US-China deal and opportunity for Sri Lanka

China seems to have blinked. There is no doubt that the US will continue to encourage imports from alternative destinations instead of China. There is also no doubt that the US will continue to aggressively neutralise China’s advancements in all fronts – Pic source https://www.zdnet.com/

US President Donald Trump’s election campaign was a lot about being tough on China and to bring back industries and jobs to USA. The people liked it and voted him in. From the very first year in office, he initiated a confrontational approach with China and the so-called “trade war” commenced. 

As he is completing the third year in office, there is finally a deal with China. China seems to have blinked. There is no doubt that the US will continue to encourage imports from alternative destinations instead of China. There is also no doubt that the US will continue to aggressively neutralise China’s advancements in all fronts. At least until Donald Trump is in power. That could very well be for another five years. 

The takeaways for Sri Lanka

As a new administration is just starting in Sri Lanka, it would do well to analyse and understand the opportunities these events unfold for Sri Lanka.

Firstly, the fact that Sri Lanka needs foreign assistance to attain high growth levels. If the two largest economies in the world needs each other and engages in a lengthy negotiation process, there is no doubt that a small developing economy such as Sri Lanka needs that.

These negotiations could be time consuming. Hence the need for Sri Lanka to move swiftly and commence negotiations immediately as it would take a few years to reach a deal and for the economy to start seeing the benefits of such negotiations. From a political point of view, that should happen before the next election in five years.

The fact that US is trying to reduce the exposure to China by looking for alternative sources of imports would open the opportunity for Sri Lanka to export these items to USA.

The fact that US is actively confronting China in all fronts would provide an ideal platform for Sri Lank to negotiate with both the superpowers from a position of strength.

The first step for Sri Lanka

Sri Lanka should initiate a negotiation process with both China and USA. 

In the case of China, Sri Lanka should clearly indicate that what we need is for the Chinese companies to set up production bases in Sri Lanka. And nothing else. Chinese companies export hundreds of billions of dollars to the rest of the world. We should ask for a fraction of that to be sourced from Sri Lanka. The negotiation process could start from there, as China would articulate what they need in return.

Similarly, we could seek USA to buy $ 2-3 b worth of technological products/services from Sri Lanka. The negotiation process could commence from there, as USA would articulate what they need in return. 

In the case of China, Sri Lanka should clearly indicate that what we need is for the Chinese companies to set up production bases in Sri Lanka. And nothing else. Chinese companies export hundreds of billions of dollars to the rest of the world. We should ask for a fraction of that to be sourced from Sri Lanka

A long, difficult negotiation process

Clearly it is going to be a difficult and long negotiation process. The US – China trade negotiation case study is a good example. Most likely both the superpowers may even outright reject Sri Lana’s proposal at the beginning. Some local pundits may even say that it’s an outrageous strategy, as the superpowers would not grant such economic benefits. However, the golden rule is, “if you don’t ask, you don’t get”. We shouldn’t assume that we won’t get. We should commence the process. Luckily for Sri Lanka, we have chips to bargain with. 

Sri Lanka is an integral part of China’s Belt and Road initiative. If we are to co-operate with China on that, China should know exactly what Sri Lanka needs in return. As Donald Trump wants Sri Lanka to neutralise China’s growing presence in Sri Lanka, he would know exactly what Sri Lanka needs in return. 

Whether it’s the MCC or a loan-funded road development, so far, it’s these foreign countries that have decided what Sri Lanka gets. They tell us what they could give and we blindly accept while giving them what they need. It is this approach that has got us into trouble. The sale of the Hambantota port citing the inability to service debt was the tipping point of that

Conclusion is far from clear right now

It is premature to think how it would end. When the US-China trade war commenced two years ago, they wouldn’t have foreseen the components of the preliminary deal that was reached last week. Similarly, we need to be open minded regarding the negotiation process. We could foresee multiple scenarios.

Maybe both parties would be willing to provide some level of concessions, in return for certain benefits for them. In that case, it could be even, where Sri Lanka remains a neutral state. However if one is willing to give more concessions at an acceptable price, Sri Lanka should be open to align more with that entity. However, in any case, Sri Lanka should make sure that its sovereignty and independence is not affected in a material way. We also need to bear in mind that real benefits come at a real price.

Let us decide what we need, not them

Whether it’s the MCC or a loan-funded road development, so far, it’s these foreign countries that have decided what Sri Lanka gets. They tell us what they could give and we blindly accept while giving them what they need. It is this approach that has got us into trouble. The sale of the Hambantota port citing the inability to service debt was the tipping point of that. It fell nicely into the fear of India and the west that China is lending to Sri Lanka with the ultimate objective of acquiring strategic assets and making Sri Lanka its pawn. 

In any negotiation process, the key is to earn the respect of the other party. That happens by being smart and practical at the negotiations. The US and China has plenty of respect for each other and that’s why the long negotiation process took place in an exemplary, civilised manner. We don’t seem to have done it well so far. The challenge is to do just that going forward.

(The writer could be contacted on [email protected])