How Russia and China are preparing to exploit a warming planet

POLITICO’s latest Global Translations podcast explores how climate change is reshaping power dynamics among America’s adversaries.

Hurricanes, floods, and wildfires aside, climate change is delivering another threat: a remaking of geopolitics that stands to empower some of America’s adversaries and rivals.

As Arctic ice melts, Russia stands to gain access to oil and gas fields historically locked beneath northern ice — and is building up capability to launch cruise missiles from newly navigable waters to threaten America’s coastlines.

As polar seaways open up, China is eyeing a new “Polar Silk Road” — shorter shipping routes that could cut weeks off of shipping times from Asia to Europe.

And as drought drives more farmers and herders off their lands, extremist groups in Africa and the Middle East are finding fresh recruits.

These are just some of the ways climate change stands to reshape the power dynamics between nations that emerged from interviews for POLITICO’s Global Translations podcast.

Climate change is “making all of our challenges — whether it’s

  • terrorism,
  • weapons of mass destruction,
  • violent extremism or
  • great power competition between China and Russia —

that much more challenging,” said Sherri Goodman, a former deputy undersecretary of defense who led studies of climate impacts on national security for the Center for Naval Analyses.

Some of the biggest power shifts are around the Arctic, which Goodman called “ground zero for the nexus of national security and climate change. In our lifetime, a whole new ocean has opened up because with climate change the sea ice is retreating, the oceans are warming and the permafrost is collapsing.”

A global quest for resources is already underway in the Arctic, said Goodman, now a senior fellow at the Woodrow Wilson Center Polar Institute. “There are thought to be vast stores of fossil fuels, oil and gas and minerals across the Arctic that have not yet been tapped. Russia is doing so today across its vast Arctic coastline with the help of China,” she said.

Russia is vying for control of Arctic seaways and has built some 40 icebreakers — ships that can channel through ice. “Russia envisions under Putin a northern sea route that is essentially a toll road that requires Russian Arctic escorts in the form of icebreakers or other patrol boats, escorting not only the Chinese but others who want to ship across the Arctic,” she said. By contrast, the U.S. has only two icebreakers, she said.

Meanwhile, China, which is not a polar country, has launched aggressive Arctic diplomacy and gained non-voting observer status for itself at the Arctic Council, the international forum that addresses policy in the Arctic. Last year, China issued its first arctic policy.

“It envisions a Polar Silk Road that stretches from Shanghai across potentially to Hamburg and Reykjavik and parts of Europe across Russia’s vast northern sea route hugging the Russian coastline and both exploiting the energy resources there, potential transport opportunities, shipping, research,” Goodman said.

President Donald Trump’s interest in buying Greenland was driven in part by resources newly available because of melting ice. The Danish government quickly rebuffed the idea, but the incident could be seen as an acknowledgment of climate change from a leader who has derided global warming as a hoax.

Climate change poses additional security consequences. U.S. military bases at home and abroad have already been strained by destructive hurricanes and flooding that have cost billions of dollars to repair — and extreme weather has stretched thin the disaster response capabilities of the military. When hurricanes hit Florida and Puerto Rico and the East Coast of the United States in 2017 and 2018, the military had to slow the flow of forces to Afghanistan in order to be able to provide relief at home. Meanwhile, troops have to operate in higher temperatures across Asia and the Middle East, where temperatures now regularly are over 100 degrees and face a broader array of infectious diseases.

Florida’s Tyndall Air Force Base incurred billions of dollars in damage from Hurricane Michael in 2018 when winds tore through the roofs of hangars and destroyed buildings. Congress has in recent years directed the Department of Defense to address the climate resilience of military bases and climate risks to operating forces.

“The Department of Defense is beginning to integrate these risks into its strategy plans and plans,” Goodman said.

Another geopolitical threat is migration — whether from low-lying island states that stand to lose fresh water drinking supply or coastal areas susceptible to typhoons. Prolonged drought is believed to contribute to conflicts in the Middle East.

“We know that in Syria the prolonged drought that preceded the civil unrest there was a contributing factor to that unrest, which became instability, which led to the violent extremism, which has become the deadliest civil war in modern times,” she said.

Elsewhere, drought-prone countries are buying up land to grow water-intensive crops in what is called the “virtual water” trade. For example, China has been buying agricultural land in the U.S. and Europe to harvest water-intensive crops such as alfalfa.

Simon Dalby, a professor of geography and environmental studies at Wilfrid Laurier University, told the podcast that the geopolitical consequences can be difficult to predict. He cited the impacts of a 2010 drought in Russia which led the Kremlin to limit wheat exports, setting off a chain reaction.

