The Arkin Group

June 26, 2020

China sees an opening in Latin America with “disease diplomacy.” China has taken the coronavirus pandemic as an opportunity to increase its presence and influence in Latin America, sending personal protective equipment (PPE) and ventilators to a number of countries and looking to partner with Brazil for Covid-19 vaccine trials. Even before the pandemic, China had been increasing its level of diplomatic engagement and financial investment in the region, largely through development and infrastructure projects in line with their “Belt and Road Initiative.” China has been a financial benefactor of the left-wing Maduro government in Venezuela for a number of years, but Chinese government-owned entities have been looking for partnerships with other Latin American countries, including Colombia, which is considered the most stalwart of American allies in the region. While undermining U.S. influence in Latin America is not the primary objective of Chinese outreach in the region, it may have that impact. While the U.S. continues to have considerable influence in Latin America, the U.S. government is seen as focused primarily on stemming the flow of drugs and immigrants from the region and gathering international support for regime change in Venezuela. Recent announcements from the Trump administration do not dispel this view. This week, U.S. Secretary of State Mike Pompeo announced sanctions on five Iranian ship captains who delivered fuel to Venezuela at the end of May. He also announced the administration’s intent to provide $252 million in additional foreign assistance to El Salvador, Guatemala, and Honduras for the purpose of helping these countries decrease illegal immigration to the United States.

China and India have negotiated a truce after a recent clash at their disputed border in the Himalayas left more than 20 dead, but credible reports that the skirmish was instigated by China have prompted Indian initiatives – both grassroots and government – to hit back at China’s tech sector. Anger at what many Indians view as a unilateral Chinese provocation has prompted a groundswell of social media activity encouraging users to delete popular Chinese apps, such as TikTok, which is owned by Chinese tech giant ByteDance. At the official level, the incident at the border has strengthened momentum behind efforts to find alternatives to China’s Huawei and ZTE – or potentially ban their involvement – in India’s rollout of 5G. If China was in fact the instigator in this latest incident at the India-China border, that would be consistent with a larger pattern of Chinese antagonism of neighboring countries and territories, including de facto violation of its prior commitment to Hong Kong autonomy and harassment of other countries’ ships in the South China Sea. These actions have already begun to provoke some pushback, and to prompt India and other vulnerable countries to court new commercial, military, and diplomatic alliances with the U.S., Australia, and other states whose backing could be an effective deterrent to Chinese aggression.

Turkish military actions in the Middle East, North Africa, and the Mediterranean are raising concerns about unchecked escalation in the region that could grow into a larger conflict. After a spate of attacks in Turkey by Kurdish separatists earlier in June, Turkey has launched a multi-pronged counter-offensive seeking to root out Kurdish rebels domestically and abroad. Last week, Turkey carried out air strikes on what it claims are hundreds of Kurdish rebel targets in Iraqi Kurdistan, with credible reports of artillery support from Iran. While Iraq has criticized Turkey for violating its sovereignty, Iraq is contending with a fiscal crisis owing to a steep drop in oil prices, the aftermath of months of large-scale protests in Baghdad, and a growing outbreak of Covid-19, and is in no position to intervene or retaliate. Furthermore, Turkey’s offensive in Iraqi Kurdistan is diverting the focus of Iraqi Kurdistan forces from battling ISIS, which has been regrouping at Iraqi Kurdistan’s southern border. Coincident with its efforts to roust out Kurdish rebels, Turkey has provided military intervention in Libya on behalf of the U.N.-recognized Government of National Accord, France has reported that one of its naval vessels was harassed by Turkish warships in the Mediterranean, and Greece-Turkey tensions have flared over Greece’s accusation that Turkey goaded migrants into illegally crossing the EU border from Turkey into Greece. There is talk of Turkey’s end game being the reestablishment of an Ottoman Empire, but the odds of that seem very slim, and the upside for the U.S. is that Turkey is effectively countering Russian interventions in Libya and Syria/Iraq. That said, Turkey’s foreign and military policy are on an unpredictable trajectory that present a credible risk of miscalculation and collateral damage.

