US-Gulf Relations at the Crossroads: Time for a Recalibration

Since the Chinese-American conflict in the past 10 years and the latest war in Ukraine the world's interest has been changed, can the Americans find new friends in the GCC region as part of the economic war against China and Russia?

US-Gulf Relations at the Crossroads: Time for a Recalibration

Special report By Samuel Shay for the upcoming visit of President Biden to the GCC 22 June 2022, Israel

The international response to Russia's invasion of Ukraine has brought increased attention to tensions between the US and its traditional Gulf partners, reinforcing cynicism about the US' standing as the region's leading international partner. The major GCC states have been pushed toward a position of strategic neutrality by the emerging multipolar reality, which is characterized by the increased influence of China and Russia. Nonetheless, the US and Gulf Arabs share a vital interest in cooperation that can help prevent the relationship from deteriorating further. It's past time for both sides to figure out a viable path ahead that avoids being transactional by shedding antiquated conceptions of mutual obligation.

Executive Summary

Ø The global response to Russia’s invasion of Ukraine has focused new attention on friction between the United States and its traditional partners in the Gulf region. Where the U.S. perceives the Russian aggression as a fundamental assault on the rules-based international order, Gulf States resist pressure to align definitively against a Russian government with which they enjoy generally positive relations.

Ø But the difficulties in the relationship predate and transcend differences over Ukraine and reflect as well declining regional confidence in U.S. commitments and U.S. frustrations over regional policies that challenge its policy preferences.

Ø Efforts to preserve vital U.S. interests in the region require new strategic approaches to address and resolve differences.

Ø Securing the cooperation of the Gulf States largely depends on the U.S.’s ability to show them that it is serious about defending them against Iranian aggression.

Ø The U.S. has an obligation to help its Gulf Arab partners develop effective military capability.

Ø What’s needed more than anything else in U.S.-Gulf security ties is a coherent structure for strategic consultation and coordination.

Ø The Gulf Arab states have a stake in defending the liberal economic order, in capital mobility, transparency, and international law.

Ø The future of Gulf prosperity will be in continuing a trajectory of economic integration and liberalization of its labor markets, ownership structures, and competition.

The regional response to Russia's invasion of Ukraine has fueled doubts about the United States' position as the Gulf's major international partner. The major GCC states have been driven toward a stance of strategic neutrality by the emerging multipolar reality, which is characterized by the increasing influence of China and Russia in the area. China's position as the region's top trading partner and Russia's membership in the OPEC+ oil consortium impact their responses to important regional and global events to a large extent. Nonetheless, the US and Gulf Arabs share a vital interest in cooperation that can help prevent the relationship from deteriorating further. It's time for both sides to find a realistic path ahead that avoids becoming enslaved by archaic conceptions of mutual duty merely transactional.

The Rise of Alternatives

Against the backdrop of deteriorating US-GCC relations, China and, to a lesser extent, Russia, have expressed an interest in deepening their ties. China's rise poses a substantial threat to US interests, and it may grow more so as the region digests the consequences of Russian expansionism and perceptions of the US as a declining power linger. With regional actors, China has already established itself as the key economic trading partner. Its rising military presence in the Red Sea and Gulf, particularly in Djibouti, has raised security concerns for US military operations in the region. Beijing's eagerness to sell important military technologies to regional customers, including drone and ballistic missile systems, exacerbates destabilizing military competition and introduces weapons that endanger regional stability the security of regional partners as well as U.S. personnel, facilities, and weapons systems. Overall, China's expanding regional role has made it more difficult for the US to fulfill important foreign policy and national security goals in the region. GCC partners have been clear in their warnings to US interlocutors that they will not be pulled into a regional power struggle between the US and China, while also emphasizing their preference for tight ties with the US. For the time being, most of Russia's future activity in the Gulf region will be determined by the outcome of its invasion of Ukraine. The Russian military's poor performance in the campaign thus far may have harmed Putin's regional reputation and constrained his ambitions for the time being, but this could only be a temporary setback if Russia achieves its goals in the end. Success will come broaden respect for Putin and likely bring a new willingness to cooperate with him. Failure, on the other hand, will undermine Putin's aura of power and influence, particularly if the US and its allies succeed in forcing a Russian back-down. The Gulf Arab states are currently hedging their bets. Despite refusing requests to help stabilize global energy markets by increasing oil and gas production, regional media continue to cover the Russian invasion sympathetically, and Gulf leaders, particularly Mohammed bin Zayed and Mohammed bin Salman, maintain contact with Russian President Vladimir Putin.

