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Welcome back to Axios World. We're flying around the world this evening in 1,588 words (~ 6 minutes).

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1 big thing: Modi erases Kashmir's special status

A woman walks by security forces today in Indian-administered Kashmir. Photo: Rakesh Bakshi AFP/Getty Images

Residents of Indian-administered Kashmir were largely confined to their homes and cut off from the outside world today while the government in New Delhi unwound the constitutional provisions that defined their place within India for seven decades.

Why it matters: Before making its move, India’s government dispatched thousands of troops to Kashmir, evacuated tourists, detained at least two influential politicians and cut off internet access.

  • Prime Minister Narendra Modi’s Hindu nationalist administration then revoked constitutional provisions intended to enshrine Jammu and Kashmir — India’s only majority-Muslim state — as an exception within the country.
  • Those provisions guaranteed significant political autonomy, as well as control over land ownership and residency status.

After rescinding Kashmir's special status in a choreographed series of steps, Modi's government plans to slice the state into two pieces over which Delhi will have greatly increased control.

  • The moves rest on shaky legal ground and are almost certain to be challenged all the way to India’s supreme court.
  • Despite India’s show of force, unrest is likely in the coming days.

The big picture: Kashmir has been a source of conflict between India and Pakistan since partition in 1947 and is now effectively split between the countries. Jammu and Kashmir is on the Indian side of the “line of control.”

  • Modi’s ruling Bharatiya Janata Party (BJP) claims the separate status of Jammu and Kashmir has fueled political separatism and blocked much-needed investment.
  • The party’s persecution of India’s Muslim majority has led to fears it wants to change the state’s demography and dilute its power.

On the ground: “By the time we woke up this morning, the internet was gone and we now have no mobile connectivity,” the BBC’s Aamir Peerzada writes from Kashmir’s capital.

  • “If people step out of their homes, they see paramilitary forces on every street. … It's an atmosphere of fear. People are scared to come out, they have stockpiled food for months.”

Between the lines: Alyssa Ayres of the Council on Foreign Relations tells Axios this has been a longtime BJP priority, but the government still took the world by surprise in doing it so suddenly "under cloak of night."

  • Ayres notes that the move happened just 2 weeks after President Trump claimed, in a meeting with Pakistani Prime Minister Imran Khan, that Modi had asked him to mediate in Kashmir. India stridently denied that.
  • “People in India are suggesting that this kind of prompted the Indian government to take action now,” Ayres said. “I don’t know if that’s true or not.”

What to watch: Modi was re-elected in May with a massive mandate after campaigning not on economic reform, as in 2014, but on whipping up nationalist sentiment. This could be a sign of what's to come in his second term.

  • “Pivoting to emphasize the Hindu nationalist cultural and legal issues can be responsive to their supporters, even at a time when they’re not able to go back to people and say, ‘hey, we’ve succeeded in bringing greater prosperity to you and your family,' ” Ayres says.
  • While this is a "BJP base issue," Ayres notes, "the BJP base has really expanded across India."
2. Breaking: U.S. designates China as currency manipulator

Illustration: Rebecca Zisser/Axios

U.S. Treasury Secretary Steven Mnuchin on Monday night declared China to be a currency manipulator, just hours after the Chinese government allowed the yuan to slip below a 7-to-1 dollar ratio for the first time in over a decade.

Why it matters: This is a further ratcheting up of trade tensions between the two countries and also marks the first time any U.S. president has used the currency manipulator label since 1994.

How it works: Under a 2015 law, to be designated a currency manipulator, a country needs to spend 2% of GDP on currency manipulation over a 12-month period. China is not doing this, Axios' Dan Primack and Felix Salmon write.

  • If anything, China was keeping the yuan artificially strong until Trump ratcheted up the trade war on Thursday.

Why now? Trump campaigned on labeling China a currency manipulator but was persuaded not to.

  • Today, however, voices from both the right (Lou Dobbs) and left (Chuck Schumer) have been urging the president to take this step.

What’s next: The currency manipulator designation does not come with particularly harsh remedies.

  • First comes a year of negotiations, and after that even the Trump administration's proposed beefed-up penalties are small, amounting to no more than about $20 million per year.
  • The move will certainly annoy the Chinese, however, and make any trade deal harder to achieve.
3. Middle East: China comes between Trump and Bibi

Israeli Prime Minister Benjamin Netanyahu and Chinese President Xi Jinping. Photo: Xinhua/Rao Ainmin via Getty Images

The U.S.-China rivalry is manifesting itself around the world in surprising ways, including at a recent Israeli cabinet meeting.

Behind the scenes: Chinese investments in Israel have become the main source of tension with the Trump administration, Axios contributor Barak Ravid reports:

  • Trump and other senior U.S. officials have asked Prime Minister Benjamin Netanyahu several times to take steps to limit Chinese investments.
  • In their last meeting in March, Trump warned Netanyahu that not addressing the issue could harm defense and intelligence cooperation with the U.S.
  • Netanyahu told Trump he understands the sensitivities but wants to find a balanced policy that won’t harm Israel’s relationship with China.

Flash forward to a classified meeting on July 24... Netanyahu’s national security adviser, Meir Ben Shabbat, presented to the Security Cabinet a draft resolution for monitoring Chinese investments.