Chilean President Sebastián Piñera is facing increased criticism and a further erosion of confidence, with the economy suffering and COVID-19 deaths on the rise. In Chile, as elsewhere around the globe, the pandemic has exacerbated social injustice, income inequality, and political uncertainty. The Chilean central bank recently announced that the economy would contract between 5.5%- 7.5% in 2020. Piñera’s government recently announced a $12 billion stimulus package to help poor communities and create jobs, given the impacts of the pandemic and resulting economic contraction. But it might not be enough for a growing number of Chileans who are critical of Piñera’s handling of the pandemic. Chile has been under a “State of Exception” or curfew since March, and many Chileans believe Piñera’s strategy for containing the virus has not taken into account the economic challenges the lockdowns have created for poor families. Chileans critical of Piñera believe the government-mandated curfew continues in place to prevent further political protests and not just to curb the spread of the virus. They are also skeptical of the figures the government releases regarding confirmed Covid-19 cases. Officially, there are more than 4,000 deaths in Chile with a population of less than 19 million.

TAG President Jack Devine and Sullivan & Cromwell Partner Sergio Galvis collaborate on another S&C Critical Insights podcast discussing crisis planning and protocols in Latin America in view of the COVID-19 pandemic. Jack and Sergio discuss how businesses operating in Latin America might prioritize revisions to their crisis protocols to account for pandemics and other unknown global risks. The conversation draws on Jack’s longtime experience at the CIA and The Arkin Group, an international risk consulting and strategic intelligence firm that specializes in crisis management, investigative research, and business problem solving.

Listen to the Podcast

June 19, 2020

A border clash between Chinese and Indian soldiers this week killed at least 20 and raises the specter of escalating conflict over a long-unresolved dispute. The Actual Line of Control, established to end a 1962 border war between the two countries, has been the site of frequent small-scale brawls, but this marks the first fatality since 1975. All 20 confirmed dead were Indian, and China has since released 10 captured Indian soldiers. While Indian media has claimed that more than 40 Chinese soldiers were also killed in the fighting, China has yet to confirm any losses.  Official statements from both countries accuse the other of instigating the incident – about which very little is known – and anti-China protests have broken out in India along with calls to boycott Chinese goods (a difficult feat to pull off, as China is India’s second-largest trading partner). The two sides are moving to defuse tensions through negotiation and will likely head off any severe escalation in the near-term, but the incident ratchets up bilateral tensions and elevates the risk of future confrontation. China has shown a clear pattern of aggressive behavior of late targeting a number of the territories and countries in its vicinity, including harassment of ships in the South China Sea and brazen violation of its commitment to “One Country, Two Systems” with regard to Hong Kong. There is ample cause for concern that China may continue to seek to advance its position at the Indian border. If that happens, the situation could grow much more volatile.

North Korea blew up the liaison office near the North-South border that had been used to hold talks between the two sides, effectively scuttling South Korean President Moon Jae-in’s dogged efforts at improving ties. The explosion follows a statement by North Korea the previous week that it was cutting off all communication with the South. Ostensibly an act of retaliation for distribution of anti-regime leaflets in the North by defectors to the South, consensus is that these showy displays are meant to distract from domestic challenges, including the impact of sanctions and Covid-19. However, continued provocations are likely. North Korea has already hinted that it plans to send its army into the Demilitarized Zone. Any provocation will be intended to fall short of crossing any red lines that might provoke a military response, but also raises the risk of miscalculation and escalation.

U.S. Secretary of State Mike Pompeo met with China’s seniormost diplomatic official Yang Jiechi in Hawaii this week amid steadily rising tensions across all facets of the relationship – commercial, diplomatic, and military. The latest slight comes from the U.S. with the passage of a law sanctioning Chinese officials over the mass detention of Uighurs – a predominantly Muslim ethnicity in the western part of the country. This follows a period of sustained, harsh U.S. criticism of China over a variety of issues since the outbreak of Covid-19 went global, including covering up the origin and trajectory of the virus, its legal maneuvering to limit Hong Kong’s autonomy, and its harassment of neighboring countries’ ships in disputed areas of the South China Sea. China, for its part, has been equally harsh in its verbal attacks on the U.S., and has capitalized on widespread U.S. protests against racism and police abuses to accuse the U.S. of hypocrisy in its criticism of China’s human rights record. Little information has been provided about the substance or outcome of the meeting. Although a face-to-face, diplomatic meeting between senior leaders is a sign that the two sides are continuing to communicate, the nature and tenor of their various disputes leaves little room for a real easing of underlying tensions in the near term.

