The Trump administration is engaged in a range of conflicts with adversaries such as Russia and Iran, and it is simultaneously pursuing trade disputes with the EU, China and Japan. As a result, several countries are moving closer to each other, even creating unlikely partnerships. In energy, security and trade, Eurasia is becoming more united.

Our observations

• France has announced a deal with Russia for Arctic energy production, citing the U.S. withdrawal from the Iran deal as a reason to turn to other countries, such as Russia. Meanwhile, the Trump administration is considering sanctions against German energy companies for participation in the Nord Stream 2 gas pipeline to Russia.
• Earlier this month, the SCO meeting was held in Qingdao, China. The organization is an alternative to NATO, led by China and Russia. Since last year, India and Pakistan are full members and Iran has observer status. The SCO is the world’s largest organization in terms of population and landmass.
• Recently, Iran signed a provisional free trade agreement with the Eurasian Economic Union, the Russian-led trade bloc that also includes former Soviet states such as Kazakhstan, Belarus, Uzbekistan and Armenia.
• Last month, China also signed a free trade agreement with Eurasian Economic Union.
• In East Asia, China, Japan and South Korea are taking steps towards a free trade agreement and more cooperation between two development banks, the Chinese-led AIIB and Japanese-led ADB.

Connecting the dots

Over time, the Eurasian plain will again become the most dynamic region of the world, leading to new trade links (as well as conflicts).  As the Atlantic era is coming to an end, this region of the old Silk Road will regain prominence. This is a long-term trend that we discussed extensively elsewhere. Currently, however, U.S. president Donald Trump is pursuing a policy of confrontation that is speeding up this process.One field where this is evident is energy. Europe is even strengthening ties to Russia. Both France and Germany are going ahead with energy deals with Russia, increasing tensions with America. Iran is turning to Asian partners such as China and Russia for energy exports and investments, which will strengthen the role of the “petroyuan”.Another example of growing Eurasian integration was the recent SCO meeting. Although there were some tensions at the summit (India, for instance, did not want to endorse China’s Belt and Road Initiative), the unity of the group contrasted starkly with the tensions at the simultaneous G7 meeting. The Qingdao agreement of the SCO propagated free trade, regional development and denounced economic sanctions.Most important, however, is the increase in trade agreements. The prospect of economic headwinds resulting from American protectionism is driving countries to deepen trade relations with other partners. Examples are free trade talks in East Asia, Iran’s and China’s FTA with the Russian-led EEU. The latter deal will increase the connectivity between China’s Belt and Road Initiative and the European Union. According to the EU’s High Representative for Foreign Affairs Federica Mogherini, ties between Europe and Asia have never been so strong. She speaks out against “unilateral instincts” and “confrontation to achieve short-term goals”, a clear reference to Trump’s America First policy. Economist Paul Krugman draws an analogy with ancient Rome and speaks of the fall of the American empire. He argues that the Pax Americana rests on a soft power and free trade regime in which partners can flourish. As Trump creates conflict with partners and sees the free trade regime as a “piggybank that everyone else is robbing”, he is undermining American hegemony.Within Eurasia, new tensions will also arise, but America is currently uniting it. And perhaps it is paving the way for a future Pax Sinica.

Implications

• While protectionism is globally on the rise, we can simultaneously expect more free trade agreements within Eurasia. China in particular can profit from this, and fear of an economic downturn will also push Europe in this direction.
• As ties in Eurasia strengthen, adversaries of the U.S., such as Russia and Iran, may become emboldened to challenge it.
• The G7, a group of rich and democratic economies is powerless without the U.S. Thus, the Trump administration has de facto rendered the institution irrelevant. To get a grip on the world’s most pressing issues, new global discussion and governance forums are needed. But in a world of many emerging powers, we can expect the role of G7 economies to be relatively smaller, with more rival institutions being led by China, India and other regional powers.