Negotiations between Iran and the United Nations Security Council have been ongoing since Iran was detected building uranium enriched centrifuges in 2002, in violation of International Atomic Energy Agency (IAEA) safeguards. However, negotiations did not result in meaningful action until the Joint Comprehensive Plan of Action. The Joint Comprehensive Plan of Action was signed on July 14, 2015 by Iran, the European Union and the P5+1 (the 5 permanent members of the UN Security Council, which included the United States, the United Kingdom, France, Russia, China and Germany). Iran aimed to relieve sanctions which hindered its economic growth, while the P5+1 wanted to delay Iran’s development of a nuclear weapon. The agreement was gradually fulfilled by both sides until the United States withdrew from the JCPOA under the leadership of President Trump. Under President Joe Biden, the JCPOA has been revived with new negotiations underway.
The journey towards the JCPOA was not entirely smooth. Initially, Iran had already signed onto the Nonproliferation Treaty in 1967 where it agreed to forgo becoming a nuclear armed state. So when Iran was discovered to have secret nuclear sites in 2003, the international community began to worry about what the discovery would mean for the rest of the world, and the Middle Eastern region in particular. If Iran were to attain a nuclear weapon, Israel, which has had a strained relationship with Iran ever since the Gulf War, promised military action would be a consequence. This would potentially trigger a war involving Hezbollah, a Shiite political party and militant group that opposes Israel, or serve as an example to other Arabian states, like Saudi Arabia, that they could also obtain a nuclear weapon without ramifications.
For almost ten years, the international community unsuccessfully tried to find different ways of reaching a deal with Iran. The first negotiations that took place were between Iran and the E3 (France, Germany and the United Kingdom). This agreement had Iran cooperate with the International Atomic Energy Agency, sign the Additional Protocol and temporarily suspend conversion and enrichment activities but not stop enrichment entirely. The agreement between Iran and the E3 was only temporary and a start to a possible long-term solution that could benefit both sides. However, negotiations broke down in 2005 under the newly elected Iranian president Mahmoud Ahmadinejad, who was viewed as a hardliner. Iran announced they would be resuming uranium conversion and rejected the EU3’s proposed Long Term Agreement. For Iran, the agreement was viewed as heavy on demands, light on incentives, and did not adequately compromise with Iran’s demands. Another agreement was proposed in 2008 between Iran and P5+1 which would give Iran access to light water reactor (LWR) technology and a nuclear fuel supply in exchange for Iran’s suspension of enrichment activity. As with the previous agreement, Ahmadinejad refused the offer and instead pushed for more enrichment. In 2011, a potential plan was proposed by the Russian foreign minister Sergey Lavrov. This new plan would involve the gradual lifting of sanctions in exchange for Iran limiting enrichment. The eventual goal would be Iran suspending enrichment entirely and all sanctions being lifted. Iran agreed to the plan, but the United States, United Kingdom, and France refused. Negotiations remained at a stand-still, while the West continued to sanction Iran and Iran continued improving its enrichment capability.
Following a 2011 IAEA report which fully laid out Iran’s nuclear program, the rest of the world realized Iran was only a year or two away from attaining a nuclear weapon. This resulted in an increase in bilateral talks to reach a preferential agreement, one of which took place in 2012 between the P5+1 and Iran. The P5+1 proposal included Iran stopping uranium enrichment up to 20%, shipping out the enriched uranium they had already produced, and closing the Fordow Fuel Enrichment Plant, an uranium enrichment facility in Iran. Iran proposed their own plan which included the recognition of Iran’s right to enrich uranium for peaceful purposes, sanctions relief, cooperation in nuclear energy and safety, and a possible cap on 20% uranium enrichment. Both sides disagreed with the proposals, resulting in further sanctions against Iran.
The JCPOA allowed for 90 days between the Finalization Day and Adoption Day for Iran and the US to begin review processes of the agreement domestically. On Adoption Day, October 18, 2015, Iran and the P5+1 took the steps necessary to meet the commitments listed out in the JCPOA. On Implementation Day, 2016, the IAEA certified that Iran had taken the steps necessary to restrict its nuclear program and allowed for increased IAEA monitoring, which resulted in the U.S., EU and UN relieving some sanctions. In 2023, eight years after adoption day, the UN would lift missile restrictions, Iran would ratify the IAEA Additional Protocol, the EU would terminate all nuclear sanctions, and the United States would remove entities from the sanctioned list and continue sanctions relief. The JCPOA would end in October 2025 in which Iran’s nuclear file would be closed.
In response to the renewed sanctions, Iran began to recede from their JCPOA commitments. Iran began to enrich uranium past 3.67% and invested in research and development of centrifuge technology that did not adhere to IAEA monitoring and safeguards. Iran also notified the IAEA that its stock of heavy water had exceeded 130 metric tons. Additionally, in 2020, Iran passed new legislation to increase nuclear activities by boosting enrichment, increasing monthly uranium output and conducting research and development on centrifuges. Still, Iran continues to allow IAEA inspectors onto sites related to the JCPOA for verification and monitoring. The Biden administration has been more willing to enter into negotiations with Iran on the future of the agreement. Biden has stated that the US would only rejoin the agreement if Iran returns to compliance, but also wants to further broaden the agreement topics to include Iran’s missile program. Iran is willing to return to compliance only to the original deal. Negotiations are currently still taking place between Iran and the P5+1.
Since the establishment of formal diplomatic relations between the United States (US) and the People’s Republic of China (PRC) in 1979, there has been a rapid growth of bilateral trade. Trade in goods and services between the US and China increased from $15.4 billion in 1979 to $180 billion in 2000, growing at roughly 10% annually. This growth accelerated in 2000 when the US granted China permanent normal trade relations (PNTR), which paved the way for China’s accession to the World Trade Organization (WTO) in 2001. This served as a milestone in China’s “reform and opening” process and signified that the US and the global economic community recognized China as an equal partner. To join the WTO, China agreed to numerous conditions, including expanding market access for foreign firms to sell goods and services directly in Chinese domestic markets, lowering import tariffs, and opening the telecommunication and finance sectors to more foreign competition.
There is no doubt that WTO membership greatly benefitted the Chinese economy; expanded access to foreign markets increased net exports and economic growth as productivity increased due to greater competition. However, many in the US argue that China’s accession has hurt the US economy and workers, pointing to the ever-growing bilateral trade deficit, the loss of US manufacturing jobs and growing unemployment, and stagnating US economic growth as evidence that China has used unfair, if not illegal, trade practices to take advantage of the US. These trade practices allegedly include currency manipulation, government subsidies for land, capital, utilities and tax breaks, intellectual property (IP) theft, and lax environmental and worker health and safety standards. Furthermore, many criticize the WTO for its lax enforcement regarding China’s alleged illegal trade practices. While these trade practices have undoubtedly played a role in the bilateral trade deficit, a closer look reveals that it is only partly responsible for a stagnating US economy.
II.Background on Chinese Economic Growth
The People’s Republic of China was established in 1949 by the Chinese Communist Party (CCP). During this period, China struggled with unsuccessful socialist economic reforms and internal turmoil within the CCP. In 1978, Deng Xiaoping, a key political player under Chairman Mao, became paramount leader and began the ‘reform and opening’ process intended to jumpstart the Chinese economy and bring the country out of poverty. Deng echoed the sentiment behind these reforms later in 1992 when he stated:
“After the basic socialist system has been established, it is necessary to fundamentally change the economic structure that has hampered the development of the productive forces and to establish a vigorous socialist economic structure that will promote their development.”
Deng enacted a series of economic policies and reforms, particularly in industry and agriculture, that emphasized individual responsibility and greatly improved productivity. In 1986, China applied for membership in the General Agreement on Tariffs and Trade (GATT, the predecessor organization to the WTO). If granted entry, membership in GATT would greatly expand China’s export market as members would eliminate or reduce import tariffs on Chinese goods, and emphasize China as a destination for foreign direct investment (FDI).
Though Deng’s economic reforms successfully jumpstarted the Chinese economy, the country still struggled with extreme poverty and poor standard of living. China’s GDP per capita placed the country in the top half of low-income countries. In 1990, two-thirds of China’s population, or roughly 750 million people, were living below the International Poverty Line in extreme poverty, defined by the United Nations as living on less than 1.90 international dollars per day.
While foreign direct investment (FDI) increased by a factor of 13 between 1980-92 and 1986-88, the growth largely represents its originally low base. Additionally, though FDI inflows into China were large in the early 1990s, by the end of the decade the growth had stagnated. As shown in Figure 1, FDI inflow remained below 2% of gross domestic product (GDP) and below US$12 billion until 1992, mainly due to Chinese restrictions on FDI, government corruption, and inefficient state-owned enterprises (SOEs). FDI inflows did not begin to significantly increase until 2004, peaking at $290.9 in 2013.