June 12, 2020

Demonstrators have taken to the streets in Europe and around the world, inspired by the Black Lives Matter protests in the United States. Protests against the police killing of American citizen George Floyd in the United States have had global reverberations. Demonstrations have been seen in major cities of Europe, including Paris, Berlin, and Amsterdam, and in other countries like New Zealand, Syria, and Kenya. Most of the global demonstrations have been peaceful, as protesters have expressed solidarity with a movement in the United States to address issues of racial justice. In Europe, protesters have also sought to address their history of colonialism and racism. For example, in Bristol, England, protesters pulled down a statue of 17th century slave trader Edward Colston. Social upheaval in this moment should not come as a surprise, however, as the global coronavirus pandemic has caused economic and social dislocations while also bringing attention to existing social and racial inequities around the globe.

Brazil’s democracy is under threat as President Jair Bolsonaro seemingly embraces the possibility of a military takeover. President Bolsonaro has faced intense criticism in the past two months for his handling of the public health crisis and the economic fallout of Covid-19. The death toll from the virus has increased past 38,000 in official numbers. At the same time, Bolsonaro is under scrutiny for abuse of power and intervening in an investigation into corruption allegations related to his sons. Military leaders like Bolsonaro’s national security advisor Augusto Heleno have warned of “unpredictable consequences” to growing instability in the country, and Bolsonaro seems to be embracing the possibility of a military takeover as a way to maintain his grip on power. Bolsonaro was elected in 2018 with support from the military and has many Army generals in his cabinet, so it is not surprising that he is leaning on the military now in a time of political, economic, and social crisis. However, the specter of the military taking control over Brazil’s democratic institutions in an “autogolpe” or self-styled coup d’etat harkens back to the 1980s when the Brazilian military ran the country. This does not bode well for Brazil’s democracy. Brazil has the second-highest number of Covid-19 cases in the world, and the Pan American Health Organization (PAHO) has warned that the virus continues to spread “aggressively” in Brazil, Peru, and Chile.

The U.S. and Russia will return to talks later this month on extending the New Start nuclear disarmament treaty beyond its scheduled expiration in February, but suggestions that China might also participate have been rebuffed. The treaty stipulates that the U.S. and Russia must reduce their inventories of strategic nuclear missile launchers by half, and the Trump administration appears to back its extension. However, the U.S. has also floated the idea of replacing it with a more far-reaching arms-control treaty that includes China, which has a much smaller nuclear arsenal than either the U.S. or Russia, but whose military capabilities are growing. The U.S. proposal prompted a warning from Moscow that China’s inclusion would scuttle prospects for an extension, and China has said it will not participate in nuclear talks. Whether or not the two sides pursue a modified arrangement that includes China, an extension would mark progress towards multiple goals – a long-desired U.S.-Russia reset (provided both sides are acting in good faith), avoiding a new arms race (which would add yet more financial hardship to the economic impact of the pandemic), and showing global leadership on disarmament.

North Korea has cut off all lines of communication with South Korea and pledged to treat it as an “enemy” over allegations that defectors in South Korea have been distributing anti-North Korean regime leaflets in the North. Though South Korea has said it would take legal action against organizations engaged in propaganda distribution north of the border in a bid to ease tensions, North Korean dictator Kim Jong-Un has seized on the U.S. response to the incident – a public statement from the State Department expressing its disappointment in the development – and threatened to interfere in the upcoming U.S. presidential election in November. These threats are unlikely to rise above the level of what have become standard provocations, possibly intended to push the U.S. closer to some sort of deal exchanging North Korean nuclear non-proliferation commitment for sanctions relief or even economic assistance from the U.S. But there is limited scope for progress on a deal between now and November, and if history is any guide, this will turn out to be nothing more than a short-lived spectacle.