  • The plan was to vote on the resolution at the end of the meeting, but the Foreign Ministry raised deep reservations. Officials stressed that it was too weak and wouldn't address U.S. concerns.
  • Israel's Ministry of Finance pushed back, warning that tight regulation on Chinese investments in the tech sector could harm Israeli companies and lead them to take their business abroad.

What to watch: Netanyahu requested another round of interagency consultations, including with the Israeli ambassador to Washington.

  • Netanyahu has committed to the Trump administration that he'll move ahead on this issue by September's elections.

Go deeper

4. World News Roundup

Protesters gather in Hong Kong. Photo: Chris McGrath/Getty Images

1. A general strike in Hong Kong today snarled commutes, forced 77 flight cancellations and “descended into citywide mayhem,” the AP reports.

  • “While previous large rallies over the past two months... have generally been held on weekends, Monday’s strike paralyzed city operations in an effort to draw more attention to the movement’s demands.”
  • “Hong Kong is on ‘the verge of a very dangerous situation,’ said Chief Executive Carrie Lam, who insisted she has no plans to resign.”

2. North Korea has fired 2 "unidentified projectiles" into the East Sea for the 4th time in less than 2 weeks, according to the South Korean military.

  • President Trump said last week that the short-range missile tests North Korea has been conducting do not violate the terms of his agreement with Kim Jong-un in Singapore last year, but he nonetheless urged Kim to "do the right thing,” Axios’ Zachary Basu writes.

3. Federal prosecutors in New York have accused Honduras President Juan Orlando Hernández of “conspiring with his brother and other top politicians to protect drug traffickers,” per the WSJ.

  • “Prosecutors say about $1.5 million in drug proceeds were allegedly used to support Mr. Hernández’s 2013 presidential election.” He denies the allegations.

4. President Tayyip Erdogan said yesterday that Turkey would “carry out a military operation in a Kurdish-controlled area east of the Euphrates in northern Syria,” per Reuters.

  • Turkey backed off previous threats but now accuses the U.S. of slow-walking a proposed safe zone.
5. Latin America: A risky way to break a deadlock

Peruvian President Martín Vizcarra. Photo: Carlos García Granthon/Fotoholica Press/LightRocket via Getty Images

Peruvian President Martín Vizcarra’s call for early general elections could exacerbate the political disarray that has afflicted the country for years, Beatriz Ariza of Crumpton Group writes for Axios Expert Voices.

Why it matters: Peru's government has been wracked by dysfunction, with a series of elected officials resigning or being jailed on corruption charges.

  • Vizcarra assumed the presidency in March 2018, after Pedro Pablo Kuczynski resigned ahead of a second impeachment for alleged corruption and bribery.
  • On July 28, Vizcarra presented a bill to hold general elections next July, one year early, hoping to end an executive-legislative power struggle.
  • Congress is divided, but the majority opposition coalition is seeking to block the bill and push for Vizcarra’s resignation.
  • If Congress does not approve the bill, Vizcarra is likely to call for a no-confidence motion, which could lead to the dissolution of Congress.

What to watch: This all comes at a fragile time for the national economy, whose progress has been hailed as the “Peruvian miracle.”

The bottom line: Not only do early elections put meaningful anticorruption efforts on hold, in the absence of a clear presidential successor or dominant political party, they deepen the country's political uncertainty.

Go deeper.

6. What I'm reading: How much for the palace?

Schloss Cecilienhof. Photo: Ihlow/ullstein bild via Getty Images

Italy has a wealth of history and a revenue shortfall. If you’re looking for some Renaissance-era property, you could stand to benefit.

  • “The cloistered quads and frescoes of the palazzo of San Salvador near the Rialto bridge in Venice have long been the property of the Italian state — but they will soon have a new owner,” the FT reports.
  • “In an attempt to chip away at €2.3tn in public debt the former monastery, founded in the 12th century on the orders of Pope Alexander III, is up for sale.”
  • “Prospective buyers will also be able to bid on the castle of Civitella Cesi... a former prison in the centre of Como and a villa in Florence’s Fiesole hills that was previously owned by rivals of the Medicis.”

Meanwhile, the former owners of Potsdam’s Cecilienhof Palace — which hosted the 1945 conference where post-war Germany was divided up — would like it back.

  • “The great-great-grandson of the last Kaiser has been in talks for years... about the return of possessions expropriated by the Russians at the end of the second world war,” the Economist notes.
  • “A letter from his lawyer to the authorities has now been leaked to the press, provoking a vehement backlash against Wilhelm II’s Hohenzollern dynasty and its alleged support for the Nazis.”
  • “If the case goes to the courts, it will not be pretty.”
7. Stories we're watching

Floating away a Saturday in Nanjing, China. Photo: Yang Bo/China News Service/VCG via Getty Images

  1. U.S. officially withdraws from Cold War-era missile treaty
  2. Trump adds to Russia sanctions for former spy poisoning
  3. China's social credit system dings foreign businesses
  4. The goods Trump's latest China tariffs would affect
  5. July was world's hottest month on record
  6. Expert Voices: Ceasefire in Syria's Idlib brings fragile reprieve
  7. Pompeo to give Kansas State speech amid Senate speculation

Quoted:

“They’ve had riots for a long period of time. ... Somebody said that at some point they’re going to want to stop that. But that’s between Hong Kong and that’s between China because Hong Kong is a part of China.”
Trump on Hong Kong, in remarks some said could help Beijing justify a crackdown