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Dec 1, 2018 | 18:34 GMT

8 mins read

The Weekly Rundown: U.S.-China Trade Menu, Auto Tariff Anxieties, and Chinese Tuition and U.S. Universities

German Chancellor Angela Merkel speaks at the annual congress of the Confederation of German Employers' Associations on Nov. 22, 2018, in Berlin.
(SEAN GALLUP/Getty Images)
Stratfor's geopolitical guidance provides insight on what we're watching out for in the week ahead.

On the Record

It's gone from an elephant to a mouse. And the mouse is in a cage.

                                                       Dutch Finance Minister Wopke Hoekstra on France's ambition to create a eurozone budget


On Our Radar

A Dinner Deal to Start Dealing? In a few short hours here on Dec. 1, we'll know whether a crowded dinner table in Buenos Aires, Argentina, featuring U.S. President Donald Trump and Chinese President Xi Jinping, will produce a broad framework for a compromise between the United States and China to pause their trade war while they continue talking more. Notably, U.S. Trade Representative Robert Lighthizer, whose technical trade expertise and bulldog approach adds credibility to any negotiation, will be at the table. But so too will China hawk Peter Navarro, whose physical presence and uncompromisingly hard-line views could scuttle a cease-fire.

A Chilling Lesson on Auto Tariffs. The Europeans and Japanese are understandably getting antsy over White House rumors that Trump may try to impose auto tariffs in the near future, thereby breaking a pledge to hold off on tariffs while trade negotiations continue. The idea would be that the White House could use the tariff hammer to dial up pressure on its trading partners and offer periodic waiver extensions during the negotiation itself to try and rush the other side into a deal on U.S. terms. This will be an especially bitter pill for the European Union to swallow, especially with European parliamentary elections coming up in May and deep divisions within the bloc over what to offer in negotiations with the White House. Watch as German automaker executives from BMW, Daimler and Volkswagen try to plead their case when they visit the White House on Dec. 4.

The USMCA Cautionary Tale. The incredibly awkward signing of the United States-Mexico-Canada Agreement (or the Canada-U.S.-Mexico Agreement, according to Ottawa) at the Group of 20 summit in Buenos Aires offers a cautionary tale. Among the sticking points that will complicate ratification of the deal is a U.S. attempt to insert binding quotas on auto imports on a company-by-company basis. Given General Motors' untimely announcement of job cuts, Trump is intent on finding tools to punish companies perceived as violating his economic agenda. Moreover, despite Canada's persistent demand for the United States to lift steel and aluminum tariffs as part of a final deal on USMCA, Lighthizer reaffirmed that those tariffs have been successful and will remain in place. The overall lesson for U.S. trading partners? Tariffs are sticky, and a truce — and even a full trade deal — by no means guarantees their removal by this White House.

Preparing for a Post-Merkel World. Germany's governing Christian Democratic Union (CDU) will appoint a new leader to replace Angela Merkel at the end of a party conference on Dec. 7-8. The main contenders include a Merkel loyalist who proposes continuity with the departing leader and a former Merkel rival who wants to move the CDU toward more conservative positions on issues like taxes and immigration (a strategy to regain the voters that the party has lost to the far-right). While Merkel plans to remain chancellor until the end of her term in 2021, a more conservative CDU could undermine her traditionally centrist approach to policy and make it harder for Germany to find consensus with France on EU-level policy.

A Critical Decision on EU Exits. The European Court of Justice's advocate general will issue his opinion on Dec. 4 as to whether the United Kingdom can unilaterally call off its exit from the European Union under Article 50 of the EU treaty, which makes it possible for member countries to leave the bloc. The court's ruling is expected in 2019, but EU judges tend to confirm the advocate general's opinions. In the unlikely event the court rules that the unilateral suspension of the exit process is possible, then governments could use Article 50 and the threat of leaving the European Union as leverage in their negotiations with Brussels, knowing that they can abort the process whenever they want.

