China game theory

In the last Goodfellows, we batted around the question of how China would respond to Nancy Pelosi's visit. 

In this context, news just came in, announcing responses that we had not thought of: China is giving the US a big middle finger on climate. The announcement, from the Ministry of Foreign affairs, is short and clear: 

In disregard of China’s strong opposition and serious representations, Speaker of the U.S. House of Representatives Nancy Pelosi visited China’s Taiwan region. On 5 August, the Ministry of Foreign Affairs announced the following countermeasures in response:

1.Canceling China-U.S. Theater Commanders Talk.

2.Canceling China-U.S. Defense Policy Coordination Talks (DPCT).

3.Canceling China-U.S. Military Maritime Consultative Agreement (MMCA) meetings.

4.Suspending China-U.S. cooperation on the repatriation of illegal immigrants.

5.Suspending China-U.S. cooperation on legal assistance in criminal matters.

6.Suspending China-U.S. cooperation against transnational crimes.

7.Suspending China-U.S. counternarcotics cooperation.

8.Suspending China-U.S. talks on climate change.

My emphasis. Slip the knife in at the end. (The others are also interesting.) 

What does this mean? If you can stay awake, you can read the State Department's post-Glasgow announcement of the US-China cooperation on climate, 

C.    China will phase down coal consumption during the 15th Five Year Plan and make best efforts to accelerate this work.

So much for that. Climate and CO2 emissions come down to one thing: how China, India and other developing countries manage the large increases in energy consumption they need to grow. The US and Europe may decide to de-fund fossil fuels, ban fracking, turn off or regulate nuclear to death, freeze in the dark and de-growth, or play games with hundreds of billions of dollars down green ratholes, but China is no longer going along. If you think there is an economic competition with China, you just learned a lot about how that's going to play out. 

Other fun items in the State Department report, 

The two sides intend to engage collaboratively in support of eliminating global illegal deforestation through effectively enforcing their respective laws on banning illegal imports.  

Not any more.

Both countries recognize the importance of the commitment made by developed countries to the goal of mobilizing jointly $100b per year by 2020 and annually through 2025 to address the needs of developing countries, in the context of meaningful mitigation actions and transparency on implementation, and stress the importance of meeting that goal as soon as possible. 

Don't you love "mobilizing" money? It's interesting that the US was encouraging belt-and-road type China initiatives in developing countries. 

In the larger debate, as an  economist, I always first look at self-interest. How would China choose to respond? It could just ignore the whole thing after all. An event like this offers a chance to an actor to break out of commitments in a long running game, signal some future state, or change the state to its advantage. True to form, China first shot off some missiles and launched some military exercises around Taiwan. And we can see what China thinks its self interest is here.  

A colleague on the email thread that pointed this out, who opposes aggressive climate policies, commented wryly "All of you who thought nothing good could come from Pelosi’s visit to Taiwan have been proven wrong." Well, from one perspective!  

from The Grumpy Economist https://ift.tt/il9oQmG