Preserving US Interests

Maintaining stable, constructive relations with the Gulf Arab governments will be a critical national security and foreign policy imperative for the United States for the foreseeable future. The United States and the Gulf can find common ground where there are mutual interests, such as the immediate need for a steady global energy supply and preventing the escalation of food costs. To overcome these difficulties, Gulf foreign aid and investment in the wider Middle East and Africa will be critical. Furthermore, the current tight oil market will provide Gulf exporters with a windfall of revenue. With the Gulf Arab governments' national energy, there is a chance to direct a portion of that wealth into climate adaptation and renewable energy development in the Middle East firms and their investment arms as innovators and owners of that technology and infrastructure. The United States can help arrange finance solutions for weaker Middle East economies to access new power generation and clean energy technology.

How the United States Could Benefit from an Arab-Israeli Peace

The United States and Israel have tight relationships due to common cultural links, strategic linkages, and organized pro-Israel support in the United States. Israel might also be a strategic asset as a friend in the Gulf, which is a vital but volatile region. However, due to historical tensions between neighboring Arab governments and Israel, as well as territorial issues between Israelis and Palestinians, America's relations with Israel have hampered military efforts and strained relations with Arab Gulf states. During Operation Desert Storm, for example, the US was concerned that Israeli participation in the conflict might splinter the anti-Iraq coalition, which included the US and several Arab Gulf governments. As a result, the US-led coalition spent significant resources defending Israel against Iraqi missile attacks rather than allowing Israel to defend itself.

An Arab-Israeli peace could offer a chance for the United States to improve its position in the region in the following ways:

Ø Many Gulf residents will still remain opposed to a U.S. presence in the region for religious or Arab nationalist reasons. However, there would be less anti-U.S. hostility stemming from U.S. support of Israel.

Ø As relations between the Arab world and Israel improve, the Gulf states would be less likely to use their leverage in the global oil market to press the United States to cut its support for Israel.

Ø U.S. arms sales to the region, while still likely to receive Israeli scrutiny, will probably become less politically sensitive in the United States.

Ø If a major regional crisis similar to the Iraqi invasion of Kuwait were to occur again, Israel would no longer prove a heavy burden to the U.S. military. The United States could let Israel defend itself if it were attacked without fear of breaking a Gulf state coalition.

Ø If a similar crisis erupts in the future, Israel could become an accepted, if passive, member of a Gulf state-U.S. coalition.

Ø During a conflict or crisis, Israel's military and logistics assets might prove helpful to deploying U.S. forces. In addition, access to Israeli airspace could be valuable in sustaining an air bridge to the Gulf.

What’s behind the relationship between Israel and Arab Gulf states?

NETANYAHU’S CALCULUS

During Operation Desert Storm, for example, the US was concerned that Israeli participation in the conflict might splinter the anti-Iraq coalition, which included the US and several Arab Gulf governments. As a result, the US-led coalition spent significant resources defending Israel against Iraqi missile attacks rather than allowing Israel to defend itself. Even tighter links with the United States, the relationship's most important pillar, are far from assured. Indeed, on the eve of a US Senate vote to condemn Saudi Arabia for its war in Yemen and the killing of Saudi columnist and critic Jamal Khashoggi in Istanbul, Netanyahu expressed unprecedented support for the Gulf kingdom in the Israeli press, saying Riyadh is critical to global stability and asserting "the importance of Saudi Arabia and the role it plays in the Middle East." It didn't seem to have any effect.

The US-China Trade War and Prospects for ASEAN Economies

What began as a trade battle over China's unjust economic policies has now devolved into a "cold war" driven by ideological differences. When then-US President Donald Trump's fixation with trade deficits prompted him to impose punitive tariffs on China in 2018, bilateral relations between the two countries took a tumble. Following the tariffs, China's access to high-tech US products and foreign investments was restricted due to security concerns, as well as claims of unfair Chinese business practices.

Despite requests from the US business sector to de-escalate tensions, US President Joe Biden has so far ratcheted up his predecessor's policies by forging anti-China coalitions and enacting new penalties. The confrontation between the United States and China is currently described by Biden as "a war between the value of democracies in the twenty-first century versus autocracies."

However, the premise behind the United States' trade war was incorrect, and the more recent, politically motivated limitations are futile, considering the long-term economic effects for both parties. Nonetheless, there have been few indications that Biden will modify his mind. In the interim, Europeans may be in a better position to engage China in fruitful economic policymaking debates.

