July 22nd, 2024

Overview

This week, we discuss China's long-term play to transition to a low-carbon economy, analyze how many Chinese companies are getting around U.S. tariffs, and examine how NATO is responding to China's continued involvement in the Russia-Ukraine war.

China’s Plan to Go Green

By Guest Contributor Varunavee Mohanraj

In a significant shift towards sustainability, China begins to implement a plan to curb carbon emissions through the use of renewable resources and position itself as a leader in the global fight against climate change

High Emissions: During the 1980s and 1990s, China heavily relied on coal to fuel its industries and power its expanding cities– leading to a dramatic increase in carbon emissions. By 2005, China had even surpassed the U.S. as the world's largest emitter of carbon dioxide. The country's prioritization of economic development over environmental sustainability resulted in severe air pollution and environmental degradation that significantly lowered quality of life. 

An Economic Transformation: Transitioning to a low-carbon economy requires a fundamental restructuring of China's economic model. The government is promoting green finance initiatives to support clean energy projects, encouraging both state-owned and private enterprises to adopt sustainable practices. Additionally, China is integrating environmental considerations into its Belt and Road Initiative, aiming to ensure that overseas investments adhere to green standards. These initiatives are a cornerstone of China's 14th Five-Year Plan, emphasizing the development and deployment of renewable energy resources. China, which currently contributes nearly 30% of global carbon emissions, announced its intention to peak emissions before 2030 and achieve carbon neutrality by 2060.

A Global Ripple Effect: China's commitment to reducing carbon emissions marks a pivotal moment in the global fight against climate change. For one, their success in reducing emissions is vital to meeting international climate goals set by the 2016 Paris Agreement. Additionally, China's advancements in renewable energy technologies could drive down global costs and make clean energy more accessible worldwide. Overall, the nation's ambitious plans and substantial investments in renewable energy signal a potential shift towards a more sustainable future and could inspire other nations to do the same.

A New Breed of Nearshoring

By Senior Editor Cristian Abarca

China aims to boost domestic demand and reinforce its manufacturing role, while the U.S. tightens trade regulations to reduce dependence on Chinese exports, affecting imports from nations like Mexico.

Evolving Trade: Last week, Chinese Community Party officials met in Beijing to review economic plans intended to recover China’s recent sharp drop in economic growth. Chinese economists seem likely to attempt to use a variety of incentives to raise domestic consumer demand; meanwhile, China is doubling down on acting as ‘the world’s factory.’ However, Chinese exports, particularly to the United States, are becoming increasingly imperiled by tariffs and trade restrictions enacted by the Trump Administration and further expanded under the Biden Administration. As a go around, major Chinese exporters have begun funneling products through countries that share a free-trade agreement (FTA) with the United States, particularly Mexico. Across the board, these ‘China plus one’ export plans that route through Malaysia, Mexico, Thailand, and Vietnam, among others, have grown in popularity, with trade flows doubling twice in the last eight years.

A New Defense Strategy: American policymakers are embarking upon new, more invasive strategies to stem this trend and reinforce policy that encourages the ‘de-risking’ of the American economy away from Chinese exports. First among these is a partnership with transshipment nations to reinforce their tariff regimes, and then further require documentation of origin before those items are exported to the US under an FTA. The Biden administration recently announced the pilot example of this new strategy, where aluminum and steel exports from Mexico would require documentation of the origin of those materials within Mexico. This policy, however, is likely partially motivated to support Biden’s reelection campaign in the Rust Belt. The policy move also comes with the cooperation of outgoing Mexican President Andres Manuel Lopez Obrador’s administration. However, Chinese companies are resisting this by setting up shop in Mexico, something first popularized by American companies as ‘nearshoring’ or ‘friendshoring.’

Political Shake-Up: It must be noted that these policies are subject to long-term cooperation from Mexico, the status of which is uncertain under incoming President Claudia Sheinbaum. Sheinbaum’s protectionist and environmentalist platform suggests she is likely to redirect trade away from partnerships with China and other distant actors, in favor of domestic and adjacent interests. Sheinbaum will also see extraordinary influence over the renegotiation of the USMCA trade agreement, which may reflect these recent market shifts. Trade analysts conclude that only with a more coherent and coordinated North American partnership can ‘de-risking’ be accomplished by the United States or Mexico.

Rising Tensions Between NATO and China

By Social Media Director Ryan Peele

As the Russian invasion of Ukraine continues, NATO has become more outspoken against PRC involvement in the conflict, leading to diplomatic disputes and rising tensions, both in Europe and Asia.

British Backlash: On Tuesday, July 16th, Lord George Robertson, former NATO Secretary-General and head of a new British defense review, called China a ‘deadly’ threat to the United Kingdom. Robertson, a member of the House of Lords, further stated that China, Russia, Iran, and North Korea were all confronting the UK in a coordinated way. This rhetorical departure from the previous Conservative administration’s more vague and muted criticism of China is significant and adds to the escalation of diplomatic tensions between China and NATO that has occurred within the past few weeks.

Diplomatic Disputes: As Russia’s invasion of Ukraine drags into its third summer, NATO’s condemnation of China’s contribution to the conflict has reached a new high. On July 10th, during the NATO summit in Washington DC, all member countries of the organization claimed China was a ‘decisive enabler’ of the war in Ukraine. Indeed, China has ramped up its exports of ‘dual-use’ products, which have both military and civilian uses, to Russia. It has increased its importation of Russian oil and gas after Moscow was hit with Western sanctions on fossil fuels. In addition, Beijing has provided extensive political cover for Russia’s invasion, blaming NATO expansionism for the war. Furthermore, Chinese President Xi Jinping recently met with one of Europe’s most Russia-friendly leaders, Hungarian Prime Minister Viktor Orban, in Beijing. According to Chinese state media, they discussed enriching China-Hungary relations, strengthening their cooperation on the Belt and Road Initiative, and the importance of negotiating a political settlement to end the ‘Ukraine crisis’. Many suspect that such a settlement would result in Russian annexation of Ukrainian territory. 

Russian Relations: As it becomes increasingly clear that the Russian invasion of Ukraine will not end soon, it seems both NATO and China are digging into their respective sides of the conflict, cementing their geopolitical opposition. Moreover, many in the Western security alliance are worried about the potential election of more isolationist leaders like  Donald Trump and JD Vance to the Presidency and Vice Presidency in November. Both men have expressed their desire to significantly reduce or altogether end U.S. military aid to Ukraine, which would seriously damage the country’s capacity to defend itself against Russian forces. China has also begun to enhance its military cooperation with Russia, with the two countries holding naval drills earlier this week in the South China Sea, a region that is a hotbed for tension due to China’s maritime claims, as well as its stated plans to ‘reunify’ with Taiwan. Much to China’s chagrin, NATO has also made moves in the Pacific, enhancing its cooperation with partners such as Australia, Japan, South Korea, and New Zealand. As Russia and China become more reliant on each other politically, economically, and materially to achieve their geopolitical goals, NATO will likely find itself in an increasingly hostile situation with China in order to combat Russia’s threat to the democratic countries of Europe. As Lord Robertson put it, “What happens in the Asia-Pacific can happen in the Euro-Atlantic very quickly afterward.”