June 5, 2020

The UK has begun to push back against China’s move to bring Hong Kong further under its control, pledging to open up the possibility for 2.9 million Hong Kong citizens who are eligible for British National Overseas passports to reside and work in the UK. Currently 300,000 Hong Kong residents hold BNO passports and another 2.6 million residents are eligible. China considers these Hong Kong residents Chinese nationals, and it is unclear whether Beijing would allow those seeking to take advantage of the offer to travel to the UK. China’s tactics in Hong Kong violate the spirit, if not the letter, of the Sino-British Joint Declaration signed when the UK handed Hong Kong over to the mainland in 1997. This has triggered anti-China sentiment in the UK, which in addition to offering a lifeline to Hong Kong residents, is also courting rivals to Chinese tech giant Huawei as equipment providers for its national 5G network. The UK agreed in January that Huawei would supply parts for the UK’s 5G network in January over the strong objections of the US but is now considering a plan to phase out Huawei’s involvement in its network by 2023. China has stepped up aggressive activities around the globe, including declaration of new administrative zones in the South China Sea, border altercations with India, and blocking some imports from Australia as retaliation for the Australia-backed WHO investigation of the origins of Covid-19. Pushback against these activities is picking up steam. The UK’s actions on Hong Kong residents and Huawei mark a major policy shift that will signal to China that some of its aspirations may start to run into more resistance, possibly at the expense of its commercial interests.

China’s aggressive international activities mid-pandemic include phishing attempts on campaign staffers for Joe Biden, the presumptive Democratic nominee for the 2020 US presidential elections, according to Google. The tech behemoth also reports that Iran has attempted to access the gmail accounts of staffers on President Trump’s 2020 campaign. The detected attempts were not successful in either case, but we doubt that either country’s attempts were limited to those targeting campaign staffer gmail accounts. It is likely that both China and Iran are conducting a range of simultaneous attacks, including some that are much more sophisticated than phishing schemes. TAG sources report that Chinese nationalists are supportive of a second Trump term, as his harder line on China lends legitimacy to their anti-US stance at home, whereas most of China’s policy community (especially the pragmatists) would prefer Biden, the candidate they think would bring some stability back to U.S. foreign policy toward China.

A bipartisan group of senators have introduced a bill to expand sanctions targeting Russia’s Nord Stream II undersea natural gas pipeline from Russia to Germany. The new sanctions would be imposed on service providers to seagoing vessels, such as pipe-laying ships, that are involved in the project. Firms affected would include insurance providers or anyone providing port facilities for those vessels. Nord Stream II is a centerpiece of Russian efforts to maintain its market share in Europe and cut the Ukrainian “middleman” out of its natural gas deliveries to the continent, a shift that would deprive Ukraine of much needed-transit fees. US sanctions thus far have delayed the Nord Stream II project and driven up its costs, but Russia has insisted that sanctions will not keep it from completion. Should this legislation pass and new sanctions be imposed, Russian retaliation is highly likely in some form or other. Given Russia’s long-standing program to infiltrate our electoral systems, the US should be on guard as the 2020 presidential election draws near.

May 29, 2020

China’s approval of a new Hong Kong national security law severely undermining the island’s autonomy will test U.S. willingness to take punitive action against one of its largest trading partners, and has the potential to scuttle the trade deal signed by the two countries in January of this year. President Trump will hold a press conference today to address the issue, but has thus far left the public guessing as to how the U.S. will respond. One potential U.S. response is limited sanctions that signal disapproval without imposing any real pain. At the more aggressive end of the spectrum, the U.S. could constrain or even revoke Hong Kong’s special trading status with the U.S., which rests on the premise of Hong Kong’s autonomy from mainland China. The first approach would likely anger domestic proponents of a harder U.S. line on China and signal internationally that the U.S. is loath to take decisive action against China. The second would underscore U.S. resolve, but would also threaten Hong Kong’s status as a global financial center. The impact of the more aggressive response would be felt not only by Beijing, but also by Hong Kong locals who have turned out en masse for months to demonstrate against the mainland, and by other regional trade partners impacted by a major shift in Hong Kong’s status. A major upset to global trade could hardly come at a worse time, with economies reeling from shutdowns imposed to slow the spread of Covid-19. With an election nearing, it is hard to say which political message the administration will consider more pressing – prioritizing a return to economic growth or standing up to our most powerful rival for global preeminence.

