Front Page News: March 23, 2015

Good morning Pine Tree Republic citizens! In our Front Page News features, I share 3-5 of the top news stories from the past week and discuss the broader global context in which they occurred. Each post concludes with questions to follow in the coming days and weeks to better understand how today’s news shapes tomorrow’s world. As always, please share your thoughts on these and other stories of the week in the comments section.

This week’s stories include surprising election results in Israela freeze in Canada-U.S. relations, and the Chinese government’s bet on internet entrepreneurs to continue its economic growth.

1. “Another Round of Netanyahu – For Israelis and the World“, by Michael Bell (The Globe and Mail)

Netanyahu

The Story: On Tuesday, Israelis voted in a crucial election for their country and for the world. With major geopolitical conflicts such as war in Syria and Iraq, negotiations with Iran over its nuclear program, and the worsening Israeli-Palestinian conflict swirling around it, the outcome of Israel’s elections promise to hold deep ramifications for stability in the Middle East. Much to the surprise of most prognosticators, sitting Prime Minister Benjamin Netanyahu and his centre-right Likud Party came out on top, garnering significantly most seats than the next closest party, the centre-left Zionist Union. The Likud Party’s last-minute surge came on the heels of controversial statements made by the Israeli Prime Minister, including a racially-charged warning to his supporters that Israeli-Arab citizens were voting “in droves”. In Israel’s robust parliamentary system, Netanyahu’s victory is still dependent on forming a coalition with other smaller parties – but his stronger-than-expected showing now gives the Prime Minister more freedom to build a coalition of his choosing. In this article, former Canadian Ambassador to Israel Michael Bell dissects the ramifications of this election surprise for Israel’s foreign policy.

Key Quote: “Monumental challenges face Mr. Netanyahu on both the domestic and foreign-policy fronts. He portrays his policies and practices as vital to Israel’s well-being, and ultimately to its survival as a Jewish state. This fear card was played during the election campaign and alienated many. He will now have to deal with the consequences.”

Context: The outcome of this week’s Israeli elections begs two sets of questions: What forces led to Netanyahu’s surprise victory, and what is the fallout for relations between Israel and the rest of the world? On the cause of the victory, much has already been ascribed to Netanyahu’s last-minute assertion that he would not support a Palestinian state (reversing a previous commitment), and warning to his base that a large number of Arab citizens were voting in the elections. However, some longer-term forces were also at play. Since Netanyahu took office in 2009, the Israeli settler demographic – generally ultra-conservative Israelis who live in the much-criticized settlements in the West Bank – has increased by 25 percent, while the general Israeli population has increased by less than 10 percent. This means that Netanyahu’s political power is increasingly reliant on hardline conservatives who see no room for negotiation with their Palestinian neighbours. In the more recent past, the decision of several small Israeli Arab parties to join forces this election into a unified Joint List also reshaped the Israeli electoral map. Whereas votes have typically been spread amongst more than a dozen narrowly-defined parties across several political spectrums, the prospect of facing a unified, more powerful Arab front precipitated many on the right to similarly rally behind Netanyahu’s Likud, lest the vote-splitting lead to an Arab-Israeli left governing coalition.

The fallout is a series of interesting and potentially decisive foreign policy decisions for Israel and the countries it interacts with. Now that Netanyahu has veered even further right to shore up his political support, it seems unlikely that he would reverse course and open his government to a meaningful peace process with the Palestinians. And with relations between Israel and the West already fraying due to differences of opinion on issues e.g. Iran’s nuclear program, Israel may begin to find itself with even less support at the United Nations, where the United States has historically shielded it from criticism and sanctions over its policies in the Palestinian Territories. In turn, Israel may look to form deeper ties with other countries who have permanent seats on the U.N. Security Council – perhaps Russia and even China – which could fundamentally restructure the alliances of the region. At the same time, Netanyahu now enters what is likely to be his final term in office (he will have served longer than any other Israeli Prime Minister) with a stronger party, less reliant on other coalition partners to maintain his grip on power. Often, it is precisely these governing conditions that can lead to a surprising turn in a leader’s stance on peace – and why it is too early to give up on the peace process just yet.

2. “How Ottawa Left U.S. Ambassador Bruce Heyman out in the Cold“, by Campbell Clark (Globe and MailI)

Canada-US

The Story: Globe and Mail political reporter Campbell Clark compiles several insider interviews to detail the deteriorating U.S.-Canadian relationship through the experience of U.S. Ambassador to Canada Bruce Heyman. Heyman arrived in Canada nearly a year ago, at a time when the highest-profile issue between the two countries, the approval of the Keystone XL pipeline, had already become a public dispute. While public disputes between the two partners in the largest bilateral trading relationship in the world are not uncommon – softwood lumber and “Buy America” are just two of the most recent sources of acrimony in a high-stakes, $2 billion-per-day trade relationship – Clark notes that the current state of the relationship seems to have taken a different step this time. Canada’s highest government officials have been freezing out the highest American representative in the country from access to key discussions and decisions, while America’s current political trajectory likely will bring further damaging trade disputes to Canada.