China’s Intellectual Property Safeguards

The claimed failure of China to defend intellectual property rights has also been misrepresented. China has been accused of stealing Western intellectual property, particularly technology, to the extreme. However, given the extent of China's overseas transactions and research activity, such occurrences may not occur frequently or may be exaggerated.

Furthermore, China's patent courts have improved their handling of this issue, with international litigants now having a higher chance of winning their lawsuits than domestic companies. Furthermore, according to one think tank professor, payments for royalties and licensing by Chinese enterprises have increased by approximately a factor of four in the last ten years, making China the second-largest payer of such royalties internationally.

The reality is that developing a good intellectual property rights framework takes generations, as it did in the United States. The reforms that accompanied China's 2001 accession to the World Trade Organization laid the foundation for China's system only two decades ago. According to the findings of the American Chamber of Commerce in China's "2020 Business Climate Survey," nearly 70% of questioned U.S. enterprises in China believe China's enforcement of intellectual property rights has improved since 2015, compared to only 47% in 2015.

China’s Protectionist Policies

However, there are legitimate worries that China's investment policies are discriminatory to foreign companies. China's usage of subsidies is one point of contention. Every country provides subsidies to native companies and families, such as the United States' support for farmers, tax breaks for homes to encourage sustainable energy consumption, and relocation incentives for companies like Amazon. Subsidies in China, on the other hand, are more focused on using the country's banks and equity markets to help high-tech companies and strategic industries.

Instead of applying pressure on China to align its subsidy policies with Western norms, the Biden administration is following China's lead and proposing its own subsidies to encourage critical industries.

The demand that foreign corporations form joint ventures with native Chinese firms as a prerequisite for market entry in several economic areas demonstrates China's protectionist inclinations. This stipulation has been extensively mentioned as a technique of fostering so-called forced technology transfer, in which Western corporations must pass new technology on to their Chinese partners in order to invest and produce in China. However, in recent years, these Chinese regulations have appeared to loosen, as seen by substantial international investments in chemical production (BASF), auto manufacture (Tesla), and finance (BlackRock). For the first time, foreign corporations have been permitted to enter critical sectors without the involvement of a Chinese partner.

The EU-China Comprehensive Agreement on Investment, which was negotiated in December 2020, highlighted China's desire to abolish the joint venture requirement (which has not yet been ratified). If both sides are willing to compromise, this experience demonstrates that policy conflicts can be resolved through talks.

Spillovers to Asia-Pacific Trade

The US and China are huge trading powers with discretion to choose policies that maximize domestic gain. But what are the consequences of this dispute for the rest of Asia-Pacific, where these countries’ actions amount to exogenous changes in trade, prices, and investment incentives?

Changes in Asia-Pacific commerce are particularly vulnerable to ASEAN countries. Southeast Asia has a long history of trade'shocks' from Northeast Asia, which have resulted in significant shifts in regional comparative advantage and prosperity. The post-Plaza Accord surge in inward foreign investment fueled the region's export-oriented manufacturing in the 1980s. As a result of China's "open door" growth and trade boom, natural resource exports have skyrocketed, as well as many new chances for global value chain (GVC) participation. The ASEAN region is currently exposed to spillovers from a bilateral disagreement that threatens to reduce GVC activity and promote reshoring, eroding one of the region's most critical pillars of economic growth.

The bilateral trade dispute has a variety of consequences. First, because China and the United States together account for more than 35% of global GDP, we can expect slower global economic development if trade and investment frictions impair growth in either (the full extent of this decline has been obscured by Covid-related changes since 2020 and will only become clear after the pandemic has receded). Second, most ASEAN countries' top export destinations are China and the United States, and much of what the area sends to China eventually ends up in China-US commerce after further processing or assembly (Athukorala 2011). As a result, reductions in bilateral commerce cascade back to Southeast Asia via regional supply chains. Third, and perhaps more importantly, there has been some manufacturing displacement and investment away from China, with the largest effects felt in regional trading partners. In 2018-20 ASEAN’s share in the value of US imports rose by 2.6%, coincidentally the same amount by which China’s share declined.

U.S. Security Policy in Asia: Implications for China-U.S. Relations

Human rights, commerce, and security have all been important sources of friction between China and the United States in the post-Cold War era. Human rights and trade may no longer be key sources of conflict on the bilateral agenda, following the decoupling of China's human rights record from its MFN treatment in 1994 and the conclusion of Beijing-Washington marathon discussions on China's WTO membership in 1999. Security concerns, which first surfaced in the mid-1990s, now appear to be the most significant element influencing bilateral ties.

