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Biden policy on Sri Lanka, India driven by US hardline on China: Sally

ECONOMYNEXT – A US hard line against Xi Jinping’s China will continue under President Joe Biden, involving a ‘partial de-coupling’ driving America closer to India while Sri Lanka can expect a ‘carrot and stick’ approach, Razeen Sally, a top economist and trade policy expert said.

The US will try to strengthen relations with India, but it may face hurdles due to a stronger focus on minority rights and freedom of expression.

China has been expanding ties with South Asia, and is a top trade partner and over the past decade had become creditor for infrastructure finance through its Belt and Road strategy, though some projects are going sour.

In Sri Lanka, China’s flagship foreign director investment in Colombo Port City has been delayed due to the Coronavirus pandemic. Both Sri Lanka and Maldives had been downgraded to CCC, barely above default with Chinese infrastructure loans playing a part.

Continuity

While President Trump dramatically changed the way the US tackled China, there is now bipartisan consensus about taking action against Xi Jingping’s style of rule.

“So this is not just about President Trump, it’s not just about Republican populists,” Sally, Associate Professor at the National University of Singapore’s Lee Kwan Yew School of Public Policy said in an online forum with South Asian Society of Economic Reporters.

“It’s about the mainstream of the United States, both in terms of popular sentiment and opinion in Washington to take a harder line against China…

“So what we see coming together, is, if you like the US national security elite, around the defense establishment, wanting to take a much harder line against China, and then the economic elite, also wanting to take a hard line against China.”

Tony Blinken will be the new Secretary of State and Jake Sullivan is the National Security Advisor.

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“They both made very China skeptical comments recently,” Sally said. ”

Kurt Campbell, an Asia expert who served under President Obama is likely to be based in the White House.

Sally says he is “probably one of the hardest China skeptics in the Democrats’ policy team” and also had very close relations with Japan.

“Under Biden administration we’ll see actually quite a lot of continuity from the old administration…” Sally said.

“In other words, that hardening of the US line against China, on both national security and economic grounds will continue.”

“So if you put those key appointments together with the inclinations of President Elect Biden, all of those points to continuing this hard line against China…

“And that will enjoy – despite polarization and bitter recriminations in US politics – a bipartisan consensus and popular support.”

The US has been ‘weaponizing’ the dollar to impose sanctions on some countries and is also using non-tariff barriers against some Chinese tech firms in a rise of ‘techno nationalism.’

Anti-China sentiments were not so strong in Europe, he said but restrictions on Chinese investments could be expected.

Partial De-coupling

Under Biden, the US will not be so ham-fisted in it is confrontations and is likely to re-build alliances with traditional allies which were damaged by Trump.

Under Biden, Trump’s the ‘bull-in-a-china-shop’ approach with a ‘lot of broken property’ will be replaced by a more targeted strategy.

“Firstly, we’ll probably see more competence, which is not difficult and more pragmatism compared with the Trump administration,” Sally said.

“So we might see the Americans try to negotiate away the new tariffs imposed on China, in return for some Chinese concessions, without expecting the world which the Trump administration didn’t get.

“We will see the new Biden administration trying to co-operate with China on two key issues, climate change and public health. That may or may not work, but they’ll try to have some kind of Modus Vivendi with China on those issues. ”

“I think the key thing is that this Biden administration will pursue a policy of partial decoupling with China but not total decoupling.”

“So there will be some sectors in which we will see further decoupling, and those will be particularly the technologically intensive sectors.

“While in other areas, they will try to preserve the links that already exist because the costs of breaking those links will be really significant for American multinationals in China, for supply chains in the United States and for American consumers.”

In some areas, US and Western firms were already shifting out of China due to higher labour costs.

Under Biden, the US will also re-build traditional alliances with the European Union.

Biden is likely to strengthen links with Japan, South Korea, Australia, Thailand the Philippines and India, which is a major new ally, he said.

The US will continue its Indo-Pacific strategy using Asian allies as a counterweight to Beijing.

South Asia and Rights

China will continue to make inroads into South Asia, Sally said.

Sri Lanka under the Rajapaksa family will be viewed as a ‘captive state’ of China along with Pakistan.

“China will probably continue to make inroads given the sheer power of its checkbook diplomacy in Bangladesh and Nepal,” Sally said.

“If we have a change of government in the Maldives, then the Maldives will fall back into China’s camp.”

Tensions were rising between India and China, with border skirmishes spilling on to the trade front.

“That will continue,” Sally said. “The second point is that the US government and the Indian government will try to make the bilateral relationship even closer.”

But increasing political authoritarianism in India under the BJP will make it harder for the US to reach the goal.

The Biden administration ‘at least initially’ will place greater stress on human rights, rights of minorities, freedom of expression and religion whereas the Trump administration had no interest in such issues.

“So, if we see a continued trend towards more political authoritarianism and chauvinism in the BJP, I think that will make it more difficult to bring about this closer relationship,” Sally said.

India is likely to be the focus of US attention in the near future and Sri Lanka may be a side issue, he said.

Sri Lanka may see a ‘carrot and stick’ approach the Biden administration with more pressure on human rights and sanctions in Geneva while attempting to bring Sri Lanka “a little closer to the US and India orbit, and a little further from the embrace of China.”

But the US could view Sri Lanka under the current administration as being so firmly in the China camp that it will be too difficult to dislodge, Sally said.

Economics will also decide the eventual outcome of the battle with China.

A weak US will undermine its leadership versus a stronger China. Domestic weaknesses will worsen the political divide, which will spill-over to foreign policy, Sally sad.

Global trade was weakening after the Great Recession from 2008, he said, ending a period of sustained liberalization that brought millions out of poverty.

Trade as a share of global GDP which was expanding steadily until 2008 had plateaued at a little under 60 percent since them.

The US – China trade war intensified from around 2017. There was Mercantilism and a rise of industrial policy. The Coronavirus pandemic had hit global trade with ‘vaccine nationalism’ also emerging.
(Colombo/Jan29/2021)

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