CNBC POLITICS - The West must be ready to face the ‘deadly quartet’ of global adversaries, analysts warn PUBLISHED THU, JUL 18 20241:10 AM EDT

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POLITICS

The West must be ready to face the ‘deadly quartet’ of global adversaries, analysts warn

PUBLISHED THU, JUL 18 20241:10 AM EDT

KEY POINTS

 - Last week’s NATO summit which highlighted the threat and “systemic challenges” posed by Russia, China, North Korea and Iran.

 - Geopolitical and defense experts say the West has to prepare itself to confront such adversaries.

 - Former NATO chief George Robertson warned Tuesday that the U.K.’s armed forces must have the capacity to challenge a “deadly quartet” of rivals.

NATO leaders attend the Allied and Partner Heads of State and Government Meeting as part of the NATO Heads of State and Government Summit in Washington DC., United States on July 11, 2024.

Anadolu | Getty Images

LONDON — Hot on the heels of last week’s NATO summit that highlighted the threat and “systemic challenges” posed by Russia, China, North Korea and Iran, geopolitical and defense experts say the West must now prepare itself to confront such adversaries.

Former NATO chief George Robertson on Tuesday warned that the U.K.’s armed forces must have the capacity to confront a “deadly quartet” of rivals, as he launched a strategic review into Britain’s defensive capabilities.

“We’re confronted by a deadly quartet of nations increasingly working together,” he said, in comments reported by Sky News.

“We in this country and the NATO alliance … have got to be able to confront that particular quartet as well as the other problems that are pervading the world,” he added.

Robertson did not explicitly name the members of the quartet, but the other three countries are thought to be Russia, Iran and North Korea — countries that NATO last week described as posing a threat and systemic challenges to “Euro-Atlantic security.”

The use of the word “deadly” to allude to China matches a ramping-up of rhetoric against Russia’s ally in last week’s NATO summit, where Beijing’s status as an adversary was acknowledged more publicly than ever.

TOPSHOT - China's President Xi Jinping (R) and Russia's President Vladimir Putin attend the opening ceremony of the third Belt and Road Forum for International Cooperation at the Great Hall of the People in Beijing on October 18, 2023. (Photo by PEDRO PARDO/AFP via Getty Images)

China’s President Xi Jinping and Russia’s President Vladimir Putin attend the opening ceremony of the third Belt and Road Forum for International Cooperation at the Great Hall of the People in Beijing on Oct. 18, 2023.

Pedro Pardo | Afp | Getty Images

In the summit declaration, China was described as a “decisive enabler” of Russia’s war against Ukraine and as posing “systemic challenges to Euro-Atlantic security,” with the military coalition citing “sustained malicious cyber and hybrid activities” and concerns over the diversification of Beijing’s nuclear arsenal and space capabilities.

NATO leaders meeting in Washington agreed that China’s “coercive” policies and ambitions challenged the defense pact’s “interests, security and values,” positioning Beijing as a key opponent of the alliance.

The NATO declaration also said China’s “deepening strategic partnership” with Russia was of “profound” concern, although it was clear that Russia and its ongoing war on Ukraine remained the alliance’s most immediate concern.

The coalition described Moscow as having “shattered” peace and stability in the West and having “gravely undermined global security.” Russia’s nuclear capabilities and hybrid action through proxies, such as malicious cyber activities, provocations at allied borders and disinformation campaigns were all noted as particular threats.

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Russia’s allies North Korea and Iran were also accused of “fuelling Russia’s war of aggression” against Ukraine by providing direct military support to Russia, such as munitions and unmanned aerial vehicles (UAVs), which, NATO said, “seriously impacts Euro-Atlantic security and undermines the global non-proliferation regime.” 

Russia and North Korea deny arms transfers have taken place. Iran has previously said it supplied drones to Russia, but claimed it had shipped these before the war started. China has been threatened with sanctions after being accused of sending “dual-use” materials, including weapons components and equipment, for Russia’s defense sector to use in its own weapons’ production. 

China denies supplying weapons to Russia, with Chinese foreign ministry spokesperson Lin Jian reportedly describing the latest NATO comments as “biased, slanderous, and provocative.” He also dismissed NATO as a “relic of the Cold War.” China’s mission to the European Union said that the NATO statement was “filled with Cold War mentality and belligerent rhetoric.”

