In Geopolitics Today: Friday, April 7th
US-Taiwan Meeting Raises Tensions with China, Central Banks Increase Gold Reserves, and other stories.
US-Taiwan Meeting Raises Tensions with China
The Taiwanese leader Tsai Ing-Wen met with US House Speaker Kevin McCarthy as part of her “transit” through the United States. US officials hope that the meeting will demonstrate strong support for Taiwan and deter China from invading the territory. However, there is concern that this meeting may have the opposite effect, with Beijing viewing it as a violation of the One China policy and responding aggressively to signal its military capabilities. This, in turn, may push the US closer to recognizing Taiwan's independence, ultimately leading to a direct US-China military crisis or conflict over Taiwan.
The Pentagon recently gained the authority to transfer arms to Taiwan, with Congress granting $3 billion in total annual military aid to Taiwan. However, Congress did not approve funding for those authorities in its FY23 spending bill. Senior Pentagon officials are now calling on congressional appropriators to allocate the funding they require to begin using Taiwan military aid authorities. Presidential drawdown authority would allow the Biden administration to immediately transfer materiel to Taiwan, partially alleviating a $19 billion backlog in arms sales for Taiwan, which is due in large part to production backlogs stemming from US industrial base constraints.
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Central Banks Increase Gold Reserves
In recent months, several central banks across the globe have increased their gold reserves amid high inflation and rising geopolitical risks. China, the world’s second-largest economy, has been consistently buying gold for the past five months, increasing its officially reported reserves to 2,068 tons. The People’s Bank of China added around 18 tons of gold to its reserves in March, which was the longest period of consistent gold buying by the country since September 2019. In February, the People’s Bank of China added 25 tons of gold, which was the largest single purchase reported by any central bank that month.
The rise in gold purchases by central banks comes as countries around the world face increased geopolitical risks and high inflation. Gold is seen as a safe-haven asset during times of economic uncertainty and market volatility, and central banks have historically held gold reserves as a way to protect against currency fluctuations and financial instability. In addition to central banks, investors have also been flocking to gold as a hedge against inflation and other economic risks. With the global economy still recovering from the pandemic, many investors are concerned about the potential for rising inflation and other economic disruptions. As a result, gold prices have surged in recent months, reaching their highest level in nearly a decade. Despite some short-term fluctuations, many experts believe that gold will continue to be a valuable asset for investors and central banks alike in the years ahead.
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Russian Foreign Minister in Ankara for Turkey-Syria Rapprochement
Russian Foreign Minister Sergey Lavrov's visit to Ankara has been closely watched as it coincides with Moscow's efforts to facilitate a rapprochement between Turkey and Syria. Lavrov's two-day visit to Turkey follows a meeting of senior diplomats from Russia, Turkey, Syria, and Iran in Moscow earlier this week. During his visit, Lavrov called on the two sides to conduct discussions based on mutual respect for the sovereignty and territorial integrity of Syria and Turkey.
Aside from discussing the Russian war on Ukraine and the Black Sea grain corridor, the visit is also focused on strengthening cooperation in the South Caucasus, including to facilitate the resumption of relations between Armenia and Turkey. The domestic politics value of Lavrov's visit is also significant, particularly if it can lead to a visit by Russian President Vladimir Putin for the opening of Turkey's first nuclear power plant. Turkey hosted 5.3 million Russian tourists in 2022 and expects to host 6 million in 2023, making the security of Russian tourists in Turkey before the tourism season another point of discussion during Lavrov's visit.
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Obstacles to Russia’s and Iran’s New Economic Corridor
Russia and Iran are teaming up to create a new economic corridor that would link the two countries with India, allowing them to ease sanctions pressure and increase bilateral trade. The International North-South Transport Corridor, which spans over 7,200 km, includes a road, rail, and maritime link, and has been in development for years.
The project reduces transport costs and offers an alternative route to trade with Europe by bypassing the Suez Canal. However, there are major obstacles that may hinder the project's success. One of the main issues is the incomplete infrastructure, with some countries investing heavily in the enterprise while others have cited funding and bureaucratic obstacles. Additionally, US and EU sanctions could severely curb non-Russian and non-Iranian investment in the project, and political tensions between Azerbaijan and Iran could pose a threat to its implementation. Though Russia and Iran have publicized the corridor's benefits, its actual economic impact may be less significant due to the risks and challenges involved.
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European Leaders Make a Diplomatic Visit to China
Recent diplomatic visits by European leaders to China have sparked discussions about the country's potential influence in geopolitics. Chinese President Xi Jinping met with French President Emmanuel Macron, Spanish Prime Minister Pedro Sánchez Pérez-Castejón, and Ursula von der Leyen, the head of the European Commission, to discuss various topics, including Ukraine.
China has been trying to improve its relationship with Europe to loosen their ties with the United States and split the West, a strategy that concerns the White House. German Chancellor Olaf Scholz's post-pandemic trip to China received criticism from senior figures in his coalition government, who felt that he should have waited until a strategy on China had been agreed upon between the parties. The Chinese officials have rolled out the red carpet for visiting VIPs from Europe, hoping to revive the Comprehensive Agreement on Investment between the EU and China, which has been put on ice.