The Weekly Rundown: Belt and Road Forum, Signs of U.S. Change in Libya and Burying a South American Bloc

7 MINS READApr 20, 2019 | 17:13 GMT
Chinese Foreign Minister Wang Yi, front center, stands with other delegates for a group photo before the Belt and Road Forum on Legal Cooperation began in Beijing on July 2, 2018.

Chinese Foreign Minister Wang Yi, front center, stands with other delegates at the Belt and Road Forum on Legal Cooperation in Beijing on July 2, 2018. China's latest conference promoting its massive connectivity project opens April 25.

(GREG BAKER/AFP/Getty Images)

On the Record

We proudly proclaim for all to hear: The Monroe Doctrine is alive and well.

U.S. national security adviser John Bolton

On Our Radar

Spotlighting Belt and Road. Amid rising global scrutiny over China's Belt and Road Initiative, Beijing will host nearly 40 world leaders next week for the second Belt and Road Forum. Since the previous summit, Malaysia and Myanmar have renegotiated their deals with China, spurring similar pushes for better terms from Pakistan, Ethiopia and the Maldives. China will point to its revived infrastructure deals with Malaysia and wealthy Western recruits Italy and Switzerland to paint a successful picture. Another area we have been watching for in the U.S-China great power competition is how far the United States could meaningfully counter Belt and Road. While it finds it hard to match China's spending, Washington appears to have hit on another approach: Reports have emerged that a U.S. advisory team coordinated with Myanmar in negotiating down its project costs with China — a practice likely to be extended as the United States, Australia and others provide the technical expertise and political backing to enhance scrutiny of the Belt and Road.

A U.S. Shift in Libya? Field Marshal Khalifa Hifter is running into big obstacles waging an offensive on Tripoli, but the ambitious general appears to have earned a valuable ally this week: U.S. President Donald Trump. Trump and Hifter spoke for the first time on April 15 and Trump reportedly gave Hifter his support to root out terrorists in western Libya. We'll have to see if Trump's understanding with Hifter leads to more material support for his offensive, but at the very least it could give Hifter's largest foreign backers — Egypt, Saudi Arabia and the United Arab Emirates — carte blanche to support him more openly. This could mean more robust training, arms and financial support as well as airstrikes, and intelligence, surveillance and reconnaissance. We assume that a Trump-Hifter understanding would also entail a pledge to maintain Libyan oil flows, especially as the White House ups sanctions pressure on Iranian and Venezuelan oil exports.

Mexico's President Kills Reform by Decree. In keeping with one of his big campaign promises, Mexican President Andres Manuel Lopez Obrador ordered his government to stop enforcing a landmark education reform that was enshrined in the constitution in 2013. The accountability measures and teacher performance reviews attached to that reform spawned violent protests from Mexico's powerful teachers' unions, whose support Lopez Obrador is now trying to secure in building up his own political base. Since the move was done by executive decree, it will almost certainly be challenged in federal court. Should the courts reverse the president's decision, we could see another wave of disruptive union protests that would cut road and rail links to the key port of Lazaro Cardenas. Lopez Obrador's move raises an important question about what other legislation he will try to target through illegal and politically polarizing decrees.

Qualcomm Survives the Apple Threat, but the FTC Threat Looms Large. Apple and Qualcomm ended a string of long-running legal disputes this week over licensing royalties. Instead of having to entertain a politically toxic Huawei offer to supply its smartphone chips, Apple will now gain access to Qualcomm's modem chipset to release a 5G iPhone in 2020. But Qualcomm is not out of the woods yet. A U.S. Federal Trade Commission report could drop any day now and determine whether Qualcomm's current, highly integrated business model will survive U.S. antitrust scrutiny. If Qualcomm loses, the country's most important developer of wireless technology and standards would be forced to break up, giving its competitors — principally South Korea's Samsung and China's Huawei — a strategic leg up in the future.

