is the largest trading partner for almost all the countries in the Middle East and East Africa. It is inevitable that they too are affected by the slowing down of the Chinese economy to the lowest levels in 30 years.
The broader global slowdown that has been caused, in part, by the Sino-US trade war has meant slower growth and less trade for the open and/or oil-dependent economies across these regions.
In October, the World Trade Organization more than halved its forecast for global trade growth, to just 1.2 percent in 2019, the slowest rate since the Great Recession of 2008-09. At the same time, although the price of oil rose in 2019 as a whole, this was due largely to the price having been depressed toward the end of 2018 by negative sentiment over the Sino-US trade war. Brent crude, before the spike that resulted from the killing of the Iranian Quds Force general, Qassem Soleimani, was actually trading at around 19 percent below the October 2018 peak, when concerns over the Sino-US trade war, slowing US growth and geopolitical factors led to the sharpest sell-off in two years.
These factors have stymied growth in Gulf Arab states, which rely on oil revenue and trade. On December 29, the government in Dubai – perhaps the prime example of an open trading economy in the region – announced a 17 percent increase in its budget to pump-prime the flagging economy.
Similarly, economies in Africa have been hit by lower commodity prices and falls in local currencies. Earlier in 2019, the African Development Bank estimated a possible 2.5 percent reduction in GDP growth in resource-intensive African economies and a 1.9 percent reduction in oil-exporting countries by 2021.
The phase one trade deal may begin to ease some of these economic constraints, with cuts to US tariffs on $120 billion of Chinese exports and increased purchases by China of approximately $200 billion of US goods and services over two years. Both of these factors should theoretically have positive and immediate effects on bilateral trade and thus on global trade patterns.
Other provisions allowing for stronger intellectual property protection and investment in China’s financial services should improve cross-border investment flows. As a result, greater Chinese growth and foreign direct investment should lead to higher commodity prices, stronger regional trade and more robust capital flows in the Middle East and Africa.
But we should not mistake the phase one deal for resolution to the trade disputes besetting the Sino-US relationship. More importantly, it does little to undermine the longer-term strategic issues that are driving broader Sino-US rivalry – namely, Beijing’s more “assertive” foreign policy stance.
It is this rivalry that could affect the Middle East and Africa more deeply in the decades ahead as China challenges American supremacy across a range of sectors – military, economic and technological.
That challenge is already in progress. China is already the largest foreign investor in the Middle East and the largest investor in African infrastructure. It has increased its military presence, with three vessels deployed constantly in the Gulf of Aden and Indian Ocean since 2008 supposedly to counter piracy, and opened its first overseas military base in Djibouti in 2017.
Beijing has also developed a role as a niche arms supplier to countries such as Saudi Arabia and the UAE, selling unmanned combat aerial vehicles that the US refuses to sell to Gulf Arab states.
At the same time, China has overtaken the US as a technological partner across much of the region. In Africa, Huawei has supplied 70 percent of the continent’s 4G networks, according to Cobus van Staden, a senior researcher at the South African Institute of International Affairs, and will supply Africa’s first 5G network to South Africa. Huawei has also signed deals across the Middle East to develop 5G networks, including in Saudi Arabia, the UAE and Bahrain.
The US has tried to hold back the Chinese tide with several measures that go above and beyond the trade war, with tougher foreign investment rules (largely aimed at Chinese firms), stronger support for China’s rivals and increased pressure on its allies, and sanctions on Chinese technological firms. All have strong support across the US political spectrum. The mood in Washington has shifted from encouraging China’s transition into a “responsible stakeholder” in the international community to labelling China America’s primary threat.
Some pundits even describe the situation as a “new Cold War.” The great powers have long fought their geopolitical battles in the Middle East and Africa. Another contender rivalry is now emerging to shape those regions once again.
Christian Le Miere is the founder of Arcipel, a strategic advisory firm based in London and The Hague. Previously he was a senior advisor to an entity in Abu Dhabi and a senior fellow at the International Institute for Strategic Studies in London. @c_lemiere