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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.
Last week 3W looked ahead to the Xi – Trump summit in Beijing. We argued that Trump would be seeking Xi’s help to achieve a decisive victory in the War on Iran, and that Xi would disappoint Trump. Because, on the one hand, the US has little to no leverage over China, while on the hand, China’s interests are served by the US not defeating Iran. And so, we said, the summit would deliver nothing other than politeness and token Chinese promises to buy more US goods. How accurate was this forecast?
The US tried to increase pressure on China before the summit, and put it on the backfoot, in the 3W assessment. The New York Times wrote just before Trump’s arrival in Beijing that according to its intelligence assessments, Chinese companies have been discussing arms sales with Iran and were plotting to send the weapons through other countries to mask the origins of the military aid. NYT even said the disclosure would increase pressure on Trump to raise the War on Iran with Xi, and in response Trump said he would have a “long talk” with Xi about the conflict. The Washington Post, meanwhile, wrote that a “confidential US intelligence analysis” concluded “China is exploiting the (US) War in Iran”. In addition, Axios notes that just before the summit, the US sanctioned Chinese satellite firms for providing services to Iran; sanctions Chinese refineries for buying Iranian crude oil; released a memo by written by Trump’s science adviser Michael Kratsios which accused China of “industrial-scale” campaigns to steal frontier AI from American companies; and arrested the mayor of Arcadia, California, for spying on behalf of China.
As to Taiwan, Trump was forced into a retreat
But China was prepared. In order to prevent the US from setting the agenda for the meeting, in a social media post China’s foreign ministry said “the Taiwan question is the most important issue in China – US relations”, writes The Associated Press. “If it is handled properly, the bilateral relationship will enjoy overall stability. Otherwise, the two countries will have clashes and even conflicts, putting the entire relationship in great jeopardy,” a spokesperson for the ministry wrote. Then, during his opening address, Xi publicly issued Trump a warning, writes The Associated Press. If the US mishandles its relations with Taiwan, the US and China could end up clashing, Xi said. And it worked, AP concedes, because in the end, the summit “was unexpectedly dominated by discussions about Taiwan”.
As to Taiwan, Trump was forced into a retreat. Axios writes that after the subject, Trump suddenly said he’s unsure whether he would greenlight a planned $14 billion weapons package for Taiwan, after discussing it in “great detail” with Xi. The last thing we need right now is a war that’s 9,500 miles away,” Trump told reporters on the plane back to the US. Axios rightly notes this statement indicates a major, major backtrack by the US on Taiwan – and consequently a major victory for China. Since 1982 US policy has been, namely, not to discuss arms deliveries to Taiwan with China.
Iran was discussed, Trump told reporters while flying back home after the summit, writes Axios. But, Trump said China only agreed it would not supply Iran with arms, but “they buy a lot of their oil there, and they’d like to keep doing that.”
As a result, The New York Times writes that “President Trump departed Beijing on Friday with almost nothing concrete to show for his two-day summit with President Xi Jinping of China… the summit ended with no major public progress on the Middle East, trade, Taiwan, nuclear proliferation, artificial intelligence or any of the other myriad issues that are sources of friction between the world’s two superpowers.” 3W could argue that is an optimistic US perspective. NYT also notes, namely, that while Trump spoke of Xi as “his friend”, Xi gave Trump the cold shoulder. A Chinese Foreign Ministry spokesman, asked at a briefing during the summit whether Xi considered Trump a friend, responded with: “The two sides exchanged views on major issues.” Either way, the result, NYT says based on analysts’ assessments, was a summit that “illustrated the growing confidence of China on the world stage”. And this confirms our 3W forecast from last week, when we said “In this situation … it is unrealistic to think that China will give Trump what he needs on Iran.”
Now, where does that leave the US?
Firstly, its conflict with Iran is now officially in a stalemate, as Reuters also notes. The consequences for the economies of the Arabian countries in the Gulf region are severe, writes The Conversation. For energy import dependent countries, the energy crisis resulting from the closure of the Strait of Hormuz is developing into a currency crisis, writes Bloomberg. For China, meanwhile, the stalemate appears less of a direct issue, as its oil purchases from Iran continue with associated vessels freely moving through the Strait of Hormuz, writes Bloomberg, meaning it is only affected by the indirect issue of the global economy imploding – just as the US is.
its conflict with Iran is now officially in a stalemate
Secondly, as 3W also noted last week, the stalemate is effectively a major geopolitical defeat and embarrassment for the US. The US had to ask China to intervene, for which it had to make concessions on the Taiwan issue, as discussed above. Not only was Trump forced to reconsider arms deliveries to the island. In addition, Trump was also forced to warn Taiwan against declaring independence after meeting Xi, writes the BBC.
Thirdly, the current stalemate in the Strait of Hormuz weakens the US geopolitical position. On the one hand, because countries around the world see the crisis they are now suffering as being unnecessary, caused by a war of choice by the US (and Israel). On the other hand, because it communicates to countries around the world that US partnerships and security guarantees are decreasing in value since US power is decreasing, while they are also reducing in reliability since the US is now making clear it will drop you whenever US interests are at stake (except if you are Israel…). This could well be why Saudi Arabia is promoting a new security architecture for the states surrounding the Persian Gulf including Iran. Riyadh is eyeing as a potential model the 1970s Helsinki Process that eased tensions in Europe during the cold war, writes The Financial Times. In addition, Saudi Arabia is seeking deeper ties with Pakistan, Turkey and Egypt to counterbalance the US – Israel Alliance, FT writes.
Fourthly, the weakening of the US will progressively worsen the longer the current stalemate remains in place, as the US’s main adversaries, China and Russia, are closely collaborating to effectively respond to the opportunity created for them by Trump’s failed geopolitical strategy. Later this week Russian president Putin will travel to China to meet China’s president Xi, writes The New York Times. Dmitri Peskov, the Kremlin’s spokesman, told reporters on Friday that the trip would give Moscow “a good opportunity to share opinions on the contacts that the Chinese had with the Americans.”
Consequently, Ray Dalio, founder of the world’s largest hedge fund and author of “Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail” as well as “How Countries Go Broke: The Big Cycle”, says the US is rapidly losing credibility as a global power, willing to fight to defend its interests, while China accumulates wealth and influence, writes Bloomberg. This, Dalio says, will fundamentally reshape how the rest of the world views the two nations. The result is the early days of a new global order, in which global leaders travel to Beijing in order to “pay tribute” to China.