US-China Trade Talks Scheduled for Monday in Beijing

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The United States and China will begin two days of trade talks early next week in Beijing. This round of discussions will be the first in-person meeting between representatives of the two nations since President Trump and Chinese president Xi Jinping’s discussions at the G20 Summit in Buenos Aires last month. Those discussions between the two leaders brought about a 90-day halt on further tariffs and the talks scheduled for 7-8 January, 2019 are officially being held to further the implementation of the agreements made between Trump and Xi. Unofficially, China’s rush to put together the upcoming talks could indicate growing unease in Beijing about the Chinese economy’s recent downward trend, and the effects that the US-China trade war is beginning to have on it. China’s stock market indices experienced rapid gains once the trade talks were confirmed, showing that anxiety about the state of China’s economy is not restricted to the government.

The massive, and destabilizing US-China trade war scenario prophesized by a number of prominent Western economists has failed to come about. Both nations are making a concerted effort to prevent the current level of tariff exchanges from escalating, while still protecting their respective positions and principles. So far Washington and Beijing have succeeded in this effort. Still, there is cause for concern on the horizon and it is directly connected to the performance of China’s economy in the coming months. This week’s warning from Apple about weak iPhone sales in the PRC is the latest in a litany of somber economic news emerging from the Asian giant. Auto, and new home sales have declined, and factory profits are dropping. GDP growth is also growing sluggish, and there is legitimate concern now among economists and investors that China’s economic slowdown will worsen before it improves.

If that turns out to be the case,  the first victim could be the 90-day tariff ceasefire now in place. Next week’s talks should give the world fresh insight to the Chinese government’s own interpretation of its economic prognosis, as well as an unguarded glimpse at just how much pain the tariff exchange with the United States is causing for Beijing.

Friday 10 August, 2018 Update: Turkey’s Currency Tumbles

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On Friday the Turkish lira fell to its lowest level on protracted concern about geopolitical and economic factors that have been steering Turkish policy decisions of late. The lira dropped 17% against the US dollar, prolonging a slide that has attracted the attention of global markets. Throughout the day, a growing number of media outlets placed blame for the lira freefall on President Trump’s announcement of increased metal tariffs on Turkey, and the deteriorating relationship between Ankara, and Washington. This on-the-fly analysis fails to take into consideration the role Turkish President Erdogan’s unconventional economic policies have played. After the president won re-election in June, he assured the Turkish populace that his newly acquired near-absolute executive power would enable him to repair Turkey’s faltering economy. Unfortunately for Erdogan, he failed to make good on his promise, and the economy continues to backslide.

Turkey’s geopolitical situation brings additional uneasiness. The continuing rift with the United States is only exacerbating Erdogan’s economic problems, and highlighting the economic vulnerabilities that have built up during his time in power. Trump was entirely correct when he said US-Turkish relations  are ‘Not good at this time.’ In fact, this is something of an understatement. The US-Turkish relationship has been souring for a long period of time, and the current tensions show no sign of easing.

Also on Friday, Turkish Treasury and Finance Minister Berat Albayrak unveiled the nation’s new economic policy to the world. He said Turkey will be undertaking major cost-cutting steps in the public sector, and the government is moving to secure 35 billion lira (roughly $5 Billion at the moment) through increased revenue and savings. He also said Turkey will be shifting to a more efficient model for funding mega-projects, however, he did not elaborate further.

Unfortunately, Albayrak’s presentation appears to have done little to allay fears in Europe. The ECB (European Central Bank) is examining the exposure of European banks to Turkey. Bank shares fell when word of this became public. Talk of a possible Turkish bail out at some point in the future was also heard today, though the likelihood of Turkey becoming the next Greece is remote for now. Still, a Turkish bailout scenario is frightening to say the least, and could very well lead to the permanent breakup of the European Union.

Saturday 24 March, 2018 Update: Trade War Looming?

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The notion of a potential trade war breaking out sometime in the near future is creating much speculation. A number of well known economists, including Nobel Prize winners Joseph Stiglitz and Paul Krugman are convinced President Trump’s aggressive protectionist tariffs, coupled with China’s retaliatory actions herald the beginning of a US-China trade war that will have drastic effects on the global economy. Other economists, and experts in the field are less convinced a trade war is upon us. They point to the Chinese retaliation measures as proof of this thesis. Beijing’s response has been cautious, and calculated. 128 US products with an import value of $3 billion have been targeted. The sum is a fraction of President Trump’s tariffs on $60 billion in Chinese imports. What the future will bring remains to be seen, but if the market reactions over the last two days are an indication, the anxiety out there may not diminish for some time.