Ian Bremmer, founder and president of Eurasia Group, said the latest NATO summit showed that the West and its opponents appeared to be positioning themselves in a “new Cold War posture.”

China being labeled as a principle adversary would, he said in emailed comments Monday, increase “pressure for decoupling from China in strategically important sectors for the Europeans...and given the presence of Asian allies as strategic partners to NATO, increasingly feels to Beijing like broader containment that could move the world into a new Cold War posture.”

Economic superiority

Just how the West can confront such adversaries remains to be seen. Russia, North Korea and Iran are already under substantial international sanctions, and those restrictions on trade and key sectors have arguably pushed them closer together.

Lumping China in with so-called “rogue states” was a significant step for NATO, one security expert noted, but it still did not give any clarity on how Western allies might confront an adversarial axis of power.

“The declaration states that ‘The PRC [People’s Republic of China] cannot enable the largest war in Europe in recent history without this negatively impacting its interests and reputation’, which is a significant step for the Alliance in calling out its hostile intent,” said Ed Arnold, a senior research fellow for European Security within the International Security department at the Royal United Services Institute think tank.

“However, it mainly identified and admired the problem, rather than outlining what NATO should do about it,” he noted in commentary last week.

NATO’s increasing focus on China and what it means for Asia

Holger Schmieding, chief economist at Berenberg Bank, said the West’s economic superiority could help it prevail, while its adversaries are putting severe strain on their own economies and resources — whether through waging war, in the case of Russia, or by supporting conflict elsewhere, as per North Korea and Iran.

“In an increasingly multipolar world, the free and advanced democracies of the Global West are facing ever more challenges,” Schmieding said in emailed comments on Monday.

“Russia is waging a high-intensity war against a fellow European country while China is aggressively asserting its power,” he noted.

“It is easy to be pessimistic about the outlook for the advanced countries as defenders of freedom, peace and democracy. But that would be wrong. Time is not on the side of the enemies of the Global West. China’s share in global GDP [gross domestic product] seems to be peaking, Russia will struggle to wage its costly war for more than a few more years and Iran is turning ever more into what North Korea already is, an economic basket case with very limited resources.”

The “Global West” has superior resources, Schmieding said, and, “if it musters the will to use its might, support Ukraine, pay for its defence and play the long game, it can prevail while the troublemakers suffer the consequences of having overstretched their economies.”

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What would a second Trump presidency mean for China? Goldman Sachs weighs in

PUBLISHED WED, JUL 17 202410:36 PM EDT

Sonia Heng

@I

KEY POINTS

If Donald Trump wins the U.S. presidential election, his plans for 60% tariffs on Chinese goods could be a “major downside growth risk” to China, according to Goldman Sachs.

China’s economy grew by 4.7% in the second quarter compared to a year ago, missing economists’ expectations and bringing growth for the first half of the year to 5%.

However, some analysts believe China is more likely to have “positive” trade outcomes under a Trump presidency, given his “transactional nature.”

Chinese President Xi Jinping and former U.S. President Donald Trump in Beijing, China, in 2017.

Chinese President Xi Jinping and former U.S. President Donald Trump in Beijing, China, in 2017.

Artyom Ivanov | TASS | Getty Images

BEIJING — If Donald Trump wins the U.S. presidential election, his plans for 60% tariffs on Chinese goods could be a “major downside growth risk” to China, according to Goldman Sachs.

Chances of Trump becoming the next president ticked higher after he survived an assassination attempt on Saturday and selected former critic JD Vance as his running mate two days later.

“Right now exports are a major bright spot in the Chinese economy, and I think the policymakers might want to be prepared,” Hui Shan, chief China economist at Goldman Sachs told CNBC’s “Squawk Box Asia” on Tuesday.

“We are seeing tariff narratives, not only in the U.S., but across other major trading partners of China’s,” she said. “So this is not going to be a sustainable driver of growth for China.” 

The U.S. is China’s largest trading partner on a single-country basis, while the European Union has fallen behind Southeast Asia as China’s largest regional trading partner. Trump had raised duties on Chinese goods when president in 2018 and has threatened to increase them to 60% if reelected this fall.