Italy Credit Rating Watch. We'll be watching market reactions when Standard & Poor's announces its credit rating for Italy on April 26. While there is a decent chance the rating will remain unchanged, a downgrade would put Italy in junk territory, which would force Rome to pay higher interest rates for its debt and could force many investors to stop purchasing Italian debt. Even though the Italian economy is officially in recession, the Italian government is sticking to a number of expansive fiscal policies.

On Our Minds

The Death of UNASUR. The Union of South American Nations (UNASUR) was dealt a death blow this week when Brazil and Argentina ditched the regional political bloc. UNASUR was founded in the mid-2000s by leftist South American governments, but shifting economic conditions, a rise in widespread corruption scandals and regional polarization over Venezuela's slide into dictatorship have taken the wind out of leftist governments in South America. Their right-leaning successors are now trying to reorganize the region's states into a new body dubbed the Forum for the Progress of South America (Prosur). Regional forums touting economic and political integration are a constant in Latin America, but the organizational reshuffling points to a deeper trend line in the region where right-leaning governments are gaining the political space to coordinate around the Venezuelan crisis and debate trade liberalization without significant leftist interference.

China's Main Pension Fund Is Running Dry. Even as it saw better-than-expected first-quarter GDP figures this week, China got worrying news about the future of a major pillar in its pension system. A government-backed research group reported that China's urban pension fund would zero out under current conditions by 2035. Like Japan and South Korea, China is facing its own demographic tipping point in the coming years as its baby boom generation from the 1950s to the 1970s retires and must be supported by their post-1979 one-child cohorts. China is already trying to maintain a delicate balance between restructuring its economy and reducing major wealth disparities to achieve more stable, long-term growth, all while absorbing external risks, like U.S. trade barbs. China's massive reserves and savings culture gives it considerable insulation in managing these risks, but the country's approaching demographic crunch will put its balancing act to the test.

Another Controversial U.S. Sanctions Play. In the name of upholding the Monroe Doctrine, the White House stripped away waivers tied to the 1996 Helms-Burton Act. Americans are now allowed to file suit in federal courts over property expropriated by the Cuban communist government. This could open up thousands of lawsuits between American entities and mostly European and Canadian investors in Cuba. The European Union is increasingly exasperated with what it sees as the United States' extraterritorial abuse in sanctions policy. The question is, what can the European Union meaningfully do to resist this broader U.S. unilateral push? In the case of Iran, the United Kingdom, France and Germany set up a special clearing house to continue trade in humanitarian goods. Still, European companies are going to be prudent in any transactions with Iran that could invite U.S. sanctions measures. In the case of Cuba, we can expect challenges to be taken to the World Trade Organization. We could also see the European Union introduce a blocking statute to make it illegal for European companies to comply with U.S. law and pass countermeasures that would allow EU companies to seek redress against U.S. lawsuits. This all points to a messy and highly litigious path ahead as the European Union and other U.S. trading partners see a growing need to insulate themselves against and resist an aggressive U.S. sanctions strategy.

In Case You Missed It

Why the Belt and Road Fuels India's Fear of Encirclement

Great Power Competition Feeds the Threat Posed by Anti-Satellite Technology

In Venezuela, the Tide Is Turning on the Opposition

On Our Calendar

In the coming week, Ukraine holds its presidential runoff election, North Korean leader Kim Jong Un is expected to meet with Russian President Vladimir Putin in Vladivostok and China hosts an international forum in Beijing on its Belt and Road Initiative. For more, see our Geopolitical Calendar.

Join the Discussion

How would a ruling for the U.S. Federal Trade Commission in its antitrust lawsuit against Qualcomm affect Apple's 5G iPhone development, now that Apple and Qualcomm have settled their dispute?

If Terry Gou, Taiwan's wealthiest man and founder of the electronics company Foxconn, enters Taiwan's next presidential contest, will the ties he's built with China over the years hurt or help him in the polls?

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