“International markets panicked. The price went up quickly — and it is indeed suggested that in fact part of the Arab Spring was partly a response to those price fluctuations. So political disturbances across the Middle East might indeed have been related to the drought in Russia, which was probably at least partly caused by climate fluctuations. So this is where we see how dramatically the global economy and the ecology is interconnected,” he said.

The world will need emergency stockpiles of food and disaster relief aid, he said.

And, he noted, while warming may open up certain regions to new agriculture, unpredictable rainfall and flooding can wreak havoc on crops. “This is much trickier than simply saying, ‘Oh because it’s warmer, Russia will do better.’ It’s not that simple,” he said.

Climate change is transforming agriculture itself.

Increased concentration of carbon dioxide in the atmosphere ramps up photosynthesis and makes crops grow more quickly. But the phenomenon has been shown to reduce nutrient density in some crops, like rice. Researchers have begun studying how many people might be at risk for iron or zinc deficiency as a result.

Like governments, businesses are studying how to address long-term risks to their business models, said Gary Litman, vice president for global initiatives at the U.S. Chamber of Commerce.

“We definitely need to prepare, to adjust, to adapt to climate change to mitigate the impact of the industry on climate,” he said. But he added that it’s part of a broader pressure on companies to address long-term environmental sustainability and compete for increasingly scarce resources. “We’re dealing with finite resources. There’s not going to be more cobalt on this planet. There is not going to be new soil on this planet. There is not going to be a new oxygen on this planet,” he said.

He noted that advanced technologies, such as batteries, require rare metals. “You cannot address the climate issue — you cannot prepare, for example, for the rise of the oceans — if you don’t invest in new construction materials. How do you build the dam? If you use the current resources, you’ll run out of gravel before you build anything. If you don’t have access to reliable supply of cobalt, you won’t be able to switch to e-mobility,” he said.

Can America and China Avoid a Currency War?

Although the current poor state of Sino-American relations may make even a very limited currency détente unattainable, such a pact is not outside the realm of possibility. Ultimately, both America and China might see some advantage in taking currency conflict off the table, in the hope of preventing wider damage to themselves and others.

SANTA BARBARA – China’s currency, the renminbi, weakened slightly against the dollar at the start of this week. Around the world, the immediate response was panic. Financial markets tumbled, US President Donald Trump’s administration formally labeled China a currency manipulator, and fears of a new currency war spread like wildfire. To describe all this as an overreaction would be a gross understatement. A currency war has not erupted – at least, not yet.
But the danger is real. Although markets now appear to be recovering somewhat, America and China remain locked in a perilous trade war with no end in sight. The United States is still poised to impose a 10% tariff on some $300 billion worth of Chinese imports. It does not seem unreasonable to suppose that China might then retaliate by engineering a substantial devaluation of its currency. After all, a cheaper renminbi would go a long way toward offsetting the impact of Trump’s tariffs on the prices of Chinese goods in the US.

But, because devaluation would also carry significant risks for China, the country’s leaders will be hesitant to take this step. Many of China’s biggest enterprises have borrowed heavily in dollars, and a weaker renminbi would greatly increase the cost of servicing this external debt. Worse, the prospect of devaluation could spark massive capital flight from China as anxious companies and individuals seek to protect the value of their assets. That is what happened four years ago when the renminbi was allowed to weaken significantly, and the Chinese authorities subsequently had to spend $1 trillion in foreign-exchange reserves to prevent the currency from crashing.

It seems unlikely, therefore, that China is about to declare all-out currency war. What happened earlier this week was much subtler – in effect, a shot across America’s bow. The renminbi was already close to the symbolic level of CN¥7 per US dollar. By setting their daily benchmark rate for the currency at a smidgen below CN¥7, the Chinese authorities created room for currency traders to push the market rate temporarily above CN¥7 – an effective devaluation. Although the actual size of the devaluation was minuscule, the psychological impact was enormous. China was reminding America that it still has many economic arrows in its quiver.

Unfortunately, the Trump administration responded in typical blunderbuss fashion, mistaking the modest Chinese signal for something more sinister. By immediately declaring China a currency manipulator, the US succeeded only in hardening positions on both sides.

To avoid losing face, Chinese leaders may now feel compelled to respond in kind. They could make good on the threat of devaluation, or pull out some of its other arrows. For example, China could

  1. embargo exports of the rare earth minerals that are so vital to America’s tech industry, or prolong its
  2. boycott of US agricultural products. Or it could go beyond the realm of commerce and
  3. stir up trouble in the South China Sea or the Taiwan Strait. In short, relations between the world’s two largest economies could go from bad to much worse.