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The contribution of goods exports to real GDP growth in China for the second quarter of this year was the highest since the first quarter of 2022, when Covid restrictions limited domestic economic activity, according to Citi.

Meanwhile, Beijing’s push to develop high-end manufacturing has not yet been able to fully offset a real estate slump and lackluster consumption.

U.S. officials such as Treasury Secretary Janet Yellen have said that China’s policies to boost its industrial capability and technological self-reliance have led to U.S. job losses.

China the ‘biggest threat’?

In his first interview since he was selected as Trump’s running mate, Vance told Fox News that instead of the war in Ukraine, China was the “real issue” for the U.S. and posed the “biggest threat.”

The Biden campaign has criticized Trump’s pick, saying the choice was deliberately made “because Vance will do what Mike Pence wouldn’t on January 6: bend over backwards to enable Trump and his extreme MAGA agenda, even if it means breaking the law and no matter the harm to the American people.”

Supporters of Trump, who was president at that time, had stormed the U.S. Capitol in an attempt to overturn the 2020 presidential election results on January 6, 2021.

Asked about Vance’s comment, China’s Ministry of Foreign Affairs spokesperson Lin Jian said Tuesday at a daily press briefing, “We are always opposed to making China an issue in U.S. elections.”

Calls for stimulus

China’s economy grew by 4.7% in the second quarter compared to a year ago, missing economists’ expectations and bringing growth for the first half of the year to 5%. It prompted some calls for more stimulus if the world’s second-largest economy is to reach 5% growth for the full year.

The downside risk from potentially higher U.S. tariffs under Trump would primarily come from the greater uncertainty and tighter financial conditions, as well as pressure on the Chinese yuan, Goldman’s Shan said. She pointed out that tariffs in 2018 did not significantly dent China’s exports to the U.S.

More recent data, however, showed a slowdown in that trade. China’s exports to the U.S. rose by a modest 1.5% in the first half of the year.

“Policymakers need to think about domestic demand and focusing on something that is more persistent and sustainable for the growth outlook,” Shan told CNBC on Tuesday.

If 60% tariffs are imposed, “that’s pretty high and we think the implication for the macro economy is pretty significant,” she added.

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So far, China has held back on stimulus measures. The country’s top leaders are meeting in Beijing this week for a highly anticipated Third Plenum, which is expected to determine long-term economic policy goals.

Citi analysts said Monday that weak retail sales and disappointing second-quarter growth won’t be enough to convince Beijing to increase support for the economy.

“Policymakers may tolerate short-term weakness amid the structural shift of the property sector,” the analysts said. “More concerns on trade and external relationships could also lead China to save the policy space for future.”

Citi forecasts 5.0% growth in real GDP growth for China this year.

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China’s U.S. dollar-denominated exports grew by 3.6% in the first six months of the year after better-than-expected global demand for Chinese goods in recent months.

“Manufacturing and infrastructure investment may stay robust and exports should stay in decent [year-on-year] growth in [the third quarter], with possible front-loading of shipment orders in [the second half of the year] due to fears of higher tariffs,” Tao Wang, head of Asia economics and chief China economist at UBS Investment Bank said in a note Tuesday.

She said Chinese authorities would likely be reluctant to roll out major stimulus in the next few months in order to save resources in the case of greater economic weakness and increased tariffs.

UBS forecasts 4.9% growth for China’s economy this year.

Trump the dealmaker

Not all analysts believe a possible Trump presidency will prove detrimental to China, though.

Ben Harburg of Corevalues Alpha told CNBC on July 4 that he believes China is more likely to have “positive” trade outcomes under a Trump presidency, given the ex-president’s “transactional nature.”

“He’s a dealmaker, and like any negotiator, he likes to kind of set the bar low, and kind of set his price low, and then work up from there,” the portfolio manager said on “Street Signs Asia.”

Speaking on foreign policy, Harburg pointed out that another Biden term would also mean continued tariffs, as well as “encroachment on Chinese domestic issues” — which would not significantly improve China’s economy, nor U.S.-China relations.

He said a Trump-China partnership would signify “a more binary potential for a positive outcome for China.”

CNBC’s Sonia Heng contributed reporting from Singapore.