Welcome to The Geopolity’s What We’re Watching (3W), our daily look at the interconnected worlds of Geopolitics, Economics and Energy. Curated from the world’s leading sources of information, our analysis and commentary is designed to help you make sense of the events driving the major developments in the world.
In this roundup, we note that the plan of the US – Israel Alliance to move the War on Gaza into a next phase is progressing, while the US escalates its wars against Russia and China. As to Russia, the US now threatens to deliver tomahawks (indirectly) to Ukraine; while it opened a new front in its economic war against China, threatening an escalation in tariffs and asking its “partner” (or more accurately, vassal) in the Netherlands to seize a Chinese semiconductor company.
Furthermore, we at 3W look at:
- How China is diversifying its export markets in response to the US’s economic war on the country
- How this US economic war on China is killing off critical industries in Europe; and greatly increasing the risk of a market collapse in G20 countries
- The plan to further squeeze Russian oil profits
Geopolitics
As to Gaza, US president Trump travelled to Israel on Monday to declare the Gaza War over, writes Axios. Trump will be on the ground in Israel less than five hours, to travel to Jerusalem to speak in front of the Knesset and to meet hostages’ families as well as with Israeli prime minister Benjamin Netanyahu. From Israel, Trump is expected to travel to Sharm el-Sheikh, Egypt, for an international conference organized by Egyptian president Al Sisi to endorse the Trump Peace Plan for Gaza. Two dozen leaders from Arab, Muslim and European countries are expected to attend the conference. 3W notes that there is no interest for Trump to meet anyone from the side of the Palestinians. In our view this clearly communicates that the Trump Peace Plan for Gaza is nothing short of a plan by the US – Israel Alliance to move the War on Gaza into a next phase.
As to Ukraine, US president Trump said on Sunday he may offer long-range Tomahawk missiles that could be used by Kyiv if Russian president Putin does not end the war in Ukraine, writes Reuters. Tomahawk missiles have a range of 2,500 km (1,550 miles), long enough to strike deep inside Russia, including Moscow. The United States would not sell missiles directly to Ukraine, but provide them to NATO, which can then offer them to the Ukrainians, Trump said. Around the same time, 3W notes the US semi-officially confirmed that US intelligence has been guiding Ukrainian strikes on Russian territory, writes The Financial Times.
In the 3W perspective, this is not just a poorly thought through tactic, but also a very dangerous one, and reckless at that. Let us explain.
As to our first point, the whole thinking process behind this US idea is flawed. There has been a gradual escalation in western military support for Ukraine from the start of the war. What started with European helmets, moved on to ammunitions, artillery, tanks, missile systems, and then F-16s. Every time the narrative was that the next escalation would surely change battlefield dynamics – but none of the escalatory moves ever did. Each time, the new “wunderwaffen” supplied to the Ukrainians inflicted short-term pain on the Russians, but eventually these were overcome and the gradual Russian griding away at Ukrainian forces on the frontline returned and was continued. What should be expected, therefore, is that the introduction of tomahawks will have a similar impact: a short term boost of Ukrainian and western confidence, some symbolic victories as targets inside Russia are hit, but not a lasting change in battlefield dynamics, as the Russian learn and adapt, such that the “trench warfare logic” remains decisive, i.e. manpower, basic equipment (drones and artillery) and ammunition supplies, all areas in which the Russian presently dominate.
Every time the narrative was that the next escalation would surely change battlefield dynamics – but none of the escalatory moves ever did
As to why the US plan is dangerous, at 3W we note that recently the Russians started targeting supply lines in the west of Ukraine, something it had held off from doing for most of the war so far. At some point the increase in western support for Ukraine will create an atmosphere inside Russia that demands from Putin that he allows the Russian army to do whatever is needed to end this war, that is causing the death of countless Russian soldiers. In this dynamic, imagine what a strike by a “Ukraine tomahawk”, that was delivered by the US, targeted by the US, and by-and-large operated by the US, would do to this Russian sentiment? A rational argument can be made that Russia would be justified in striking against targets outside of Ukraine from which Ukrainian attacks on Russia are planned and managed, which is why pressure to do so is difficult for Putin to resist if indeed the US executes its Tomahawk plan. Were this to happen, in the current atmosphere we see very little that could then halt an dynamic to develop inside Europe that would lead to another world war.
As to why the US plan is reckless, this regards the part of the narrative that the US will only hand the tomahawks to NATO, who can then do with them as NATO desires. If the Trump administration really believes this provides sufficient “plausible deniability” to prevent the escalation we at 3W explained above, they are complete fools. If Russia strikes only NATO military headquarters or supply lines American soldiers will still be killed, and the Europeans will still demand blood as revenge.
Macroeconomics
China’s exports to the United States fell 27% in September from the year before, writes The Associated Press. China’s exports to the United States have now fallen for six straight months. In August they dropped 33%.
The outlook for US – China trade remains exceptionally weak, 3W notes, Last week, the Dutch government took control of Nexperia, a Chinese-owned but Netherlands-based semiconductor maker, writes The Financial Times. For the first time, The Hague has used its Goods Availability Act because of “a threat to the continuity and safeguarding on Dutch and European soil of crucial technological knowledge and capabilities”, the ministry of economic affairs said in a statement on Sunday. Nexperia is one of the world’s largest makers of simple computer chips such as diodes and transistors, writes Nikkei Asia. A state-backed Chinese investment consortium acquired Nexperia for $2.75bn in 2017 after it was carved out of NXP Semiconductors, a Dutch chip manufacturer. The following year, the consortium began selling its shares to Chinese technology group Wingtech, which became Nexperia’s majority owner in 2019. Wingtech released a statement which said the move “gravely contravenes the European Union’s long-standing advocacy for market-economy principles, fair competition, and international trade norms.” 3W notes it is very difficult to justify seeing this act as anything other hardcore economic warfare by the Dutch against the Chinese. And considering the close alignment between the Dutch and the US on for example ASML, we highly doubt this action was taken without there having been alignment with the US here as well.