The share of exports of goods and services in China’s gross domestic product (GDP) steadily increased in the 1980s and 1990s. However, total exports remained low as Chinese businesses had limited access to foreign markets and were subject to high import tariffs. Total exports did not begin to significantly increase until 2002, following WTO accession.
The Asian financial crisis in 1997 particularly affected Thailand, Malaysia, South Korea, and Indonesia. As the value of their currency dropped, there were rapid outflows of FDI and the stock market plunged. During this time, China held its exchange rate steady and provided a great source of stability for the region in addition to offering more than $4 billion in financial aid, a stark contrast to President Bill Clinton who described the Southeast Asian economies as temporarily experiencing a “few glitches in the road.” The crisis revealed the vulnerability of the Chinese economy, which was heavily dependent on cheap exports to fuel its rapid economic development. Since then, the Chinese government has emphasized the need to increase domestic consumption and reduce reliance on exports.
The US played a major role in China’s negotiations to join the WTO because the two countries had significant bilateral economic and trade interests, and because of US concerns surrounding how China’s exports would impact the international trade hierarchy. Negotiations stalled in June 1989 following the Tiananmen Square massacre and later in 1991 relating to unfair Chinese trade practices including import restrictions that built up net exports while Chinese companies evaded international rules on exports. Throughout the 1990s, China’s Most Favored Nation (MFN) status was increasingly political and tied to human rights concerns.
To join the WTO, China engaged in bilateral negotiations with each interested WTO member to establish market access concessions and commitments in the goods and services area, including tariffs on industrial and agricultural goods and Chinese commitments to open up its market to foreign services suppliers. China also undertook politically and economically risky reforms to uphold free market values of the WTO as a condition for membership. These included:
Increasing transparency of trade information and law to both foreign and domestic companies
Lowering import tariffs on agricultural and industrial products
Permitting foreign firms to sell directly in Chinese domestic markets
Opening the telecommunication and finance sectors to more foreign competition
Accession to the WTO triggered and accelerated internal domestic reform. WTO rules served China’s own goal of building a socialist market economy, set in 1992 by Deng, and aided in the transition from a decades-long planned economy to a market-oriented economy. Deng used membership requirements for accession to the WTO as a lever to achieve fundamental changes in SOEs and state-owned banks and overcome bureaucratic obstacles. Whereas Chinese import-exports used to be monopolized by a few dozen SOEs and ministries, after accession hundreds of thousands of Chinese enterprises became involved in import-export. This accelerated the volume of Chinese import-exports and expanded the variety of goods they offered. The central government lessened restrictions which previously constrained the private sector, encouraged private investment in industries that were traditionally dominated by SOEs, and reduced top-down control of Chinese enterprises. Productivity growth post-WTO accession also increased, driven by the entry and exit of firms increasingly allowed due to China’s decentralized reforms. SOEs faced greater accountability for their business decisions and faced the full forces of global competition for the first time, which placed pressure on domestic firms to lower their cost structure to survive. Firms that could not compete were forced to exit the market, increasing overall productivity.
China also reallocated labor and capital from farms to factories and from inefficient SOEs to more efficient private businesses. With China’s abundant labor supply and relatively scarce supply of arable land and natural resources, manufacturing was the primary beneficiary of reform-induced industrial restructuring. China’s reorientation toward manufacturing was further aided by substantial inflows of foreign direct investment (FDI). China accounts for 75% of all growth in manufacturing value added that has occurred in low- and middle-income economies since 1990.
Entrance into the WTO provided China with numerous benefits:
It was an important boost to China’s global leadership as it signaled the US and the global economy recognized China as an equal partner.
It strengthened US-China bilateral economic relations, which were strained over the issue of Taiwan and human rights violations.
Chinese exports could access new markets through Most Favorable Nation (MFN) status with all members of the WTO, which allows China to face the same trade barriers as competitors.
China experienced looser investment restrictions, which led to a growth in Chinese capital.
China no longer faced the uncertainty of being hit with high tariffs on its exports to the US. This encouraged Chinese firms to invest in paying the fixed costs associated with engaging in international trade and entering the export market. The US had applied low tariffs on Chinese imports since 1980, but every year Congress met to decide whether to revert to much higher tariff rates that had been assigned to some non-market economies, which averaged 24%.
Read More
Read more about other conditions for China to join the WTO here.
Read China’s White Paper from 2018 that lays out the government’s official position on the US-China trade relationship.
Read more about the role of state-owned enterprises in China’s economy here.
III.Impact of Increased Chinese Imports on the US Economy and Employment
A country’s total trade is measured by the sum of its imports (products it buys from other countries) and its exports (products it sells to other countries), both in goods and services. A trade deficit exists when a country’s net exports (calculated by subtracting imports from exports) is negative, meaning the country imports more goods and services than it exports. A trade surplus exists when the opposite occurs. The US has bilateral trade deficits with some trading partners and bilateral trade surpluses with others. Overall, the US had a trade deficit of $678.7 billion in 2020. Bilateral trade deficits typically occur because countries have certain comparative advantages. For example, the US has the comparative advantage in goods and services that require high degrees of human capital and China has the advantage in light manufacturing.
The US has had a trade imbalance with China since at least 1985 which remained below $85 billion. By 2000, however, the bilateral deficit reached $85 billion and for the first time exceeded the bilateral deficit with Japan. Between 1986 and 2019, the US trade deficit with China grew by 18.4 percent annually. Post-WTO accession, US exports increased as the US gained an export market, but not nearly as much as US imports from China increased. In 2007, US imports with China fell as consumers were hit hard by the recession and purchased fewer goods. US imports also decreased from 2018 to 2019 due to tariffs on Chinese products, though not as much as the decrease in exports.
With the recent 20th anniversary of the U.S. law implementing permanent normal trade relations with China, many politicians and political experts question President Bush’s decision to grant China PNTR status and allege that the Clinton administration and Congress rubberstamped both the law and China’s entry into the WTO. They argue that this fueled China’s rise and the “China Shock”—the period between 1999 and 2011 during which a sizable increase in Chinese imports supposedly produced the loss of approximately 2.4 million U.S. jobs.
Politicians who argue that trade with China has hurt the US economy also point to the decrease in US manufacturing output and in manufacturing employment. In 2000, 17.3 million US workers were employed in manufacturing, decreasing only 9% since the early 1980s. In mid-2007, right before the beginning of the Great Recession, manufacturing employment had already dropped to 13.9 million workers. During the Great Recession, manufacturing lost 20% of its output and 15% of its workforce. By 2010, a year after the Great Recession ended, employment had dropped to 11.5 million workers, a 33% decrease from 2000. Though the US aggregate contraction caused by the Recession undoubtedly contributed to the decrease in manufacturing employment, 60% of the decrease occurred before 2007. Additionally, employment levels have not recovered from the steep decline preceding the recession. Q2 2010 saw the first increase in US workers employed in manufacturing since 2006. By mid-2014, manufacturing employment had increased to 12.1 million workers, but nowhere near where it was in 2000.
Losses in US manufacturing employment are primarily due to the increase in Chinese manufacturing output, which intensified import competition for US firms who experienced a decrease in demand and a corresponding contraction in their workforce. Autor et al. (2013) and Pierce and Schott (2016) estimate the China Shock resulted in a loss of around 1.5 million manufacturing jobs between 1990 and 2007. Acemoglu et al (2014) found that had Chinese manufacturing imports to the US remained stagnant after 1999, there would have been 560,000 fewer manufacturing jobs lost through 2011. In a recent report, the Economic Policy Institute estimated that millions of jobs were lost because “imports displace goods that otherwise would have been made in the United States by domestic workers.”
An analysis by the Cato Institute reveals that new or continued U.S. restrictions on Chinese imports would not have saved the majority of U.S. manufacturing jobs lost during the period of the China Shock. Furthermore, Lincicome argues that China would have joined the WTO and become an economic powerhouse regardless of whether they had PNTR status from the U.S. Instead, he argues that a multitude of policy failures resulted in China’s ability to harm U.S. companies and workers. Some economists adopt an optimistic outlook and emphasize that the value added in manufacturing has been growing as fast as the overall US economy and the share of US GDP has remained stable, a feat experienced by only a few other high-income economies over the same period.
Economic linkages between sectors meant that the effects reverberated through the entire US economy. For example, China’s dominance in exporting apparel and furniture led to unemployment in other downstream industries that supplied US firms with the products necessary to make apparel or furniture. Additionally, much of the impact of increased trade exposure is felt in concentrated areas as suppliers and buyers are often found in the same regional market as to reduce transportation costs.