Can further escalation be avoided? One way to avoid that outcome might be to look to a neutral arbiter to adjudicate the currency issue. The most obvious candidate is the International Monetary Fund, one of whose main functions is to oversee the “rules of the game” in international monetary affairs. All Fund members have pledged to avoid exchange-rate manipulation, and all are formally subject to “firm” Fund surveillance of their currency policies. In principle, if America and China truly want to avoid a monetary conflict, they could ask the IMF to step in to settle matters.

In practice, however, the Fund’s authority is sadly limited. The IMF has no powers to enforce rulings. At best, all it can do is “name and shame” currency manipulators. And in the end, it is hard to imagine either America or China kowtowing to a toothless multilateral organization. Can anyone really picture Trump submitting to the judgment of a bunch of unaccountable international civil servants?

A slightly more realistic option might be a direct bargain between the US and Chinese governments – perhaps also including the European Central Bank and one or two other monetary powers – to achieve some form of currency détente.

There is precedent for such a deal. Back in 1936, following more than a half-decade of uncontrolled competitive devaluations during the Great vDepression, the main financial powers of the day – the US, Britain, and France – agreed to an informal arrangement for mutual exchange-rate stabilization. Jokingly called the “twenty-four-hour gold standard,” the Tripartite Agreement committed each country to give 24 hours’ notice of any change in its currency’s price. Though far from perfect, the pact did manage to restore some semblance of order to monetary affairs.

A similar agreement today would be more difficult to negotiate. In the 1930s, America, Britain, and France were on reasonably good terms. Present-day America and China, by contrast, are strategic adversaries engaged in a trade war, and even a very limited exchange-rate initiative might prove unattainable. Yet it is not outside the realm of possibility. Ultimately, both sides might see some advantage in taking currency conflict off the table, in the hope of preventing wider damage to themselves and others.

Trump’s stunning decision to escalate trade wars with China and Mexico signals a turning point for U.S. policy

President Trump’s plan to slap new tariffs on Mexican imports, weeks after escalating his trade war with China, leaves the United States fighting a multi-front campaign that threatens more instability for manufacturers, consumers and the global economy.

The president’s bombshell announcement that he would impose 5 percent tariffs on Mexican imports, with the possibility of raising them to 25 percent if Mexico doesn’t stop migrants from crossing into the United States, left some economists fearing there were few limits to Trump’s appetite for trade conflict.

“In our view, if the U.S. is willing to impose tariff and non-tariff barriers on China and Mexico, then the bar for tariffs on other important U.S. trading partners, including Europe, may be lower than we previously thought,” Barclays economists said in a research note. “We think trade tensions could escalate further before they de-escalate,” Barclays added.

Adam Posen, president of the Peterson Institute for International Economics, called Trump’s move against Mexico a turning point for financial markets and the U.S. economy.

In global markets Friday, investors spooked by new tariff threats sought safety in German government bonds and the Euro rather than their customary dollar-denominated havens. This “seems to me an indicator that the concerns about the U.S. are rising,” Posen said.

The president’s latest move rocked business leaders who were already scrambling to reshape supply chains to avoid fallout from the U.S. confrontation with China. The added uncertainty may paralyze executives who can’t be sure their next supply chain location will be any safer than their last.

“A lot of companies feeling pressure to get out of China are looking at Mexico if they want to serve the US market, Vietnam if they’re more focused on Asia,” said William Reinsch, a former Commerce Department trade official. “Trump’s action yesterday scrambles all those plans.”

In one example of a company caught in the crossfire, GoPro of San Mateo, Calif., last month announced it would move manufacturing of some of its cameras from China to Mexico, so that it could stop paying tariffs to import them to the United States — tariffs resulting from the U.S. trade war with China. Weeks later, GoPro now faces new tariffs to import those goods from Mexico. The company declined to comment Friday.

As U.S. companies race to find new tariff-free places to manufacture, so far few have reported returning production to the United States, despite the president’s stated aim of using trade policy to help bring jobs back home. Many are still seeking alternative locations overseas, where labor is cheaper.

Trump said he would impose the new tariffs because the Mexican government wasn’t doing enough to stem the flow of migrants, many of whom travel through Mexico from Central America. Some White House officials who support Trump’s approach believe the threat of tariffs is the only way to get the attention of Mexican leaders.

The Mexican government tried to defuse the tension Friday, saying the two sides would meet in Washington on Wednesday for high-level talks.

If no solution is found, Mexico is certain to impose retaliatory tariffs on U.S. goods, with likely targets including U.S. pork, beef, wheat and dairy products, said Former Mexican diplomat Jorge Guajardo.