Around the same time as the Dutch move against Nexperia, China then unveiled sweeping export controls on rare earths and related technologies, writes The Financial Times. Under the new commerce ministry rules, foreign companies will need Beijing’s approval to export magnets that contain even trace amounts of China-sourced rare earth materials, or that were produced using the country’s extraction methods, refining or magnet-making technology. This new rule copies the US “foreign direct product rule”, a measure Washington has used to block semiconductor-related exports to China from third countries, FT notes. Experts note that if enforced, the rule would provide Beijing with complete control over the entire advanced semiconductor supply chain. Even US AI chips made in a US fab sent to a US AI lab would need Beijing’s permission. No chip company with business in China could risk non-compliance with the new rule as it would then run the risk of being seized just a Nexperia.
In response, US president Trump on Friday then said his country would impose new tariffs of 100% on imports from China “over and above any Tariff that they are currently paying,” starting on November 1st, writes CNBC. Trump also said that the US, on that same date, would also impose export controls on “any and all critical software”, and suggested that he would cancel a meeting with Chinese President Xi Jinping at the upcoming Asia-Pacific Economic Cooperation summit in South Korea.
The Trump statements did not lead to panic in China, notes Nikkei Asia. China’s commerce ministry in a response accused the US of imposing new restrictions on China, including putting groups on a trade blacklist, since Chinese and US officials held talks in Madrid last month as part of a truce in the trade war. “China’s position on tariff wars has been consistent: we do not want to fight, but we are not afraid to fight,” the ministry said. The commerce ministry added that the US side had for a long time “abused export controls” and overstretched the concept of national security.
In the 3W assessment, China’s defiance (as opposed to the EU’s submission) again caused Trump to backtrack. Wall Street understood the implication of the tit-for-tat going on, as a result of which US stock markets went into panic mode and had their worst day in almost six months on Friday, writes The Associated Press. Seeing this signs on the wall, just as happened when China announced rare earth mineral export controls in response to the first proposed US tariffs on Chinese goods, shortly after the defiant official Chinese response to his 100% additional tariff idea Trump returned to his social media page with a more conciliatory tone, writes The Financial Times. Trump wrote, “Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment. He doesn’t want Depression for his country, and neither do I. The U.S.A. wants to help China, not hurt it!!!”.
The strength of China’s exports gives the country an edge in negotiations with the US. China’s export growth bounced back in September, writes Reuters. China’s exports rose an annual 8.3% last month, compared with a 4.4% increase in August, and beating a 6% increase expected by analysts.
The reason China’s exports remain strong is becoming other markets are eager to absorb the low-cost-high-value products that would otherwise have gone from China to the US. As exports to the US have come under pressure, China has expanded markets for its products in other regions, writes The Associated Press. Shipments to Southeast Asia grew 15.6% year-on-year in September. Exports to Latin America and Africa were up 15% and 56%, respectively.
This dynamic in the US economic war against China is not good news for Europe. In Europe, a variety of critical industries is now on the verge of collapse as China redirects its exports, writes Nikkei Asia. In particular Europe’s petrochemicals and steel industries are suffering under price competition from new Chinese exports to the region.
And in the background to this dynamic in the US economic war against China, the Financial Stability Board (FSB) Chair, Andrew Bailey, sent a letter to G20 ministers warning their markets are susceptible to a crash given the current uncertain economic and geopolitical backdrop, writes Reuters. “While most jurisdictions have seen a rebound in financial markets in recent months, valuations could now be at odds with the uncertain economic and geopolitical outlook, leaving markets susceptible to a disorderly adjustment,” the letter dated October 8 and published ahead of G20 meetings in Washington this week, said.
Energy
3W argues that there is a close connection between Geopolitics, Economics and Energy, and if there ever was a day when this hypothesis was confirmed, we feel it is today.
First we note, namely, that against the backdrop of sanctions measures in the semiconductor and rare earths space discussed above, last week the US also put sanctions on the Rizhao Shihua Crude Oil Terminal, which handles about 9% of China’s crude imports, writes Bloomberg. The Rizhao terminal is partly owned by Sinopec through its subsidiaries, and is the refiner’s biggest entry point for foreign crude. The US sanctions are officially over China’s imports of Iranian crude oil. The blacklisted terminal operator imported more than 1 million barrels a day last year, with Iran accounting for an estimated 189,000 of that.
Then there is the upcoming G7 meeting in Washington DC. During the gathering, the West could further squeeze Russian oil profits if it can win over the countries from the Arabian Gulf, writes Reuters. The ministers of the G7 should propose to the oil powerhouses in the Arabian Gulf that they increase oil production, while the G7 lowers the price cap for Russian oil, Reuters says. The two moves together would further squeeze Russian oil pout of the market without raising oil prices, it notes. If the G7 then ensures support from India and Turkey, two of Russia’s three main customers, the plan could succeed. A lower price cap for Russia oil could leave the countries’ finance “whole” even when they buy less Russian crude oil, as they would make more money on the Russian crude oil they could continue to buy. In all, the plan could reduce Russian oil revenue by as much as $80 billion, Reuters optimistically – and almost enthusiastically, 3W notes – projects.