Many researcher argue that imports from China reallocated jobs from the manufacturing sector in lower human capital areas to the service sector in higher human capital areas. They find evidence of large manufacturing job losses, especially in areas of the US with initially low human capital such as the South and the Midwest, due to plant shrinkage and closures. These areas also experienced declining earnings per worker and little offsetting rise in service jobs. However, they find that areas with initially high human capital experienced limited manufacturing job losses. 50% of this effect is driven by industry switching, where surviving plants change their reported industry code from manufacturing to services (primarily research, management, and wholesale). Furthermore, they find no evidence that large, publicly listed U.S. manufacturing firms suffered from the rise in Chinese imports as their sales, investment, and market value were not affected. They hypothesize that these large firms took advantage of China’s comparative advantage in manufacturing production and exploited their cheap labor and lax environmental standards to offshore manufacturing employment. At the same time, large firms expanded employment in research, design, management, and wholesale activities in the U.S. Overall, Chinese trade weakened the market for labor in low human capital areas relative to high human capital areas and reallocated employment from manufacturing to services, and from US heartland to the coasts.
While manufacturing jobs did decrease as a result of Chinese manufacturing imports, overall US consumers have benefited from China’s accession to the WTO. The aggregate US manufacturing price index dropped by 7.6% between 2000 and 2006 due to China’s WTO entry. Two-thirds of this decrease in price index was due to China lowering their import tariffs in almost all categories of goods. By lowering tariffs on intermediate outputs, the cost of production for Chinese firms decreased, thus allowing them to charge lower prices on goods exported to the US and increase market shares in the US. Chinese exports to the US grew most rapidly in industries that experienced the largest drop in input tariffs. This also led other countries exporting to the US as well as US domestic firms to lower their prices as they received cheaper intermediate inputs from China. Inefficient firms that could not compete with Chinese firms exited the market. The other third was due to the increase in the number of firms and variety of goods exported to the US from China due to both lower input tariffs and China’s PNTR status. The number of Chinese firms exporting to the US more than tripled between 2000 and 2006.
While import competition from China undoubtedly contributed to US job loss, the growth of the information technology (IT) industry in the US and automation further exacerbated this shift in employment away from manufacturing. This shift especially hurt workers in regions of the US with low human capital as well as high-population states with large workforces. This is because automation displaces low-skilled workers while providing job opportunities for high-skill workers. Researchers from Ball State University found that nearly 88% of 5.65 million manufacturing job losses between 2000 and 2010 were due to automation and productivity increases, with trade accounting for just 13.4% of the losses. A study by the Carnegie Endowment for International Peace on manufacturing job losses in Ohio between 1969 and 2009 further found that trade accounts for no more than one-third of job losses. Rather, the majority of losses resulted from other factors, particularly automation and domestic competition with other states.
Furthermore, multifactor productivity (TFP), a measure of the change in an industry’s real output to changes in the combined inputs used in producing that output, was slowing down as output had already realized the gains from improved productivity. Between 1992 and 2004, manufacturing MFP grew by an average of 2% annually. However, between 2004 and 2016 manufacturing MFP declined by an average 0.3% annually. This slowdown of productivity growth coincided with the significant increase in import competition and with a reorganization of production and employment toward non-manufacturing services.
IV.Trade Deficit
The large and ever-increasing bilateral trade deficit between the U.S. and China has been an area of concern for politicians on both sides of the aisle, who emphasize the impact of WTO accession on the US trade deficit and see it as a weakening of the US economy. Many cite the China Shock as the reason for several negative macroeconomic factors including the U.S.’ slowing economic growth and stagnant wage growth. However, it would be incorrect and misleading to blame this on the large bilateral trade deficit between the U.S. and China. Rather, the bilateral deficit between two countries does not adequately reveal who is gaining or losing in a trade relationship and does not tell the whole story of the US-China trade relationship.
Productivity growth and real wages are closely linked. As productivity increases, workers can produce more output in the same or less amount of time, which enables employers to increase wages. However, as Figure 2 shows productivity in the US has been increasing but the typical worker’s compensation has not witnessed the same growth.
Previous economic research emphasizes two explanations for these features. First, globalization has flooded the market with cheap goods from China and eroded domestic manufacturing wages in the process. Second, technology has brought about automation which has destroyed manufacturing jobs.
However, as researchers from Kellogg Insight pointed out, US workers have struggled with wage stagnation for decades. Since the 1970s, growth in real wages, the value of the dollar paid to employees after being adjusted for inflation, has slowed compared to overall economic productivity. Furthermore, China did not begin to flood the market with cheap manufacturing exports until the mid-1990s, as seen in Figure 4. Lastly, job losses due to automation have primarily happened in the last 10 or 15 years. These three reasons suggest that import competition from China cannot be used as an explanation for stagnant wage growth and slowing economic growth.
Despite the causes of these two economic factors, US-China trade relations are a source of concern for many, especially with escalating trade tensions under the Trump and now Biden administration. The interdependence of the US and Chinese economies has served as an “effective brake” on escalating strategic distrust. Both President Biden and President Xi are working to reduce the reliance each nation has on the other.
Another source of stress stems from the US’ current accounts deficit, which is a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the goods and services which it exports. Because of this, the US typically borrows surplus savings from countries with current accounts surpluses and runs chronic current accounts deficits to attract more foreign capital. In 2020, China overtook Germany to become the world’s largest current account surplus. This was largely because the coronavirus crisis triggered higher demand for personal protective equipment and electronic devices, which boosted Chinese exports. China buys US treasury bonds using its current accounts surplus, and is the second largest US creditor, after Japan.
Many worry, however, that China will use its ownership of American debt as a bargaining chip to hold leverage over the US. However, the dollar is a widely-held and desirable asset in the global economy. While China has been the largest and second largest owner of US debt, the rest of the world (ROW) as well as individuals within the US still own the majority. For example, in August 2015, China reduced its holdings of US debt by roughly $180 billion, though this selloff did not significantly affect the US economy. Additionally, purchasing US debt enables China to manage the exchange rate of its currency, the renminbi. If China were to offload significant amounts of US debt, the exchange rate of the renminbi would rise and would make Chinese exports more expensive in foreign markets.
Continued US debt financing worries economists who are concerned that a sudden stop in capital flows to the US could spark a domestic crisis; though this would only happen if demand for US debt from all financial actors, foreign and domestic, suddenly stopped.
Despite the trade deficit, there are significant benefits to the trade relationship between the US and China. According to a study by Oxford Economics, trade with China supports roughly 2.6 million jobs in the US across a range of industries, including jobs that Chinese companies have created in the US. The continued growth of the Chinese middle class, projected to exceed the population of the US by 2026, also serves as an enormous opportunity for US companies to expand their customer base, which will help bolster employment and economic growth. Furthermore, China’s role in the global supply chain improves the competitiveness of US businesses and lowers US inflation.
Another factor that is often overlooked when tallying the balance of trade in the media is the contribution of US services exports to China. For example, trade data from the US Census Bureau only includes the trade of goods and not services. In 2019, the US exported $56.5 billion and imported $20.1 billion of services to China, a trade surplus of $36.4 billion. Chief US exports include capital products (22% of total exports), industrial supplies (22%), consumer goods (8%), and petroleum (7%).
That Washington and the media place such a high emphasis on the trade deficit with China but not with Japan and the European Union with whom the U.S. also has trade deficits suggests that the trade deficit is used as a scapegoat for other areas of concern that they have with China. These main areas include alleged human rights abuses (such as in Xinjiang or Hong Kong), theft of intellectual property, and more.
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· Read this to learn more about trends in US real wages between 1979 and 2019.
V.U.S.-China Trade War
In the leadup to the 2016 presidential election, Donald Trump used inflammatory comments to call out China, including saying that China was “raping” the U.S. with unfair trade practices and that the country was responsible for the “greatest theft in the history of the world.” Strategically building off of the growing backlash against globalization, Trump pledged to “cut a better deal with China which would help American businesses and workers compete” and accused China of manipulating its currency to make its exports more globally competitive. Steve Bannon, senior White House advisor, claimed that globalists gutted the American working classes and created a middle class in Asia.
Once president, Trump renegotiated and revised trade agreements when US goals were not met. A key example of this is when he pulled out of the Transpacific Partnership (TPP), a multilateral trade agreement that would have created a single market for the US and the 11 countries that border the Pacific Ocean and would have maintained US trade dominance in Asia. Critics of the TPP argue that it would create wealth for multinational corporations rather than US workers.
Trump emphasized 1-on-1 bilateral negotiations with these Asian nations rather than joining the TPP, though he stressed that he would support future trade agreements if they were negotiated on a bilateral basis. This emphasis on bilateral negotiations demonstrates Trump’s belief that the global economy is a zero-sum conflict, where a gain for one party results in a corresponding loss for another party. Under this belief, multilateral negotiations result in allowing other countries to gain at the US’ expense. With bilateral agreements, the US would have greater leverage and be able to capture a greater share of the gains.
