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Daily Memo: US Funding Shortfalls, Exclusions from NAFTA, Skepticism of Pakistan

All the news worth knowing today.

GPF Staff |July 31, 2018

The United States may not be putting its money where its mouth is in the Indo-Pacific. It has spoken of the region’s importance, but a recently unveiled economic component to its regional strategy allocates a mere $113 million to fund digital, energy and infrastructure connectivity. It does, however, raise the spending limit for USAID in the region, and it calls for $25 million to increase U.S. technology exports. Meanwhile, Washington announced without elaboration that it had formed a partnership with Australia and Japan to goose Indo-Pacific economic growth and development. At first glance, the plan appears to pale in comparison to the hundreds of billions of dollars China plans to spend in the region. But U.S. businesses already invest heavily in the region, even without government direction or backing. This speaks to both a strength and a weakness of the U.S. strategy: Washington has a hard time spending on specific projects, particularly the sort of commercially dubious but strategically important ventures China is funneling money into, but U.S. investment is likely more sustainable over the long term. (There are reports, moreover, that China is failing to honor some of its financial commitments. The Philippines, for example, has seen just $150 million of the $24 billion Beijing promised it more than two years ago.) In any case, the United States under President Donald Trump tends to favor military strength over economic ties and so will look to Japan and Australia to foot the bill for economic growth and development projects in the region.

The United States may exclude Canada from ministerial-level NAFTA talks scheduled for Aug. 2, according to Canada’s National Post. Mexican Economy Minister Ildefonso Guajardo will be there, but the participation of Chrystia Freeland, Canada’s foreign minister, is reportedly contingent on whether Canada shows signs of greater concessions. (No one has corroborated the report.) The report comes about a week after Trump repeated his threats to replace NAFTA with two separate bilateral trade agreements. It’s been two months since all three governments met at the ministerial level, and if a deal is to be reached by the end of the month – a deadline all sides are trying to make – then we would expect to see a trilateral meeting occur within the next few weeks.

The U.S. remains skeptical of Pakistan despite the election of a new prime minister. U.S. Secretary of State Mike Pompeo warned Pakistan against using a $12 billion loan from the International Monetary Fund to pay off Chinese loans. The U.S. does not want to see China being indirectly enriched with IMF loans, nor does it want to see Pakistan fall into economic crisis, which would further degrade regional security. The IMF loan, by the way, is Pakistan’s largest bailout ever. The country’s international reserves are hovering at around $10 billion – not enough to cover three months of imports. Its central bank has devalued the currency three times since December. External debt and liabilities are also a problem. China has been propping up the Pakistani economy with loans of $1.5 billion to help shore up currency reserves. The U.S. also recently placed Pakistan on the Financial Action Task Force’s “grey list” for its failure to combat terrorist financing.

Honorable Mentions

  • Japanese trading house Marubeni is conducting a feasibility study on Russian plans to complete a liquefied natural gas terminal on the Kamchatka Peninsula. This would facilitate Japanese energy imports from Russia.
  • Officials from the EU, Canada, Mexico, South Korea and Japan will meet on Tuesday to discuss possible responses to U.S. tariffs on car imports and reforms to the World Trade Organization.
  • The EU placed sanctions on six more Russian entities in response to Moscow’s efforts to reunify Crimea and construct a bridge across the Kerch Strait.
  • Satellite imagery suggests that North Korea is still working on two liquid-fueled intercontinental ballistic missiles, the Washington Post reported, citing unnamed U.S. intelligent sources.