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The false logic of a China-US choice in the Middle East

  • June 30, 2020

Trump has consistently undermined the constructive role of the United States in the international system. China has seized the opportunity. Growing, developing states in the region are made to think there are two options rather than a whole set of partners and supporting institutions that stand in contrast to what China is selling. Opponents of a “New Cold War” fret the United States is pushing China into a corner and that confrontation with China will undermine diplomatic success in bringing China into the fold of international norms and increased economic liberalization. But really it is China that benefits from pushing developing countries into a false dichotomy.

Often cited as the region’s most important source of foreign direct investment, China is really only active as a source in a few key states, mostly in the Gulf. The reasons for the Chinese presence as a contractor in the Gulf and co-investor in Gulf infrastructure and energy projects are simple. The Gulf oil exporters want to maintain a good customer service relationship with China, state-to-state investments can avoid the public scrutiny of bond offerings and disclosures to international investors, and sometimes the deals are just faster and easier to close. China is a good partner in some investments and loans that don’t make economic sense otherwise, serving as an alternate balance sheet for state entities on both sides.

Chinese foreign direct investment across the Middle East and North Africa is not consistent over time, tends to be concentrated in a few key locations and creates few jobs (mostly because large contracting projects rely on imported labor in the Gulf or itinerant labor in other countries.) Data compiled from fDi Markets and AEI’s China Global Investment Tracker comparing Chinese capital expenditure and job creation in Jordan, Egypt, Oman and Ethiopia demonstrate how combined private investment from the United States, United Kingdom and European Union consistently outweigh Chinese investment over time, looking at the period between 2014-2020. Interestingly, so does investment from Gulf Arab states. China gets all the credit by framing foreign investment as a bilateral phenomenon rather than facilitated and amplified by shared institutional norms and regional priorities.

The problem is that the US-China dichotomy is self-defeating. From its beginning, the Trump administration has seen international political economy from a statist perspective, not from an institutional perspective in which an array of US interests are served. The United States does not command its investors, its firms or their interests. It defends an environment, including in the Middle East, that is conducive to their growth. This environment is a set of institutional norms, practices and beliefs that open markets, rule of law, and free movement of ideas, people and goods make us all better off.

In essence, the Trump administration has been as much of a proponent of state-led growth as the Chinese, who are now discovering the use of their own entrepreneurial class to advantage “going out” across Africa and the Middle East. The Middle East has choices, its own regional development actors, and a set of consistent and engaged sources of investment from the United States and the largest economies (and strongest militaries) in the world. There is no logic to a choice between the United States and China, only opportunities lost.

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