Trump’s 2017 Trade Policy Agenda stated that the overarching objective of the trade policy was to “expand trade in a way that is freer and fairer for all Americans.” To achieve this, the Trump Administration would increase economic growth, promote job creation in the U.S., promote reciprocity with the U.S.’ trading partners, strengthen the manufacturing base and the ability to defend the U.S., and expand agricultural and service industry exports. In a not-so-subtle dig at China, the Agenda states that the U.S. should not turn a “blind eye” to unfair trade practices that disadvantage American workers, farmers, ranchers, and businesses in global markets. Rather, Washington should act as “aggressively as needed to discourage” unfair trading practices and to encourage true market competition.
The Trump Administration executed this last statement with the ramping up of U.S.-China trade tensions in the first half of 2018 and the beginning of the trade war in July of 2018. A more complete timeline of the trade war can be found starting in Section 8. The US triggered the trade war starting in February 2018 with tariffs on solar panels meant to target Chinese firms and by initiating a WTO case against China. Trump increased these moves a month later targeting steel and aluminum imports. The next two years saw the imposition of tariffs, retaliatory tariffs, along with WTO cases alleging unfair trade practices from both the US and China.
VI.Effect of the Trade War on the US-China Trade Deficit
Tariffs are taxes paid on imported goods, previously used as a key source of government revenue but more recently used to shield certain industries from foreign competition.
Tariffs are generally paid through three sources.
Foreign companies exporting goods to the US.
Domestic companies importing goods from abroad or using imported inputs in their production processes.
American households as final consumers.
Despite Trump’s insistence that the $79 billion in tariffs were paid by foreign companies, multiple studies have found that this is not the case. One such study found that by December 2018, import tariffs were costing US consumers and the firms that import foreign goods an additional $3.2 billion per month in added tax costs and another $1.4 billion per month in deadweight welfare (efficiency) losses.
Despite President Trump’s claims that the trade deficit hindered US economic growth, real gross domestic product saw an overall decrease between 2017 and 2019, with growth rates increasing from 2.37% to 2.93% but then down to 2.16%. The trade balance is not the only factor contributing to US economic performance and growth, which includes factors like employment, productivity, age of population, and more.
VII.Conclusion
There are a multitude of factors causing the US-China trade deficit, not limited to the US current accounts deficit, Chinese currency manipulation, the shift in the US away from manufacturing jobs and towards service jobs, the growth of the information technology (IT) sector in the US and increased automation, and China’s comparative advantage in manufacturing that allows it to produce inexpensive goods. Furthermore, there are significant benefits to the US-China trade relationship, including lower aggregate prices for US consumers, and the promotion of at least 2.6 million jobs in the US. While increased import competition from China has resulted in the loss of several million manufacturing jobs, hitting the South and Midwest especially hard, overall trade with China has resulted in net job creation. Many view the US-China trade deficit as a sign of decaying US global leadership.
VIII.Timeline of US-China trade relations
1950-1972: US trade embargo with China
In late 1950, China intervened in the Korean War on the North Korean side. Anti-communist rhetoric and propaganda, fueled by the Cold War, contributed to the belief that China was an intrinsic threat to US national security, leading President Truman to retaliate by imposing a total trade embargo with China. At the time, bilateral trade was roughly $200 million annually. President Nixon ended the embargo in 1972 with the hopes that improved US-Sino relations would aid the US in the Cold War with the Soviet Union.
October 25, 1971: China joins UN
The PRC assumed the ROC’s place in the GA as well as its place as one of the five permanent members of the UN Security Council (UNSC).
February 1972: President Nixon makes historic trip to China to meet Chairman Mao
Nixon and Mao signed the Shanghai Communique, setting the stage for improved US-Sino relations by allowing China and the US to discuss difficult issues, particularly the China-Taiwan issue. For the rest of the decade, however, the two countries made slow progress in the normalization of their relations.
1973: First American business delegation visits China since the founding of the PRC
At the time, there was not much bilateral trade or investment because China did not have much to sell to the US and the Chinese did not want to buy from the Americans. The Chinese government was still wary of foreign influence and Chinese culture was not receptive to business with foreign companies, because they wanted to be self-reliant.
January 1, 1979: President Carter grants China full diplomatic recognition
Bilateral trade skyrocketed, creating a US trade surplus. At the time, the only investment model available for foreign companies was to establish a joint venture with a Chinese partner, which brought about conflicts with intellectual property (IP) theft.
1979: China and the US sign trade agreement
The trade agreement enabled Chinese products to receive temporary most favored nation (MFN) tariff status in the US. This made trading with China more attractive by lowering tariffs on goods imported to the US.
1980: Deng Xiaoping launches economic “reform and opening” in attempt to jumpstart China’s economy and improve standard of living
Deng expands access for foreign businesses in China and US, Japanese, and European investment flood China. China also joins the IMF and the World Bank.
Late 1980s and early 1990s: Surge of US investment into the PRC
China relaxed rules on foreign investment, including reforms which gave foreign companies permission to set up wholly foreign-owned enterprises in certain sectors, making it easier and more attractive to invest in China.
June 1989: Tiananmen Square protests
The crackdown on protesters in Beijing’s Tiananmen Square marked a turning point for US-China trade relations as investors question whether China is a healthy and stable market and as the US implemented economic and trade sanctions as punishment for Beijing’s human rights violation. US-China relations became a political argument, notably during the 1992 presidential election campaign when Democratic nominee Bill Clinton accused incumbent Republican George H. W. Bush of being “soft” on China, particularly in relation to human rights, as he resisted calls for punitive measures following the Tiananmen Square massacre.
1997: Asian financial crisis
October 10, 2000: US-China Relations Act of 2000
President Clinton granted permanent Normal Trade Relations (NTR) to China. This decision paved the way for China to ascend to the WTO. It reduced both tariff and nontariff barriers and fully opened the service sector to increased foreign ownership, especially in financial services, telecommunications, and distribution.
December 11, 2001: China enters the World Trade Organization (WTO)
After 15 years of negotiation, China finally gained accession to the WTO. It was a transformational moment in the global economy, marking the beginning of a new era of globalization. China’s trade with the world increased. The WTO is a global international organization that handles the rules of trade between nations to help producers of goods and services, exporters, and importers conduct business
2006: China surpassed Mexico as the US’ second-biggest trading partner, after Canada
2007: Chinese financial markets officially open to foreign investors under WTO rules
2008-2017: China signed free trade agreements with Association of Southeast Asian Nations (ASEAN) bloc and others
September 2008: China became the largest US foreign creditor
China surpassed Japan and owned around $600 billion in US debt. This marked a growing interdependence between the US and Chinese economies and concerns over US-China economic imbalances grew.
August 2010: China surpassed Japan to become the world’s second-largest economy
November 2011: US pivot toward Asia
Secretary of State, Hillary Clinton called for increased investment (diplomatic, economic, strategic, etc.) in the Asia-Pacific region as a move to counter China’s growing clout.
2015: China announced its Made in China 2025 plan
This was the first industrial policy to indicate that China was interested in and capable of capturing global market share in high-tech industries that had been traditionally dominated by Western companies.
2015: IMF added the Chinese yuan to its list of reserve currencies
February 3, 2016: Trans-Pacific Partnership is signed
Twelve countries (including the US), covering 40% of the world economy, signed the Trans-Pacific Partnership under President Obama. The TPP is advertised by President Obama as a “new type of trade deal that puts American workers first” and would help the US compete with China. The deal eliminated more than 18,000 taxes that various countries put on Made in America products. It also promoted a free and open internet, prevented unfair laws that restrict the free flow of data and information, and included the strongest labor standards and environmental commitments in history. The agreement included a 2-year ratification period in which at least 6 signatory countries must approve the final text for the deal in order for it to be implemented.
January 20, 2017: President Trump is sworn into office
He was known for having an “America first” economic platform and was skeptical of free trade norms. Trump felt that China was “ripping off” the US and taking advantage of free trade rules to the detriment of US firms operating in China.
May 2017: US Secretary of Commerce, Wilbur Ross, unveiled a 10-part agreement between Beijing and Washington to expand trade of products and services such as beef, poultry, and electronic payments. The agreement did not address more contentious trade issues including aluminum, car parts, and steel.
February 4, 2018: TPP was signed without the US
February 7, 2018: US implements new tariffs
The “global safeguard tariff” levied a 30% tariff on all solar panel imports (except those from Canada) and a 20% tariff on washing machine imports. Solar panel imports were worth $8.5 billion and washing machine imports were worth 1.8 billion
March 22, 2018: US filed WTO case against China
President Trump signed a memorandum filing a WTO case against China for their discriminatory licensing practices.
March 23, 2018: US put in place new steel tariffs
Following months of threats, President Trump announced major penalty tariffs of 25% on all steel imports (with the exception of Argentina, Australia, Brazil, and South Korea) and a 10% tariff on aluminum imports (with the exception of Argentina and Australia). President Trump claimed these imports “threaten national security” and target China’s alleged unfair trade practices. Steel imports were worth at least $60 billion.
April 2, 2018: China imposed retaliatory tariffs
China’s tariffs ranged from 15 to 25% on 128 US products worth $3 billion. This stoked growing fears of a trade war between the two biggest economies in the world.