Some prominent Republicans, including Senate Finance Chairman Charles E. Grassley, raised concerns that the new tariffs could threaten a trade agreement the Trump administration clinched only months ago with Mexico and Canada, to replace the 1994 North American Free Trade Agreement.

Others said the about-face treatment of Mexico would damage Trump’s ability to negotiate trade deals it is pursuing with other partners, including China and Europe.

“You can’t negotiate a trade agreement with someone and then turn around and whack them,” said Douglas Holtz-Eakin, a Republican economist and former Congressional Budget Office director.

In late March, Trump threatened to shut the entire southern border to curb illegal immigration, but backed down a week later after an outcry. That has left some wondering how seriously they should take the latest tariff threat.

If Trump follows through with new tariffs on Mexico, it would hurt U.S. economic growth and increase the possibility of the Federal Reserve reversing course and cutting interest rates this year, economists said.

The drag to the US economy could be meaningful, especially if the tariffs reach 25%,” the upper limit that Trump has set, Bank of America Merrill Lynch economists wrote Friday. Even if the tariff remains at 5 percent, the effective cost could be higher because many parts cross the border several times as products are assembled, and the tariff must be paid upon each crossing into the United States.

U.S. automakers will be among the principal casualties. Last year, the United States imported roughly $350 billion in merchandise from Mexico, including about $85 billion in vehicles and parts, according to the International Trade Administration.

A full 25 percent tax “would cripple the industry and cause major uncertainty,” according to Deutsche Bank Securities.

“The auto sector – and the 10 million jobs it supports – relies upon the North American supply chain and cross border commerce to remain globally competitive,” said Dave Schwietert, interim president of the Auto Alliance, an industry group. “This is especially true with auto parts which can cross the U.S. border multiple times before final assembly.”

“Widely applied tariffs on goods from Mexico will raise the price of motor vehicle parts, cars, trucks, and commercial vehicles – and consumer goods in general — for American consumers,” the industry group said. “The potential ripple effects of the proposed Mexican tariffs on the U.S. North American and global trade efforts could be devastating.”

Consumers could pay up to $1,300 more per vehicle if the tariffs are implemented, according to Torsten Slok, chief economist for Deutsche Bank Securities.

Retailers, technology companies and textile manufacturers also will be hurt. U.S. mills now ship yarn and fabric to Mexico, where it is turned into apparel and exported back to American retailers. Last year, the U.S. textile industry exported $4.7 billion in yarn and fabrics to Mexico, its largest single market.

“Adding tariffs to Mexican apparel imports, which largely contain U.S. textile inputs, would significantly disrupt this industry and jeopardize jobs on both sides of the border,” said Kim Glas, president of the National Council of Textile Organizations.

The new dispute with Mexico came as the U.S.-China trade conflict continued to deepen.

China on Friday announced it would establish a blacklist of “unreliable” foreign companies and organizations, effectively forcing companies around the world to choose whether they would side with Beijing or Washington.

The new “unreliable entities list” would punish organizations and individuals that harm the interests of Chinese companies, Chinese state media reported, without detailing which companies will be named in the list or what the punishment will entail.

Chinese reports suggested the Commerce Ministry will target foreign companies and groups that abandoned Chinese telecom giant Huawei after the Trump administration added Huawei to a trade blacklist this month, which prohibited the sale of U.S. technology to the Chinese company.

At a time when Western corporations have cut back executive travel to China after authorities detained two Canadians on national security grounds in December, the new blacklist sent another shock wave through the business community.

“I think foreign and especially U.S. firms now have to worry that China is creating a new ‘legal pretext’ to at least impose exit bans on foreign individuals who make this new list, if not worse,” said Bill Bishop, the editor of the Sinocism newsletter, referring to the Chinese practice of not allowing designated foreigners to leave China.

Aside from the new blacklist, China in recently days also escalated threats to stop selling the U.S. so-called rare earths — 17 elements with exotic names like cerium, yttrium and lanthanum that are found in magnets, alloys and fuel cells and are used to make advanced missiles, smartphones and jet engines.

Analysts said it could take years for the United States to ramp up rare-earths production, after its domestic industry practically disappeared in the 1990s. Roughly 80 percent of U.S. imports of the material come from China, according to the United States Geological Survey.

The People’s Daily, the Communist Party’s official mouthpiece, carried a stark warning for the United States this week in an editorial about rare earths: “Don’t say we didn’t warn you.”

That commentary surprised China experts because the People’s Daily, which often signals official positions with subtly codified language, uses that phrase sparingly: It famously appeared before China launched border attacks against India in 1962 and Vietnam in 1979.