If Brazilian President Jair Bolsonaro wasn’t taking the coronavirus seriously before, he should be now, as the pandemic is serving up a toxic mix of social, economic, and political uncertainty in Brazil and the U.S. government has added Brazil to the travel ban list. This week, the Trump administration imposed restrictions on entry into the United States from Brazil due to the increasing numbers of Covid-19 cases there. Brazil now has the second-largest number of confirmed coronavirus cases after the United States, with approximately 400,000 cases and 25,000 deaths. Health experts believe Brazil could see 80,000 deaths by August. President Bolsonaro has been critical of social distancing and shutdown measures implemented by state governors in the absence of federal government mandates. He has called the lockdowns “poison” to the Brazilian economy, making him the latest politician criticizing the cure for being worse than the disease. But Brazilians are fed up with Bolsonaro and his lack of planning or coordinated response to the pandemic. Recent polling by Datafolha indicates that 60% of Brazilians are in favor of more restrictive lockdown policies and a stronger response on the part of the Brazilian government to administer relief. Meanwhile, Bolsonaro has seen a rotating cast of advisors and ministers in the past two months – Health Minister Nelson Teich resigned after less than four weeks in the position – and calls for Bolsonaro’s impeachment over corruption allegations continue to gain voice. The IMF expects the Brazilian economy to contract by 5%, and the Brazilian real has lost 30% of its value since the start of the year. Brazil’s high debt levels and skepticism about its ability to service that debt could negatively impact global financial markets. Brazil is the world’s eighth-largest economy and makes up more than half of the total economic activity in South America. Bolsonaro may be able to hang on with support from the military, but his management of this public health crisis and the economic fallout will leave him vulnerable when Brazilians go to the polls in the 2022 presidential election.

Mexico is sending mixed messages, with President López Obrador back out on the road touring the country even as the death toll from the pandemic continues to rise. The Mexican President has claimed that the virus has been “tamed” and started the process of reopening the country. President López Obrador is eager to bring the Mexican economy back online given that economists predict GDP to contract as much as 7% this year. In his push to restart the economy, López Obrador has touted the new NAFTA deal, known as the United States Mexico Canada Agreement (USMCA), as a catalyst for renewed growth when the deal goes into effect on July 1. He has also said that China’s slowdown will benefit Mexico, as investments and jobs may now go to Mexico instead. López Obrador has criticized past Mexican administrations for outward-looking economic policies he believes have left Mexico poor, unequal, and corrupt, but the reality is that economic integration with North America will be crucial as the country digs out from the coronavirus crash. Furthermore, statistics about Mexico’s outbreak are at odds with his claim that the virus is under control. Coronavirus cases are rising and so is the death toll. Mexico has confirmed approximately 81,400 cases and 9,000 deaths, but health care experts believe the real numbers are much higher. Hospitals are at capacity and doctors and nurses are vulnerable. Press reports indicate that approximately 11,000 Mexican health workers have been infected, making it one of the highest rates in the world. On Tuesday, the World Health Organization (WHO) said the Americas are the new epicenter of the pandemic.

The U.S. is ratcheting up pressure on Iran by ending sanctions waivers that allow Russian, Chinese, and European companies to work on Iranian nuclear sites, provide enriched uranium for use in Iran’s nuclear sector, and move spent reactor fuel out of Iran. The waivers were originally intended to make it more difficult for Iran to use its facilities to manufacture nuclear weapons, both by giving international partners access to operations at the sites, and by reducing Iranian incentives to enrich its own uranium. U.S. Secretary of State Mike Pompeo said that move was in response to continued Iranian nuclear escalation, though there appears to be some debate within the administration about how effective it will prove to be in persuading Iran to dial back its nuclear ambitions. Iran’s Atomic Energy Organization has responded by saying that this will not impact its nuclear program, though there is real potential for a more provocative reaction on Iran’s part, possibly carried out against U.S. interests by regional proxies.