July 6, 2018: US-China trade war officially began as US implements first China-specific tariff
The Trump administration imposed new tariffs on $34 billion of Chinese goods. More than 800 Chinese products in the industrial and transport sector faced a 25% import tax. China retaliated by imposing a 25% tariff on 545 goods originating from the US, worth $34 billion, including agricultural products, automobiles, and aquatic products.
August 3, 2018: China announced a second round of tariffs on US products
August 14, 2018: China filed a WTO claim against the US
The claim focused on US tariffs on solar panels and alleged that the US tariffs damaged China’s trade interests.
August 23, 2018: US and China implemented second round of tariffs and China filed a second WTO complaint against the US
China retaliated and imposed a 25% tariff on 333 goods, worth $16 billion.
September 24, 2018: US and China implemented third round of tariffs
October 4, 2018: Vice President Mike Pence delivered a critical speech against Beijing
Pence accused China of predatory economic practices, military aggression against the US, and of trying to undermine President Trump and harm his chances of winning re-election. Pence stated that the US will prioritize competition over cooperation by using tariffs to combat “economic aggression”
December 2, 2018: US and China agreed to a temporary truce
The truce aimed to de-escalate trade tensions, following a working dinner at the G20 Summit in Argentina. Both the US and China agreed to refrain from increasing tariffs or imposing new tariffs for 90 days as the two negotiated for a larger agreement.
December 14, 2018: China temporarily lowered tariffs on US automobiles for three months.
US auto imports are subjected to China’s standard 15% tariff rate on foreign autos. The suspension of additional tariffs is extended on March 31, 2019.
April 1, 2019: China banned all strains of fentanyl
Chinese fentanyl production and distribution had been a source of tension in bilateral relations because of the opioid crisis in the US.
April 10, 2019: US and China agreed to establish trade deal enforcement officers to monitor the enforcement of the trade deal, which has not yet been finalized
May 10, 2019: Trade war intensified
The US increased tariffs on $200 billion worth of Chinese goods from 10% to 25%. President Trump stated that he believes the high costs imposed by the tariffs will force China to make a deal favorable to the US.
May 13, 2019: China retaliated and announced it will increase tariffs on $60 billion worth of US goods starting June 1
May 16, 2019: US Department of Commerce announced the addition of Huawei Technologies Co. Ltd and its affiliates on its “entity list,” which effectively banned US companies from selling to the Chinese telecommunications company without US government approval.
June 2, 2019: China issued a white paper on US-China economic relations found here.
The paper denounced US unilateral and protectionist measures, criticized its backtracking on Sino-US trade talks, and demonstrated China’s stance on trade consultations and the pursuit of reasonable solutions.
June 21, 2019: US Department of Commerce added 5 more Chinese companies to its “entity list”
Sugon, the Wuxi Jiangnan Institute of Computing Technology, Higon, Chengdu Haiguang Integrated Circuit, and Chengdu Haiguang Microelectronics Technology were added to the list.
August 6, 2019: US Treasury labeled China as a currency manipulator
The yuan sank to 7 against the US dollar in apparent retaliation to the new punitive tariffs threatened to apply on the remainder of Chinese imports. China denied the accusations. The US later dropped this designation days before signing the phase one trade deal.
August 23, 2019: China announced $75 billion in tariffs on US goods.
September 1, 2019: US began implementing tariffs on more than $125 billion worth of Chinese imports.
September 2, 2019: China lodged a WTO tariff case against the US
According to WTO rules, the US has 60 days to try to settle the latest dispute.
October 11, 2019: President Trump announced that the US and China have reached a “Phase 1” agreement and that the US will delay a tariff increase.
November 1, 2019: WTO stated that China can impose compensatory sanctions on US imports worth $3.6 billion for the US failure to abide by anti-dumping rules on Chinese products.
January 15, 2020: US and China signed the ‘Phase 1’ trade deal, easing 18-month trade tensions
The trade deal relaxed some US tariffs on Chinese imports and committed China to buying an additional $200 billion worth of American goods (including agricultural products and cars) over 2 years, though the majority of tariffs remain in place
January 20, 2021: President Biden is sworn into office and planned to remain tough on China
Cabinet members signalled that Biden plans to take a multilateral approach by enlisting the support of Western allies to maximize Washington’s leverage on Beijing.
China’s official foreign policy strategy is known as Peaceful Development, and it is focused on global, harmonious growth. The purpose of the Peaceful Development strategy is to counter the Western notion that China’s “rise” is inherently dangerous while linking its development with that of other nations.
It is guided by five main principles:
Peaceful development: China will not initiate wars or act in a predatory manner.
Cooperative development: China will treat each nation as an equal member of the international community with mutual trust and mutual development.
Common development: China will assist world development while developing itself, and it will not act with selfish motives and/or actions.
Win-win development: China will broaden common interests among nations.
Mutual respect for sovereignty and territorial integrity: China will not involve itself in the domestic matters of other countries.
The principles of peaceful development are rooted in Confucianism, a philosophical outlook and attitude with large influence over the Chinese people. Confucianism’s main values are benevolence, trustfulness, equality, and forbearance, and it holds that the cultivation of these traits begins in the individual and then expands into society. For this reason, China’s desire to create a peaceful, stable international order is an extension of Confucian ideals of benevolence. The Confucian roots can be found in Peaceful Development’s Chinese name, where peace is known as 和平 (heping), literally translating to harmony and peace. The literal meaning is contrary to Western notions of peace, where it is simply the absence of war without mention of harmonious habitation. China’s understanding of peace is one of both harmony and benevolence that advances a narrative of non-aggression in the past and future.
However, China has not always acted in accordance with the peaceful development principles. Chinese troops engage in skirmishes along the Indo-China border, and China has acted aggressively in the South China Sea by ignoring international law (UNCLOS) over disputed islands, building military installations, and threatening foreign fishermen. The Belt and Road Initiative was officially created to assist developing nations by providing loans for infrastructure, but some countries report concerns over unsustainable loan debt and predatory lending. Apart from military aggressiveness, contradictions to benevolence are also found in China’s economic and cultural interactions with other countries. While its Belt and Road Initiative (BRI) was created to assist developing nations by providing loans for infrastructure, there is fear of unsustainable loan debt and predatory lending. Government-run Confucian Institutes have been established to promote Chinese culture and language internationally, but they have become controversial due to curriculum control from the Chinese state.
The contradictions found in Chinese foreign policy lie in the contrast between the international system China must survive in and its national interests. With a liberal international order in opposition to authoritarianism, China must present itself as a responsible power if it wishes to interact with the global community. Yet, China must also be cognizant of its domestic security that is based on sovereignty and territorial integrity, leading to perceived territorial, economic, and cultural aggressiveness.
China’s current foreign policy is largely influenced by its history with the tributary system that was in effect from the Han dynasty in 202 BC to the 19th century. In this system, neighboring states paid tribute by bringing native products and luxury items to the Chinese emperor in exchange for economic and security benefits from China. Part of the system involved the “kow-tow”, where heads of state bowed to the Chinese emperor to acknowledge China’s cultural sovereignty over their own. The Sino-centric system was based on China’s name as the Middle Kingdom, 中国 (zhongguo), or everything between heaven and earth. This meant that China’s prestige was rooted in its view of itself as the center of civilization ruled by a leader in possession of a “Mandate of Heaven” to govern the nation and its tributaries.
Today, while the tributary system is not in effect, the Chinese government views wielding influence on the global stage as a natural continuation of the “Mandate of Heaven”. In 2012, President Xi Jinping set forth the “China Dream” which aimed to reclaim China’s previous glory. This includes restoring Chinese prominence in Asia, regaining control over territories (Taiwan, Hong Kong, Tibet, Xinjiang), and gaining respect from global powers. President Xi Jinping is currently making the China Dream a reality by strengthening China’s presence in Southeast Asia with ASEAN, increasing government control over Hong Kong, and broadening China’s international reach through health diplomacy during the COVID-19 pandemic. Bearing in mind China’s previous role in Asia, in the context of the China Dream, it sees its destiny as a return to the prestige of its tributary days.
A return to prominence is also associated with the Century of Humiliation, a period from 1839-1949 where foreign incursions led to an erosion of Chinese sovereignty and prestige. China points to the First Opium War in 1839 as the beginning of their ‘humiliation’, where it fought Great Britain to try to end illegal opium imports into China and address a trade imbalance between the two nations. The war resulted in a British victory, and Britain asked for Hong Kong, the opening of five treaty ports for international trade, and most favored nation status. To the Chinese, a consequence of the war was a series of unequal treaties that continued with the Second Opium War, where China was further ‘humiliated’ by Great Britain, France, and the United States. This war resulted in the burning of the Summer Palace, which had great cultural significance, by British troops.
