The trade battleground where China can deliver a serious blow to the US

The trade battleground where China can deliver a serious blow to the US

One of Beijing’s priorities for 2022 is to secure a free trade agreement with the Gulf states looking to diversify their interests beyond oil – sending a firm message to the US that its influence over these countries is waning.

Earlier this week, the foreign ministers of Saudi Arabia, Kuwait, Oman, and Bahrain, and the secretary general of the Gulf Cooperation Council (GCC) arrived in Beijing for a four-day visit aimed at strengthening economic ties with China.

Top of the agenda is a proposed free trade agreement (FTA) between the Gulf states and Beijing. Talks on this actually got under way back in 2004, but have stagnated. It’s now hoped they will find new momentum in a visit described by the Global Times as “unprecedented.”

It comes just weeks after the United Arab Emirates dumped a deal to buy F-35 fighter jets from the United States following Washington’s attempt to make dropping use of Chinese telecommunications provider Huawei a condition of purchase.

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With all of the Gulf states seeking to diversify their economies away from oil, and China keen to secure as many free trade agreements as it can to counter America’s containment efforts, the conditions are ripe for a deepening of ties. As the Huawei debacle shows, it is clear that the US has miscalculated the amount of leverage it has over these states, which have long had close ties with Washington. Beijing, however, offers them economic and regime security in ways the US does not, which has caused them to increasingly cast their eyes east.

The Gulf states are enriched monarchies that consolidated their regimes and privileges on the back of receiving support from the US and its allies in a ‘patron-client’ system. In exchange, they propped up America’s strategic and economic interests in the Middle East.

After the dissolution of the Ottoman Empire following World War I and the advance of European powers – in particular Britain and France – into the region, an arrangement was made whereby they would support the political independence of the Arabs (albeit in a rigged system of borders and states they set out) in exchange for oil. This mantle soon shifted to the US.

By the 1930s, the Kingdom of Saudi Arabia had consolidated itself, while a number of smaller states emerged in the second half of the 20th century from British protectorates, including Oman, the United Arab Emirates, Bahrain, and Qatar. The deal was simple: ‘Provide us with oil, buy our arms and we will protect you’.

These autocratic states subsequently became the lynchpin of opposition to revolutionary post-colonial states that did not like the presence of the West in the region, including Nasser’s Egypt, Saddam Hussein’s Iraq, Assad’s Syria, and post-revolution Iran. This has made the Gulf states important markets for the US military-industrial complex.

But the world is changing – and not in ways the US likes. First of all, there’s now a much, much larger market for oil beyond America and its allies. The rise of China, a country with 1.4 billion people, has transformed it into the world’s largest consumer of energy, a consideration which has inevitably created a huge commercial relationship between Beijing and the Gulf.

Secondly, unable to rely on oil forever as the age of renewables creeps ever closer, the Gulf states are racing to invest their long-accumulated wealth in new things, diversifying their economies. Saudi Arabia’s sovereign wealth fund, which recently bought the English football club Newcastle United, is one particular example of this and is pouring investment into China.

These states obviously see the world’s largest consumer market as a key part of their strategy. But, thirdly, they also see a politically reliable partner in China, which despite having a very different ideology to autocratic Islam in communism, is more likely to respect national sovereignty than the liberally evangelical West through its policy of non-interference.

It is no surprise, then, that the Gulf states have been persistent supporters of China’s Xinjiang policy at the UN. This is an area of mutual interest that the US, while generally doing its best to overlook human rights in these nations, can’t match.

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Washington is naturally alarmed by the eastern turn of these states, and late last year attempted to pollute relations between China and the UAE. First came the demand that it dumps Huawei, and then it accused China of building a secret military base at a port in Khalifa in the country.

The effort was largely unsuccessful, and although Abu Dhabi stopped the port project to appease the US, it also dumped the F-35 deal branding America’s demand an unacceptable infringement on national sovereignty.

This should have been a reminder to the US that the Gulf states are not ‘allies’ in the way European states are, but partners who have utilized the US and others to further their interests. Now, they see a considerable part of those interests being better served by China.

They do not buy US-led Cold War propaganda on the supposed Chinese threat, and as authoritarian states themselves, cannot be sold the argument that they need to join the Americans in a global struggle for democracy or consider Beijing a threat to their own regimes.

And it’s not just the US which is making this mistake. Liz Truss, Britain’s polarizing foreign secretary, also met with the Gulf states’ foreign ministers late last year and pitched her meeting, albeit indirectly, as an attempt to counter the Belt and Road Initiative through “financing honest and reliable infrastructure overseas,” even though it is clearly ridiculous to consider the UK a viable alternative to China.

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In this case, it should be obvious right now that one of China’s key priorities in 2022 will be to wrap up an FTA with the Gulf states. The proposed deal had previously gone nowhere because, with such huge trade surpluses owing to the export of energy, the Gulf states didn’t really need use of an FTA to prosper.

But times are different now and these states want into China’s retail and service markets, and to export their own specialties such as textiles, handicrafts, and food. With China eyeing more free trade as its primary strategy to counter the US, and the Gulf states not being industrialized nations that pose a challenge to its own industries – as well as being large-scale importers and consumers – it should be easy for Beijing to make the concessions necessary to force it through.

The political ramifications of this will be huge: in light of the Huawei row, it will send the message to the US that it does not have the power over the Gulf states it once had, and that it cannot compel everyone to turn against China.

The Gulf states are still happy to have a positive working relationship with Washington and London. However, the message is clear: it’s on their terms now. China is a hedge and it’s also worth remembering that in every instance – and this applies to Beijing as much as anyone else – the UAE, Saudi Arabia, Kuwait, and others are not so much friends, as business partners.

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