Key Quote: “And things could get worse. Mr. Obama might make his final Keystone decision, and say no. Canada is threatening to retaliate against a U.S. beef labelling law with a mini trade war. There are even fears the Americans, insisting Canada must put its protected dairy industry on the table, will bump Canada out of the 12-nation Trans-Pacific Partnership trade talks.”

Context: In this article, Campbell Clark raises a crucial question: Is the current Canada-U.S. dispute over the Keystone XL Pipeline another one-off issue in a long history of trade disputes between close neighbours, or is it indicative of a deeper shift in the long-standing partnership? Clark provides several examples of signs that the partnership may be entering a new, more combative stage. While certainly remaining close allies militarily, the two countries seem to be transitioning to a more competitive economic relationship.

The forces behind this shift are both political and structural. Politically, Canada’s Conservative government has made a deliberate choice to pursue an “energy superpower” vision, based on the strategy of exporting its oil and gas resources to the United States and potentially other countries. This type of economic policy is crucially dependent on a few, capital-intensive pieces of infrastructure to facilitate those exports, and the Obama Administration’s de facto rejection of the Keystone XL pipeline harms that vision more so than a particular trade dispute when Canada pursues a broader, more diversified economic strategy. On the U.S. side, foreign policy and diplomacy are increasingly becoming divisive partisan issues, as special interests with stakes in these issues hold increasing influence over American policymakers. Thus, not only is the Keystone XL pipeline caught in a Democrat vs. Republican political battle, but traditionally routine trade issues, e.g. financing a new customs plaza at the Detroit-Windsor crossing, may also be ensnared in the gridlock. Structurally, the freeze in U.S.-Canadian relations may also be a consequence of both countries looking to tap into a potentially lucrative Asian trade market through the Trans-Pacific Partnership, a mega-free trade deal being negotiated between 12 countries. This new economic context may contribute to position the United States and Canada increasingly as competitors, and not just friendly neighbours, in the near future.

3. “China’s Premier Li Keqiang Prepared to Spend Heavily to Stimulate Economy” by Nathan Vanderklippe (Globe and Mail)

China Gate

The Story: China’s Standing Committee, the nine-member leadership committee of its Communist Party, met the press at the end of last week, in what is the country’s most comparable event to a State of the Union speech. Chinese Premier Li Keqiang, the country’s second-most powerful man behind President Xi Jinping, used the occasion to emphasize China’s shift away from an export-dependent economy, and towards one driven by domestic investment. Emphasizing the importance of China’s internet companies as the drivers of future economic growth, Keqiang highlighted the need for the government to reduce the bureaucratic hurdles for China’s entrepreneurs. While the conference was more open to foreign press questions than in previous years, Nathan Vanderklippe reports that the sensitive issues of the Chinese crackdown on political dissidents went unmentioned.

Key Quote: “Deep fractures are forming in the foundations of a Chinese economy that has managed eye-popping growth for nearly four decades. China is no longer a cheap place to make stuff, eclipsed by numerous southeast Asian countries, and even Mexico, on the cost of manufacturing goods… To move forward, China needs to find new ways of making money, which means remaking a country built on factories that manufacture, and often copy, other people’s work.”

Context: Over the last 25 years since Chinese leader Deng Xiaoping’s economic reforms, China has achieved remarkable growth based on an exported-oriented economy. In a globalized world where the costs of transporting goods were reduced by technological advances, China built its economy on the model of being the world’s factory, enjoying advantages in lower manufacturing costs compared to the rest of the world. However, as China increasingly attracted international investment, rise in income and costs was inevitable -especially as the Communist Party explicitly traded off increasing living standards for its people in exchange for lack of political freedoms. The consequences of that trend have now come to roost for China, as neighbouring countries such as Vietnam and Thailand now boast lower manufacturing costs, and are attracting global manufacturing investment. To maintain their “grand bargain” of increasing living standards for lack of progress on political freedoms, the Chinese Communist Party is now searching for an economic model that is driven by domestic growth – and China’s booming Internet companies, such as Alibaba (China’s wildly successful version of Amazon), seem to provide that opportunity. Premier Li’s speech seems to indicate that the revised version of the “grand bargain” is that the government will reduce the red tape for Chinese online entrepreneurs, provided that they do not venture into political dissidence, which is a growing challenge to Chinese bureaucratic corruption and inefficiency. This represents an increasingly dangerous bargain for the Chinese government – whereas the Chinese state has controlled the “bricks and mortars” economy and has been successful in preventing most public forms of protest, they are now empowering a new class of online actors with global reach that could soon prove to be more difficult to control.

Questions to Follow:

  • What will be the implications of a strengthened Likud party in Israeli foreign policy? Will it have greater freedom to take chances in negotiating with the Palestinians, or will it be constrained by the conservative settler block that helped deliver its victory?
  • How will negotiations over the Trans-Pacific Partnership affect U.S.-Canadian relations as they enters the final, high-stakes rounds? Will the two countries become more overtly competitive in their rhetoric and their diplomacy?
  • How will China’s online companies reshape its economy – and will they represent a new class of political actors in the country?

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