According to the current Chinese narrative, it wasn’t until 1949 under Mao Zedong’s leadership of the Chinese Communist Party (CCP) that the ‘humiliation’ came to an end. Since then, overcoming the Century of Humiliation has provided the CCP with domestic legitimacy and the impetus to return to tributary-like days. Due to the CCP’s significant role in ending ‘humiliation’, the party is seen as the only entity which can steward the country to the “China Dream”. The CCP is determined to avoid further subjugation at the hands of foreign powers, and interprets many decisions by Western actors as attempts to hold China back from its proper place on the global stage.
Nuclear umbrellas have been a central part of US nonproliferation policy for most of American nuclear history. A nuclear umbrella, also known as extended deterrence, is when one nuclear armed country, officially says it will use its nuclear weapons to protect a non-nuclear ally, i.e. the United States guaranteeing it will retaliate against North Korea if it strikes an allied country, such as Japan. The extended deterrence policy in the United States is called an extended nuclear deterrence (END) guarantee. The US began using nuclear umbrellas during the Cold War to prevent European countries from pursuing weapons programs, and have continued to be implemented up to the present day. An END guarantee can also cover conventional forces stationed in that country. It is a comprehensive way for the US to use its military power to both protect another country and avert their need to invest in military or nuclear weapons, furthering the US goal of nonproliferation.
Nonproliferation has been the main goal of the United States since World War II. Extended deterrence became a tool to reach that goal in the 1950s when the United States officially offered its nuclear umbrella to South Korea for protection against Russia. This policy ended with the end of the Cold War, as Russia was no longer the biggest nuclear threat to South Korea. However, with North Korea withdrawing from the Treaty on the Non-Proliferation of Nuclear Weapons (NPT) in 1994, a new threat emerged towards both South Korea, Japan, and the United States. Nuclear umbrellas were one of the only reasons many European countries did not pursue nuclear weapons, despite many countries having both the technology and resources to make a weapons program a viable defense option. More recently, this policy has been enacted in East Asia, to deter North Korea from attacking South Korea or Japan. Because of the number of countries now relying on the US nuclear program for deterrence, the US is continuously upgrading and renewing its own nuclear program.
For nuclear umbrellas to be effective, South Korea and Japan must trust that the United States would be willing to risk a counter strike from North Korea. Would the US be willing to sacrifice Washington to save Seoul? This is the key question to answer for any country that is offered extended deterrence. In the case of protection against North Korea, the general consensus is that it is. While credibility was not as certain during the Cold War era of extended nuclear deterrence, currently North Korea’s minor nuclear capabilities render it unlikely that they could launch a second strike against the United states successfully. This means the United States does have to sacrifice as much to offer South Korea and Japan extended deterrence. However, the more capability North Korea obtains, the less credible the extended deterrence will be. Increased North Korean capability would throw off the balance the United States has been able to find in the region.
The Group of Seven (G7) is a group of like-minded countries who meet regularly to address pressing global issues. The seven countries’ influence on the international stage has led to further interest in their meetings and their diagnosis of the most important issues to address.
The Group of Seven (G7), consisting of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States, held its first summit in 1975 in response to global economic challenges. In 1944, the Bretton Woods system established the U.S. dollar as the “world currency” by requiring nations to peg their currency to the dollar which was then tied to the price of gold. In 1971, President Nixon announced the end of the gold standard in the United States and countries were left to select a new exchange agreement for currency. For example, a nation could link the value of its currency to that of another nation, “float” the currency and allow the market to determine its value, participate in a currency bloc, or adopt a new currency.
A few years later, the Organization of Arab Petroleum Exporting Countries (OAPEC) placed an embargo on exports to the United States for supporting Israel during the Yom Kippur War, causing oil prices to skyrocket. The rise of fiat currency paired with the 1970s recession led the world’s largest economic powers to convene and discuss the future of international economic policy with the first G7 meeting.
From the G6 to the G8 and Back to the G7
The G7 was initially known as the G6 before Canada joined the group in 1976. Russia then became the newest member in 1998. President Bill Clinton hoped by granting membership to Russia, he could encourage the nation’s first post-Soviet leader to develop closer relations with the West. However, Moscow’s annexation of Crimea in 2014 resulted in Russia’s indefinite suspension. President Trump suggested Russia be readmitted in 2018 but that idea was rejected by other members.
Initiatives
The heads of government for each G7 nation meet annually to discuss an array of issues. The European Union participates in the annual summits as a “non-enumerated” member represented by the presidents of the European Council. The G7 is not based on a treaty and has no permanent secretariat, and the presidency rotates each year.
The G7’s agenda focuses on the most pressing global issues, as seen by the nations involved. For example, in the 1990s the group focused heavily on the economic transition of former communist states. Although the G7 formed to discuss economic cooperation, the group evolved to address foreign policy and human rights issues as well. At the June 2021 meeting, the G7 discussed rebounding from the economic hardships of COVID-19 in a sustainable manner. They pledged to increase global vaccine manufacturing capacity, invest in recovery plans that promote economic growth, reach net zero carbon emissions by 2050, and increase access to education, especially for women. The group also launched its Build Back Better World initiative to counter China’s Belt and Road Initiative. The plan aims to provide hundreds of billions of dollars in infrastructure investments to developing countries.
Although the G7 is not able to pass laws as a collective body, the members still work in unison to achieve their objectives. In 2002, the G7 played an instrumental role in creating the Global Fund to fight against HIV, TB, and malaria across 155 countries. G7 members have provided 75% of the Global Fund’s $45.4 billion in assistance since its creation. The effort has saved an estimated 38 million lives so far. Member nations also helped organize the Muskoka Initiative in 2010 to help reduce maternal and infant mortality and committed billions in funding. Experts projected the initiative would prevent more than 1.3 million deaths.
Future of the G7
Although the G7 has experienced notable success, questions remain as to whether the group is losing relevance. G7 nations accounted for 63% of the global GDP in 1975. Today, that share has dropped to 45%.
Two of the six largest economies in the world, China and India, are not members of the group despite their rising share of the global GDP. The G20, a complimentary organization to the G7, includes all G7 members in addition to India and China, among others. The group’s members make up 80% of global GDP and 60% of the world’s population. While the G7 addresses both economic and political issues, the G20 tends to focus almost exclusively on economic matters.
Efforts to counter China, such as the Build Back Better World initiative, continue to dominate the G7 agenda. As former White House advisor and member of the secretary of state’s policy planning staff Ash Jain explained, “The G7 is being rebranded as a group of like-minded democracies, as opposed to a group of ‘highly industrialized nations.’ They’re changing the emphasis.” The effort to counter the rise of China explains the G7 as more of a “like-minded” coalition of nations rather than a forum dealing exclusively with economic concerns.
As of 2021, there are 27 member states of the European Union. However, the current coalition and its structure has developed gradually throughout the latter half of the 20th century and into the present day. In 1950, French statesman Robert Schuman issued the Schuman Declaration, which called for France and Germany to pool their coal and steel production so that the economic crises that contributed to World War II would not happen again. In 1951, the European Coal & Steel Community was founded by France, Germany, Italy, the Netherlands, Belgium, and Luxembourg. By the late 1950s, this independent economic authority had grown into the European Economic Community and through the Treaty of Rome, a common market of goods, services, and people was established. The United Kingdom and Denmark joined in 1973, followed by Greece in 1981. The Schengen Agreement of 1985 was a pivotal moment for the European Community. It eliminated border controls and passport checks within the Schengen Area, facilitating the free movement of people to travel, work, and live within the area. The European Union was created with the Maastricht Treaty of 1992, and by that time Spain, Portugal and a reunified Germany had joined as well. The European Union has three pillars: the judiciary, legislative, and executive branches. It is the first truly supranational organization in modern history, where countries could be held to a greater independent authority than each of their own. Most recently, the Treaty of Lisbon in 2007 increased centralization, improved regulations and introduced a new global diplomatic framework.
The 5 Main Institutions of the European Union
The EU has evolved into a system of government that resembles the United States, and its European relatives. There are 5 main institutions – the European Council, European Parliament, European Commission, Council of the EU, and the Court of Justice of the EU.
The European Council ensures that the highest elected officials in EU nations are represented in the European Union. It is made up of the heads of state of all EU member countries. They nominate the President of the European Council and the European Commission. This body cannot pass laws. It sets the direction of the EU’s common foreign security agenda and may request legislation to be pursued. The European Council President serves a two and a half year term, once renewable, and presides over four meetings a year in Brussels, known collectively as the EU summits. Decision-making is generally by consensus and only heads of state can vote. Additionally, the European Council participates in the Euro Summit, where the heads of state of the Eurozone, the Council President and the Commission President meet exclusively to discuss economic policy in the Euro Area.
The European Parliament is the law-making body of the EU. It could be described as the body of the European citizens, with direct elections held every five years. The Parliament formally elects the Commission President and approves the Commission body, and has the power to form investigative sessions . They also undertake election observations, sending delegations to countries outside the EU, to analyze their election process and ensure democratic principles are upheld. The Parliament establishes the EU budget with the European Council and sets monetary policy with the European Central Bank.