Misperceptions and Conceptual Differences

One prevalent belief in the United States about China's long-term policy goals in Asia is that Beijing aspires to be the regional hegemon and wants to restore a Sino-centric order in the region. This conclusion is incorrect. First, Beijing favors multi-polarization over uni-polarization at both the global and regional levels, predicting that as Asia's economy continues to develop and intra-regional political consultation grows, regional influence will become more diversified and evenly dispersed. Second, while China expects a relative increase in its influence in Asia, it recognizes that, due to the limitations of its hard and soft power, it will never achieve a position equivalent to that of ancient China past or to the U.S. role in the region at present.

Another misconception is that China will eventually want to push the United States out of East Asia. This is, once again, an incorrect assumption. The United States is an Asia-Pacific power, not an Asian power, according to Beijing, and its political, economic, and security interests in the region, as well as its pledges to regional peace and prosperity, are deeply ingrained. In truth, Beijing has always favored the United States playing a positive role in regional affairs. Beijing, on the other hand, is concerned about certain aspects of US strategy. The United States has been far too powerful and intrusive in regional affairs as a superpower. It fails to give other regional players their proper respect, and it occasionally becomes overly engaged in the internal problems of other states, despite a lack of understanding of their culture, history, and values. While the United States is not in danger of being driven out of East Asia, its current policies may cause it to outstay its welcome in the region, diminishing its contributions to regional peace and development.

Unilateral security vs. mutual security

The United States currently has the world's most powerful military. However, it continues to invest heavily in its military sector in order to build even more advanced offensive weaponry, ensuring its dominance in both conventional and strategic arsenals. The Chinese believe that security is always mutual, and that when one party seeks to improve its own security, it must consider the influence on others' security. While any country has the legal right to build its defensive and offensive capabilities as it sees fit, a responsible authority should pursue mutual or common security rather than unilateral security.

How the U.S. Affects China’s Security Interests

U.S. security policy in the Asia-Pacific region directly affects China’s security interests, both positively or negatively.

The positive side includes the following:

Ø The United States has been playing a key role in maintaining a generally stable security environment in East Asia since the end of the Vietnam War, and China has been both a significant contributor to and a major beneficiary of peace and stability in the region.

Ø United States policy towards Japan, despite its shortcomings, has so far helped to ensure that Japan remains a pacifist country, which serves the interests of both Japan and the entire region.

Ø On the Korean peninsula, China and U.S. share three policy goals: no war between the North and South; no nuclear weapons; and no collapse of North Korea (the Democratic People’s Republic of Korea, or DPRK). In fact, China and the United States are the two primary suppliers of food assistance to the DPRK. Looking into the future, both Beijing and Washington welcome reconciliation and peaceful mutual integration between the two Koreas.

Ø In South Asia, both China and the United States would like to see the peaceful settlement of the India-Pakistan dispute over Kashmir, and a halt to the emerging nuclear arms race between New Delhi and Islamabad.

Ø Even on the Taiwan issue, a highly contentious one between China and the United States, Washington’s “one China” policy since the late 1970s has contributed to stability in the Taiwan Strait. Furthermore, the U.S. opposition to Taiwan’s development or procurement of nuclear weapons also serves China’s interests.

In the Asia-Pacific, however, some US security actions pose a threat to China's security interests. Consider China's three main security concerns in the Asia-Pacific: stability on its periphery, a favorable strategic environment in the region, and the peaceful unification of Taiwan. China, as a significant player in the Asia-Pacific, is extremely sensitive to any movement in regional power dynamics. Beijing recognized two rising tendencies in East Asia in the aftermath of the Cold War. One is China's and Japan's ascent in relation to Russia and, to a lesser extent, the United States, and the other is the region's growing multi-polarization. These overall developments, Beijing maintains, embody the proper orientation of international relations in East Asia. These developments were stymied by the reconfiguration of the US-Japan alliance, which shifted the regional power balance away from China.

The renewed US-Japan alliance, according to Beijing, foreshadows Washington-Tokyo dominance of regional affairs and reeks of an underlying motive to sideline China. In the end, China must choose between being isolated or accepting a subordinate position in a regional system dominated by the United States and Japan. The redefining of the US-Japan alliance also gives Japan the legal cover it needs to take a more active role in regional security and strengthen its already formidable military capability. In fact, it appears that Japan will redefine the restrictions of the Peace Constitution and function as a major military power in the not-too-distant future. 4 Beijing is concerned about Japan's military expansion and how it may affect the regional power balance.