OPEC's Trumpian Dilemma. When OPEC and non-OPEC oil producers meet in Vienna on Dec. 6, their goal will be to arrest a two-month drop in oil prices. Saudi Arabia's challenge is to find a way to discretely organize a production cut so as to avoid alienating Trump. Saudi Arabia and a few others already have been surpassing their quota levels and so will have room to cut production. But will Russia play ball?

Fresh Vigor in Yemen Talks. Rare momentum is building for an attempt at Yemeni peace talks in Sweden next week. This time, the Houthis are expected to be at the negotiating table, and a U.S. Senate resolution that moved to debate this week, along with other brewing legislation on limiting U.S. military aid to Saudi Arabia, has heightened the political pressure on the Saudi-led coalition to give a good faith effort to peace talks. If talks are held, they will center on pausing hostilities long enough to distribute some much-needed humanitarian aid, as well as hashing out a plan for the U.N.-backed administration of the strategic al-Hudaydah port.


On Our Minds

What Targeting Chinese Students Could Mean for the U.S. Economy. With U.S. scrutiny on Chinese espionage in key strategic fields on the rise, the Trump administration is looking at the educational system to cut off the threat at its source: higher education. The length of stay has already been shortened for graduate students in key sectors and further restrictions could prevent many Chinese students from matriculating (and therefore paying tuition) at universities throughout the United States. The risk of U.S. government action is so great that we're even starting to see major universities consider insurance policies to protect themselves from tuition loss. With student debt already a serious constraint on U.S. economic growth and the spending power of entire generations, the possible loss of income for universities has the potential to have much broader knock-on effects on the domestic economy.

A Muted Response to Ukraine's Call for Help. As one would expect with an uneasy borderland state sitting in Russia's shadow, Ukraine is sounding the alarm, claiming another Russian ground invasion is imminent in the wake of its confrontation in the Kerch Strait and Sea of Azoz. Ukrainian President Petro Poroshenko's strategy is to get firmer security commitments from the United States and its European NATO partners, while also justifying martial law at home in the lead-up to elections. We expect to see more U.S. security support to Ukraine, but are watching for whether the White House would risk a more serious provocation with Russia through naval patrols in disputed waters of the Black Sea, similar to the assertiveness it has demonstrated against China in the South China Sea. Germany, meanwhile, is worried about U.S. unilateralism in Eastern Europe driving more friction with Moscow, but is not exactly jumping at the bit to answer Ukraine's calls for help. The most the Europeans are offering at this point is to extend existing sanctions against Russia. We'll see if that shifts as the United States pays closer attention to Kiev.

Tehran, Caught Between Brussels and Washington. Iran saw a glimmer of hope this past week from Europe when France and Germany threw their weight behind the special purpose vehicle (SPV) to facilitate financial transactions with Iran. This essentially raises the stakes for Washington to target Paris and Berlin in secondary sanctions over Iran. At the same time, the White House is aggressively building a case against Iran to try and undermine such mechanisms, along with the multilateral institutions responsible for oversight of Iran's. To that end, the United States is upping pressure on the International Atomic Energy Agency to take more seriously Israeli intelligence on Iran's nuclear archives and is going out of its way to showcase recovered Iranian missiles proliferating through the region to proxies like the Houthis. Beyond trying to strengthen its sanctions coalition against Iran, the White House is also keeping the option for military strikes on the table. Remember that Israel has also been raising the specter of expanding strikes beyond Syria and Lebanon to Iraq and potential targets on the Red Sea if it deems Iran's missile supply line a critical threat.


In Case You Missed It

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Washington Wakes Up to East Africa's Importance

Japan Has Carefully Paved the Way for Trade Talks With the U.S.


On Our Calendar

In the coming week, OPEC and non-OPEC representatives meet in Vienna to discuss a possible cut in production, the advocate general of the European Court of Justice will say whether the United Kingdom can unilaterally change its mind about Brexit, and Germany's Christian Democratic Union will replace Angela Merkel as party leader. For more, see our Geopolitical Calendar.


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