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APEC summit: Donald Trump and Xi Jinping have differences over future of global trade

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US President Donald Trump and his Chinese counterpart Xi Jinping have set out starkly different visions for the future of global trade in speeches at a summit in Vietnam. In a defiant address, Trump told the Asia-Pacific Economic Co-operation (APEC) meeting that the US would no longer tolerate “chronic trade abuses”. In contrast, President Xi said globalization was irreversible.

APEC brings together 21 economies from the Pacific region – the equivalent of about 60% of the world’s GDP. Since taking office, President Trump has pursued his “America First” agenda and pulled the US out of the regional Trans-Pacific Partnership – a major trade deal with 12 APEC nations – arguing it would hurt US economic interests.

In a speech in the Vietnamese port city of Da Nang on Friday the 10th November, President Trump railed against the World Trade Organization, which sets global trade laws, and said it “cannot function properly” if all members do not respect the rules. He complained about trade imbalances, saying the USA had lowered market barriers and ended tariffs while other countries had not reciprocated. “Such practices hurt many people in our country,” he said, adding that free trade had cost millions of American jobs. But he did not lay the blame on APEC countries, and instead accused earlier US administrations of not acting earlier to reverse the trend. He said America would make bilateral agreements with “any Indo-Pacific partner here who abides by fair reciprocal trade”, but only “on a basis of mutual respect and mutual benefit”.

Speaking minutes after his American counterpart, Chinese President Xi Jinping took to the podium to espouse his country’s credentials as the new champion of world trade. Globalization, he said, was an “irreversible historical trend” but the philosophy behind free trade needed to be repurposed to be “more open, more balanced, more equitable and more beneficial to all”.

In contrast to President Trump, the Chinese leader defended multilateral trade deals, which he said helped poorer nations to benefit. “We should support the multilateral trading regime and practise open regionalism to allow developing members to benefit more from international trade and investment.”

The total trade relationship between the USA and China was worth $648bn last year, but trade was heavily skewed in China’s favour with the US amassing a nearly $310bn deficit.  Trump has in the past accused China of stealing American jobs and threatened to label it a currency manipulator, though he has since rowed back on such rhetoric.

During the US president’s visit, China announced it would further lower entry barriers in the banking, insurance, and finance sectors, and would gradually reduce vehicle tariffs. Deals worth $250bn (£190bn) were also announced, although it was unclear how much of that figure included past agreements or potential future deals.

Before the Beijing talks, Trump in Tokyo lashed out at Japan, saying it “has been winning” on trade in recent decades.  Japan had a $69bn (£52.8bn) trade surplus with the US in 2016, according to the US Treasury department.

Trump has repeatedly referred to the region as “Indo-Pacific”, a term used to define America’s new geopolitical view of Asia.

The US president had travelled to Da Nang from Beijing, where he had also discussed America’s huge trade imbalance with China. There too, he said he did not blame the country for “taking advantage”.

President Trump was clear – he wants bilateral trade deals and large, multilateral arrangements don’t work for him. This was a speech saying that America is open for business, but on America’s terms.

Contrast that with China’s Xi Jinping, who spoke about the digital economy, quantum science, artificial intelligence – presenting a vision of the future that is connected, and comprehensive.

Increasingly whenever you see  Xi on the international stage he is the poster child for free trade and globalization. Ironic, given that China itself has yet to become a fully free economy.

The US was the architect of many of the multilateral and free trade agreements for Asia. Under its tutelage, many of these countries opened up and reformed – playing by America’s rules.

But under Donald Trump, that role has gone into reverse which has left China with a gaping hole to fill – and one it is only more than happy to take on.

When the US president is served up soy sauce older than America itself, it makes you wonder what diplomatic messages Asian leaders were hiding in the stock when they fed Donald Trump. Japan’s PM Shinzo Abe has made no bones about becoming Trump’s best friend and when the pair shared an all-American hamburger lunch made with imported US beef (remember new India hates beef and kill those who eat beef or sell it because beef, according to the latest discovery of Hindutva, is god’s flesh), and accompanied by Heinz ketchup and mustard, the messaging was clear.

The US leader reportedly loves well-done steak and hates raw fish, so steak and a chocolate ice-cream sundae at a Tokyo teppanyaki restaurant was one of Trump’s first meals. But “Japanese style steak” was reportedly on the menu at the state dinner, as well as chawanmushi (steamed egg) with matsutake mushrooms, and he got a taste of local culture when he ate teriyaki chicken at a traditional Japanese restaurant.

In Seoul, politics was definitely on the table. A cooked prawn that was caught near the disputed Dokdo/Takeshima islands claimed by both South Korea and Japan was served up. And among the guests for the state dinner was Lee Yong-soo, a former “comfort woman” or wartime sex slave for Japanese soldiers – a contentious issue between South Korea and Japan. Trump was photographed giving her a warm hug

It might just be worth noting that Trump is not believed to share the same rapport with South Korean President Moon Jae-in as with Abe. Trump also used his dining choices to play politics with a calculated decision to eat with US and South Korean troops at Camp Humphreys, the largest overseas US military base, for “Taco Tuesday”.