It is open for debate whether or not China’s responses will be strictly economic in nature. Economists seem to believe this will be a tit-for-tat exchange of tariffs between the US and China.  Beijing can decide to craft a geopolitical response as well. China’s actions in the North Korea situation have vacillated between helpful and hindering. The Trump administration had long sought Beijing’s assistance in defusing the high tensions in the region. To Washington’s chagrin, China has not exercised its substantial influence with Pyongyang in a beneficial manner. With economic tensions between the US and China rising, Beijing could use it as a justification to do even less with regards to the North Korean situation.

The South China Sea presents another arena where the PRC can project its displeasure with US actions. China has been extending its military reach there, and has expressed increasing annoyance with US attempts to project power in the disputed sea. Today a US Navy destroyer cruised within 12 nautical miles of Mischief Reef, once a fishing atoll, now the site of a Chinese military installation. Now, with the tariffs becoming a heated matter, Beijing can respond more aggressively to US warship patrols, possibly leading to a diplomatic compromise or a concession of sorts down the line.

Saving face is important to China. If the tariff tug-of-war continues, and even escalates, the South China Sea, and North Korean issue provide two areas where Beijing can challenge Washington with a measured approach without plunging the world into a major trade war.

 

Monday 18 April, 2016 Update: Doha Fails To Mend Oil Markets

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Over the weekend, talks in Doha between the world’s largest oil producers ended without an agreement to limit production and supplies. Oil ministers from 16 nations came together in an effort to stabilize the global market. The roadblock in the discussions was Saudi Arabia and other Gulf nations refusal to agree on a deal unless all OPEC members joined in agreement.  The Saudis have stated that they will not restrain production until there are commitments from the other major producing nations. This statement was aimed directly at Iran, which did not attend the meeting and has ruled out limiting its oil production until the levels return to what they had been before Western sanctions were imposed. It is obvious that the chances for a deal have fallen victim to the geopolitical conflict between Saudi Arabia and Iran.

While the Doha talks have failed to bring about a path towards ending the global oil glut, an oil-worker strike in Kuwait is making headway in that direction. Short term at least. The labor strike has cut Kuwait’s oil output by upwards of 60%. That means 1.7 million fewer barrels of oil will be making it onto the world market, drying up the surplus that has been there since the start of the year. The strike will provide short term relief and might temporarily re-stabilize the oil market However, it is by no means a permanent solution.

More updates and analysis on the oil situation, Iran and Saudi Arabia will come later in the week.

 

Wednesday 20 January, 2016 Update: Crashing Oil Prices And Russia

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This is going to be a very brief update and I apologize.

As oil prices continue to tumble it is time to look at the consequences this situation is starting to bring. First off, it’s worth mentioning that the oil price fall-off is not the only game piece bringing about the volatility in financial markets at the moment. Investors are concerned about what is happening in China and the possibility of an economic slowdown here in the United States as well. These three factors have managed to combine and cause enough chaos in the markets to make some economists begin to believe that the worst is yet to come. Shades of 2008 are becoming visible to some people. While it is true that Wall Street appears headed for a correction while energy and commodity prices suggest an impending recession, this is not 2008 all over again.

As the oil price drop continues, it would be wise to start paying attention to Russia. Cheap oil is a nightmare coming to life for the Russian economy.  The nation’s budget for 2016 was predicated on an annual oil price of $50 per barrel as well as an end to the recession in 2017. Brent Crude is currently at less than $30 per barrel. If the price hovers between $30-$40 for an extended period of time, the Russian government is going to have to introduce sustained cutbacks in its spending. Infrastructure and investments will be the first areas to see the knife. And as much as Moscow has attempted to hold off cuts to the massive military modernization underway right now, it might have no other plausible choice soon.

In a nutshell, the prospects for prolonged economic difficulties in Russia are high.  Eventually, the hardships will be felt by Russian citizens and when that happens, Vladimir Putin’s base of support will suffer. To prevent this from happening, Putin might be forced to double down on one of the foreign adventures currently underway. A large part of Putin’s popularity at the moment has to do with the wave of patriotism that swept the nation in the past two years. If the economic outlook does not improve for Russian citizens, Russia’s leader will need to divert their attention away from the fact that their daily lives are becoming more difficult. Think about the ways which Vladimir Putin might go about doing this.

I have thought about it, and do not like what I see coming down the road.