The European Commission is responsible for drafting proposals for legislation for the European Parliament. It represents the interests of the European Union as a whole, implementing its global vision for EU development and funding programs. It proposes and manages the EU budget, which is submitted to the Council of Europe and then Parliament for approval and final ratification. The Commission works with member states to execute funding projects, and acts in a supervisory and regulatory capacity. While the Commission President and commissioners are chosen by the European Council, the European Commission is intended to act as its own independent authority that does not follow a single state’s agenda. The Commission President defines the policy direction, and with the Commissioners produces an annual work programme that outlines the EU’s strategic objectives and how they are to be implemented. In its own words, the European Commission sets objectives that support and promote European values of “freedom, democracy, equality, the rule of law, and respect for human rights.”
The Council of the EU, also known as The Council, works closely with the other branches to finalize the agenda of the European Union. They are the ‘decision-maker’ of the EU. The Council will negotiate and adopt EU laws from European Commission proposals. They are responsible for developing EU foreign and security policy with European Council guidelines, as well as adopting the annual EU budget with the European Parliament. The Council meets with other nations and international organizations to finalize agreements between them and the EU. There are no fixed members and the President serves a six month term that rotates between nations. There are ten different policy areas on which the Council meets, and each member state will send their respective minister for that configuration. For example, if the meeting is on foreign affairs, then 27 foreign ministers will attend. The decision-making process is a qualified majority system with four countries needed for a veto. For ‘sensitive topics’ such as foreign policy and taxation, a unanimous vote is necessary.
As an intergovernmental organization, each nation interprets the EU’s laws in accordance with its own constitution. The Court of Justice of the EU or CJEU is responsible for making sure that EU laws are applied to member states in the same way. It is the judicial branchof the EU. It settles legal disputes between nations and EU institutions. For instance, if the European Commission or a different nation feels that a member state is failing to comply with EU law, then it is up to the courts to rule whether an infringement has occurred. On the other hand, if a member state or any institution believes that an EU act violates EU treaties or the sovereignty of the national court, it can ask the CJEU to annul the legislation. There are two courts of the CJEU, the Court of Justice and the General Court. The Court of Justice is the Supreme Court of the EU, and deals with requests for preliminary rulings from national courts seeking guidance on how to interpret EU law. The General Court is responsible for contestations to EU institution actions against its member states that violate their fundamental rights or EU treaties. It deals mainly with competition law, state aid, trade, agriculture and anti-terrorist law. First, a written statement for annulment of an EU law is submitted to the Court. A general meeting, usually with five judges, then takes place to discuss if a hearing should be held and if the advocate general is necessary. The advocate general issues official opinions on the case to the judges after the lawyers of either side present their case. Their statements are not legally binding, but greatly influence whether an action for annulment will be successful. It is General Court procedure to have most cases heard by three judges. Any EU citizen, private company, or international organization can submit a case to the CJEU.
Current Issues Facing the EU
Since 2015, the European Migrant Crisis has been one of the longstanding humanitarian issues for the EU, but since then there have been greater measures taken to ensure a humane migration policy. It remains a very significant global issue, and for detailed analysis read Siena Frost’s article here.
The United Kingdom, the second largest net contributor to the EU, officially left the European Union in 2020 as a result of the controversial Brexit referendum vote in 2016. This will have wide reaching economic impacts on the United Kingdom and the European Union, and the ongoing negotiations demonstrate the intricate ties that the EU has within countries.
With the introduction of the Euro, came the most impactful economic mechanism of the European Union. For a breakdown of the Euro, the EU’s common currency, and its issues, read Francesca Reynolds’ article here. With a 2 trillion-plus stimulus package, the EU’s largest long-term budget to date will include a 750 billion euros COVID-19 recovery fund for a post-pandemic Europe. Another significant financial injection is the European Green Deal, with one third of the 1.8 trillion recovery plan going to financing its investments in building a more environmentally sustainable Europe.
The Quadrilateral Security Dialogue (also known as the Quad) is an informal alliance between the United States, India, Japan, and Australia. It was created in 2004 in response to the Indian Ocean tsunami, and US, Indian, Japanese, and Australian vessels worked together to provide humanitarian relief. Beyond these initial relief activities, the four nations decided to further cooperation to promote an “arc of freedom and prosperity” in the Indo-Pacific region. Aside from maritime security, the Quad serves other major purposes: observing and predicting Chinese actions and intentions, responding to those actions, and furthering the economic interests of participating countries by creating new global supply chains away from China. China views the Quad as an attempt to check its power in the Indo-Pacific arena.
Dissolution and Eventual Reunion
The first attempt at the alliance did not last long. Member states were concerned that the Quad would damage their cooperation with China, so the alliance dissolved later in 2004. However, by 2017 the four countries felt that concerns over China’s growing assertiveness outweighed the potential harms of damaging the relationship. China pivoted to a more active economic and military role on the global stage in 2012 when President Xi Jinping assumed power. This can be seen from the territorial dispute in the South China Sea and the Belt and Road Initiative.
Relationship with the Quad
Relations between China and the Quad member states have declined in recent months. Australia led investigations into the origin of the COVID-19 pandemic, leading to Chinese sanctions on Australian commodities. The dispute with Japan over the South China Sea has escalated, and China has sent military ships and aircrafts into the disputed waters with increased regularity. Tensions along the India-China border led to a deadly confrontation between troops of the two nations in the summer of 2020.
Recent DevelopmentsIn March 2021, the four nations convened in the Quad’s first summit and released a joint statement, “The Spirit of the Quad.” In this statement, they reaffirmed their commitment to the organization, sharing a vision for a “region that is free, open, inclusive, healthy, anchored by democratic values, and unconstrained by coercion.” In addition, the four nations pledged to work together to address global challenges, including climate change, cyber space, disaster relief, humanitarian assistance, quality infrastructure development, critical technologies, maritime domains, and counterterrorism. They have also pledged to deal with the impacts of COVID-19—in particular, their focus now lies in providing equitable vaccine access to the Indo-Pacific region.
The landlocked, mountainous region of Nagorno-Karabakh in the South Caucasus has seen some of the most consistent, brutal fighting in the post-Soviet world. Although it is a small region, Nagorno-Karabakh has existed at the junction between many historic powers such as the Russian, Ottoman, and Persian Empires. Thus, the region has developed a great diversity in language, religion, and ethnicity, each of which has significantly contributed to its history. During the Soviet era, the region was known as the Nagorno-Karabakh Autonomous Oblast (NKAO) in the Azerbaijan Soviet Social Republic (ASSR). Although located within the ASSR, the NKAO was populated primarily by Armenians with Azerbaijani and Russian minorities. These groups coexisted peacefully until the late 1980s when the disintegration of the Soviet Union gave way to increased nationalist sentiment on both sides. By the late 1980s, the NKAO received aid from the Armenian Soviet Socialist Republic, and relations developed between the two groups.
The territory is currently internationally recognized as part of the Republic of Azerbaijan, despite attempts by ethnic Armenians to unite the NKAO with the Armenian SSR and the successor state, the Republic of Armenia. The Republic of Artsakh is an internationally unrecognized state inside Azerbaijan that is predominantly ethnic-Armenian. It wields de facto control over parts of Nagorno-Karabakh from its capital Stepanakert.
Geographic location of Nagorno-Karabakh region – Image Courtesy of Al Jazeera
Mapping the Conflict
First Nagorno-Karabakh War (1988-1994): While citizens of the Soviet Union, ethnic Armenians and Azerbaijanis lived peacefully. However, as the USSR deteriorated, so did relations between the two groups. Subsequently, war broke out between the Armenian and Azerbaijani Soviet Republics in 1988 and ended in 1994, just a few years after both countries achieved independence from the USSR in 1991. The Armenian side was ultimately victorious and made significant territorial gains as the Republic of Artsakh gained de facto independence status and unification with the Republic of Armenia. However, the Azerbaijani Supreme Soviet (the body akin to Congress) rejected this status and gained recognition from the international community as the sole ruler of the Nagorno-Karabakh region.
Nagorno-Karabakh Conflict (2016): The period between 1994 and 2016 saw some minor outbreaks of violence violence which did not comparable to the first war. This relatively peaceful period ended in early April 2016 when fighting broke out on a larger scale, with both sides asserting that the other instigated the fighting. Between April 2nd and the 5th, dozens of soldiers and several civilians were killed on both sides of the conflict. While there was no clear winner following the ceasefire agreement, Azerbaijan won a symbolic victory as its success proved that it had become a match for Armenia since the previous conflict.
