Sri Lanka’s prime minister has told that nation’s parliament that the national economy has, for all intent and purposes, collapsed. Ranil Wickremesinghe informed lawmakers that Sri Lanka is “facing a far more serious situation beyond the mere shortages of fuel, gas, electricity and food. Our economy has completely collapsed.” Wickremesinghe’s remarks did not bring any new developments to light. In fact, the rather new prime minister’s words seem intended to remind lawmakers and his critics that the task of rebuilding Sri Lanka’s economic foundation will take time and much effort. After being in power for roughly one month, opposition party politicians are attempting to lay blame for the economic collapse upon Wickremesinghe’s shoulders. As the nation slides deeper into economic malaise, the politicians are attempting to cover their own backsides and assess blame upon others.
The collapse of the national economy came about at least partly due to a perfect storm of circumstances. Heavy debt, loss of tourism revenue, a foreign currency crisis and other pandemic-related impacts, as well as the soaring costs of commodities are the main ingredients of Sri Lanka’s economic nightmare. The nation is no longer able to buy imported fuel, even for cash, due to the heavy debt owed by Ceylon Petroleum Corporation. There are no nation-states or supranational bodies willing to provide fuel, creating significant fuel shortages.
The Sri Lankan government plans to call India, China and Japan to a donor conference in early August in an attempt to increase foreign financial assistance. An interim budget will be presented around the same time. This is hoped to help Sri Lanka’s position in negotiations with the IMF. August will be when geopolitics takes on a broader and more significant position in Sri Lanka’s economic crisis. India and Japan will seek to raise their influence with Colombo while simultaneously reducing China’s influence. India and Japan, as Quad members, have political and military incentive to work together and push back China’s inroads in Sri Lanka. Beijing is attempting to move deeper into the Indian Ocean and establish basing rights for Chinese warships in an area historically regarded as the Indian sphere of influence.
With the COVID-19 pandemic waning in most areas of the world, the time to begin seriously pondering what the post-COVID world will look like is almost upon us. To be fair, there has been a healthy amount of speculation about that topic since the beginning of the pandemic. However, between then and the present day, new economic, military, diplomatic and geopolitical realities have emerged and obscured the global picture in a myriad of ways.
There will be new realities to contend with. Some nations will refuse or fail to live up to this and inevitably their power and influence will retrograde. Others will recognize the new dynamic in play and attempt to turn it to their advantage. Both of these groups will be made up mainly of middle powers, with a handful of notable Great powers in decline tossed in. One tier above this coming fray will be the remaining Great Powers jockeying for position and searching for ways to extend their influence and power around the world. The obstacle facing some of these powers is their obstinance. Specifically, their tendencies to resort to reflexive, short-term policies and solutions to long term matters. The failure to reengineer their thinking and equip properly for the coming era, which has the potential to be an era defined by unpredictability and sudden shifts in the balance of power.
Finally, at the top stands the United States and China. The two Superpowers are primed to set the tone into the first years of the Post-COVID era. Both have the power and potential to shape the world through their policies and actions, as will the direction and tone of Sino-US relations.
Throughout the summer, the potential look of the Post-COVID world will be examined and discussed at length.
Author’s Note: Holiday weekend is wrapped up, so I’m starting off slow with a short post today and will get up to speed again by the end of the week.
The coronavirus outbreak has cast a light on the indispensable role China plays in global supply chains. China is the manufacturing base for a large percentage of global businesses and the virus has kept many factories and plants shuttered since the end of the Lunar New Year holiday. As the virus continued to affect every facet of life in China, with large swaths of territory under quarantine restrictions, multinational companies are waking up to the realization they could be facing a potential long-term disruption in the supply chain. The electronics industry is being particularly hard hit by disruptions to its supply chain. With assembly plants that make the iPhone in China still closed Apple will likely ship 5-10% fewer iPhones this quarter according to analysts.
With the economic blowback of the coronavirus continuing to expand, many companies are coming to the realization of how vulnerable their current supply chains are to disruption. The single geography sourcing strategy is suddenly not so appealing. As a result, alternatives are being examined carefully. The race is on to design sustainable supply chains that can overcome the disruption challenges of the present-day and the future. Regional sourcing will become more prevalent, meaning an economic boost for developing regions in places like Africa, and South America. Unfortunately, their good fortune will come at China’s expense and this is something that Beijing will not take lightly to.
Author’s Note: Short posting today, I apologize. Chemo effects kind of knocked me out, but I’ll bounce back with more detailed posts tomorrow and this weekend.
Vice Premier Liu He,China’s senior negotiator for trade has publicly announced that China is willing to resolve the trade dispute with the United States through negotiation. Liu also stated that his country opposes an escalation of the trade war now underway. The composed gesture coming from Beijing was answered by President Trump at the G-7 summit underway in France. Trump went as far as to predict that a trade deal will be reached with China at some point in the near future. It remains unclear whether today’s gestures reflect sincere intentions or if they are simply water on the fire. Last week’s wave of new US and Chinese tariffs sent global markets into spasms. Monday’s conciliatory words helped to calm markets, however, the current trade situation between the United States and China remains volatile.
Trade talks are expected to resume in Shanghai next month. Expectations will be high even though both Washington and Beijing will likely remain cautiously optimistic about the chance that further talks will bring an end to the trade war. Suffice to say, it would be in Beijing’s best interests to bring the trade matters to an end soon given what’s happening in Hong Kong, as well as recent issues in the South China Sea. China cannot move decisively in either area while the eyes of the world remain fixed on it. Beijing understands this, yet there are factions in the government that favor taking a harder line in the next round of trade discussions.
Fears of a global economic slowdown reached Wall Street today. The Dow Jones Industrial Average dropped 800 points during trading today. It was the fourth largest point loss on record, and by far the worst of 2019. It was a perfect storm of news and events that came together to wreak havoc on Wall Street today. Reports of the slowest Chinese industrial production rate in 17 years, and that Germany’s economy actually shrank last quarter fed into fears of a coming global recession. Yet what really sank Wall Street today was the inverted yield curve, which historically signals an approaching recession. Just when that recession may arrive is unclear. It could be within months, or up to two years off in the distance. Asian and European markets also suffered considerable losses.
The current geopolitical climate, and the impact of the US-China trade war also played a key role, and will continue to. Aside from the trade war currently underway, Hong Kong, and Iran are two areas investors are watching carefully. Events earlier this week in Argentina are also on investors minds. A loss by the incumbent president in the primary election touched off a near economic route and brought forward investor concerns that Argentina could default on its IMF loans at some point in the coming year.