Nagorno-Karabakh War (2020): September through November of 2020 saw the most intense and devastating fighting in Nagorno-Karabakh in the post-Soviet era. Azerbaijan’s superior military capability led to a decisive victory. Azerbaijan regained much of the territory it had lost in the previous conflicts, including five cities, four towns, and 286 villages. However, it did not take Stepanakert, the capital of Artsakh, which remains in Armenian hands under the protection of Russian peacekeepers. While the territorial gains and losses were significant for both sides, the loss of life was also significant. Nearly 6,000 people were killed during the war, including 77 Armenian and 92 Azerbaijani non-combatants. Additionally, over 130,000 people were displaced, including approximately 90,600 people from Nagorno-Karabakh who moved to Armenia and approximately 40,000 from areas near the line of contact on the Azerbaijani side. Although the subsequent ceasefire was met with joy in Baku and anger in Yerevan, the human costs were extremely detrimental on both sides.
Territorial changes after the 2020 peace deal – Image Courtesy of BBC
Actors and Their Motivations
Republic of Artsakh: Self-determination is the driving motivator for the unrecognized state of the Republic of Artsakh. At present, Artsakh is not recognized by a single United Nations member, including Armenia. However, it is recognized by the non-UN member, unrecognized states of Abkhazia and South Ossetia, both located in Georgia, and Transnistria, located in Moldova. It suffered significant territorial losses to Azerbaijan during the 2020 conflict, and its reliance on Armenia for political, economic, and military assistance indicates that it may be unstable were it to achieve independence.
Republic of Armenia: Armenia is motivated by the geopolitics of the South Caucasus. It is bordered by an unfriendly Turkey to the west and Azerbaijan to the east. A fellow ethnic-Armenian state in Artsakh makes for a critical ally, despite not formally recognizing its existence. Armenia may also view the Nagorno-Karabakh region as a historic piece of Greater Armenia, and retaining the territory would represent a victory for the Armenian diaspora.
Republic of Azerbaijan: While Armenia and Artsakh are motivated by their shared ethnic background and desire for self-determination, Azerbaijan is motivated by its desire to maintain its territorial integrity. Nagorno-Karabakh, which accounts for roughly five percent of Azerbaijani territory, is internationally recognized as Azerbaijan. Despite this distinction, Nagorno-Karabakh is populated almost exclusively by ethnic Armenians, with a few hundred ethnic Azerbaijanis and Russians. However, with the territorial changes resulting from the war in 2020, it is likely that ethnic Azerbaijanis will move into the territory retained by Azerbaijan.
January 2021 Meeting between Armenian PM Pashinyan, Azerbaijani President Aliyev, and Russian President Putin – Image Courtesy of Radio Free Europe/Radio Liberty
Republic of Turkey: Turkey has been a fervent supporter of Azerbaijan and contributed to its military buildup since the early 1990s. The nationalistic government in Ankara has utilized the common Turkic background shared by the two countries to strengthen their interstate relationship and garner support for the Azerbaijani cause in Turkey. In addition, relations between Turks and Armenians have been historically hostile and are officially non-existent. President Erdogan of Turkey has insisted that Armenia withdraw from occupied Azerbaijani territory.
Russian Federation: Although Russia has been a traditional ally to Armenia, it is a neutral actor and has actively supplied weapons to each side since the 1990s. Despite this, Russia does not want a conflict near its borders. It leveraged its position as the regional hegemonic power to become an arbiter during negotiations between the warring parties and deployed its forces as peacekeepers in Nagorno-Karabakh. Peace in Nagorno-Karabakh may depend on how long Russia stays in the region as a peacekeeping force.
United States of America: Unlike Russia, the United States is not particularly involved in the region. However, both the Biden and Trump administrations attempted to secure peace between both sides. While the United States is not a regional actor, it does have a vested interest in securing peace. The United States’ NATO ally Turkey is closely aligned to Azerbaijan. If the conflict were to grow, the United States could find itself at odds with an Armenia-aligned Russia.
Future of Armenian-Azerbaijani Relations
Lachin Corridor : The Lachin Corridor is a narrow swath of land which connects Armenia and Artsakh. The corridor is a significant economic factor in Nagorno-Karabakh because it allows for the movement of people and goods from Armenia to Artsakh, although much of the surrounding territory was retaken by Azerbaijan in 2020. Presently, the Lachin Corridor is under the control of Russian peacekeeping forces per the 2020 armistice agreement.
Nakhchivan: Although located outside of the Nagorno-Karabakh region, the Azerbaijani autonomous exclave of Nakhchivan is not immune to interstate fighting between Armenia and Azerbaijan. In 2021, armed forces from Armenia and Azerbaijan clashed along the border of Nakhchivan and Armenia, resulting in one injury on both sides. The situation in Nakhchivan is only just developing, and further clashes could trigger a more significant regional conflict.
The International Criminal Court (ICC) is a permanent international court established to investigate, prosecute, and try individuals accused of committing the most serious crimes to the international community. These crimes include genocide, crimes against humanity, war crimes, and crimes of aggression. The Rome Statute, a treaty among 123 parties, established the Court and was signed into effect on July 17, 1998. The Court then began operations on July 1, 2002 in The Hague, Netherlands, where it still resides and operates today.
Another important aspect of the ICC is that it provides an explicit, legitimized process for punishing war atrocities, genocide, or other large-scale international crimes. By having a well-defined process to follow after an atrocity occurs, it becomes less challenging to seek justice for those afflicted. The ICC serves the dual purpose of securing justice for victims, as well as promoting peace, security, and stability. Ultimately, the ICC promotes accountability for perpetrators of atrocities as well as among its member states to ensure that justice is served to those individuals.
One of the main ways that justice is achieved is through reparations. In the case of The Prosecutor v. Bosco Ntaganda, on March 8, 2021 the court ordered Mr. Ntaganda to pay a total of 30,000,000 USD to those affected by the war crimes that he committed in the Democratic Republic of the Congo in the early 2000s. The ICC has also ordered reparations in the past, like in the Al Mahdi case. In 2016, Al Mahdi was convicted of the war crime of directing attacks on religious and historic buildings in Timbuktu, Mali. As part of his punishment he was liable for 2.7 million euros in expenses and was ordered to pay for individual and collective reparations for the community of Timbuktu. In addition to facilitating the imprisonment of perpetrators, the ICC offers justice by granting reparations to victims.
The goal of the ICC, proponents say, is not to replace national courts, but instead to complement them. The ICC only operates in situations in which national courts are either unwilling or unable to prosecute a certain crime. This might occur where proceedings are unduly delayed or are intended to shield individuals from their criminal responsibility. The ICC states that this notion is the principle of complementarity, under which the national court is given priority and states have the primary responsibility to try perpetrators of crimes against humanity. The ICC acts as both an independent and impartial body, and serves as a safety net for justice.
What are the criticisms of the ICC?
There are over 50 countries that choose not to be members of the ICC. These countries include China, India, Russia, and the United States. Without the backing of these four major powers, the ICC has faced an uphill battle to garner legitimacy. The main complaint by states regarding the ICC is that it infringes on state sovereignty. For example, China, who failed to ratify the Rome Statute, felt that the text was a violation of state sovereignty because it imposes obligations on parties who had not agreed to the Rome Statute, and thus was a violation of Article 34 of the Vienna Convention, which holds “[a] treaty does not create either obligations or rights for a third State without its consent.” China proposed an opt-in clause which would enable States to temporarily grant the ICC jurisdiction for a specific time frame or instance of crime, but the clause was not adopted.
Another frequently voiced qualm is that the ICC lacks authority and is overall ineffective in properly punishing war criminals. Notably, in 2010, former President Laurent Gbagbo of Côte d’Ivoire suffered an electoral defeat yet refused to step down. Violence ensued, which was largely attributed to forces under the control of Gbagbo, and nearly 3,000 people died. After several years in ICC custody, Gbagbo was recently acquitted of all charges of war crimes and crimes against humanity. Former President Ggagbo is just one of multiple heads of states against whom the ICC has initiated proceedings, yet not a single one has been convicted. In fact, in total, the ICC has issued a total of ten convictions, while acquitting four. In comparison, the ad hoc trials established by the UN following the war crimes committed in the former Yugoslavia, Rwanda, and Sierra Leone were able to secure 165 convictions.
In 2019, the Trump administration threatened sanctions to ICC Officials to avoid investigations into potential crimes against humanity committed by U.S. soldiers stationed in Afghanistan. Later that year, the Trump administration revoked the visa of Fatou Bensouda, the prosecutor for the International Criminal Court. In 2020, the Trump administration backed up its threats by passing Executive Order 13928, which authorized the imposition of economic sanctions against ICC officials directly engaged in the ICC efforts to investigate U.S. personnel, and expanded visa restrictions for officials directly engaged in those same investigations.
Since taking office, President Biden and his administration have revoked Executive Order 13928 as well as other previously imposed restrictions on ICC personnel. While the Trump administration was adamant in their disapproval of the ICC, the Biden administration’s recent revocation of unfavorable ICC policies signals a shift and perhaps a new relationship between the United States and the ICC.