It’s unclear whether Trump took a bite, but Japan was not pleased – a government spokesman later raised concerns about the significance of the prawn at a time when South Korea should unite with Japan to tackle North Korean issues

Beijing may have given Trump a lavish welcome, but dialled down the extravagance when it came to the state banquet, choosing instead to ease Trump into local cuisine with a classic Chinese dish familiar to many Americans – kung pao chicken.

The dish of chicken pieces stir fried with chillies originates from Sichuan province, as does another item on the menu, fish cooked in chilli oil.

Trump is currently on a five-nation Asia tour, with China one of his stops.

Trump also met Russian President Vladimir Putin at the summit. The two shook hands and exchanged a few words. Both were in blue shirt – similar or maybe made of the same cloth and maybe stitched by the same tailor.

After the summit, Trump pays a state visit to the Vietnamese capital Hanoi, before ending his 12-day Asian tour in the Philippines on 13 November.

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Economy

Upswing in global growth won’t last forever: IMF says world must prepare now for leaner times ahead

MD Staff

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While the world economy continues to show broad-based momentum, a new report released Tuesday by the International Monetary Fund (IMF) is warning that there may be choppy seas ahead, caused by increasing protectionism or tit-for-tat trade wars.

“Global growth is projected to soften beyond the next couple of years,” said the report, explaining that: “Once their output gaps close, most advanced economies are poised to return to potential growth rates well below pre-crisis averages – held back by aging populations and lackluster productivity.”

Looking at the largest economies, the World Economic Outlook , the Fund’s semiannual report on the health of the international economy, shows growth projections at 2.4 per cent for the euro area, 1.2 per cent for Japan, 6.6 per cent for China and 2.9 per cent for the United States.

“Despite the good near-term news, longer-term prospects are more sobering,” said Maurice Obstfeld, Economic Counsellor and Director of Research at the IMF, the specialized United Nations agency working to ensure stability in the global financial system.

“Advanced economies – facing aging populations, falling rates of labor force participation, and low productivity growth – will likely not regain the per capita growth rates they enjoyed before the global financial crisis,” he continued.

Mr. Obstfeld painted a diverse picture for emerging and developing economies, saying that among non-commodity exporters, some countries can expect longer-term, pre-crisis type growth rates.

However, despite some improvement in the outlook for commodity prices, he pointed out that some exporters will need to diversify their economies to boost future growth and resilience.

The IMF, which is holding its annual Spring Meetings in Washington, D.C., with the World Bank, continued to echo its advice that the current cyclical upswing offers policymakers a good opportunity to make longer-term growth more resilient and inclusive.

“Sound policies can extend the upswing while reducing the risks of a disruptive unwinding,” Mr. Obstfeld stated. “Countries need to rebuild fiscal buffers, enact structural reforms and steer monetary policy cautiously in an environment that is already complex and challenging.”

Trade tensions

While some governments are pursuing substantial economic reforms, trade disputes risk diverting others from the constructive steps they would currently need to take to improve and secure growth prospects, Mr. Obstfeld warned.

Despite widespread economic growth, public optimism has been eroding over time by job and wage polarization trends, raising the threat of political developments that could destabilize various economic policies – even beyond those of trade.

“Governments need to rise to the challenges of strengthening growth, spreading its benefits more widely, broadening economic opportunity through investments in people […] that could radically transform the nature of work,” underscored Mr. Obstfeld. “Fights over trade distract from this vital agenda, rather than advancing it.”

Trade tensions started in early March when the US announced it would levy steel and aluminum tariffs for national security reasons, provoking China’s announcement of retaliatory tariffs on US imports.

In the present environment, excessive global imbalances should be reduced multilaterally.

“Plurilateral arrangements, if consistent with multilateral rules, can also provide a useful springboard to more open trade,” stated Mr. Obstfeld.

While each Government can do much on its own to promote stronger, resilient and inclusive growth, multilateral cooperation remains essential to address a range of challenges – including climate change, infectious diseases, cyber-security, corporate taxation and corruption.

“Global interdependence will only continue to grow and unless countries face it in a spirit of collaboration, not conflict, the world economy cannot prosper,” Mr. Obstfeld underscored.

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Why Trade, Investment, and Competition Reforms Matter for Argentina

MD Staff

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A loaf of bread. A gallon of milk. Eggs, cheese, and chicken. Most people would not link these everyday staples with a country’s integration in the global economy. But in Argentina, where customers pay 49% more, on average, for these groceries than people would have to under similar conditions in OECD countries, higher food prices are a symptom of deeper economic issues.

The country faces challenges in three policy areas that reinforce each other in fostering further integration in the global economy: trade, investment, and competition. Argentina’s trade flows have fallen by almost half over the past fifteen years, and while most countries participate in about 14 free trade agreements each, Argentina is only party to one, Mercosur. Foreign direct investment levels are low in Argentina, amounting to just two percent of GDP between 2000 and 2015. Further, state-owned enterprises in 17 different sectors are not competing on a level playing field with private investors or delivering services less efficiently than the private sector could.

A report from The World Bank Group, Strengthening Argentina’s Integration in the Global Economy: Policy Proposals for Trade, Investment and Competition, analyzes the current state of affairs in these three policy areas and proposes reforms designed to boost integration with the global markets which would then provide opportunities to grow, create welfare for consumers, and generate better employment opportunities. The reforms suggested in the report cover a wide range and include recommendations such as lowering tariffs, removing bureaucratic hurdles that make private sector investments difficult, and strengthening anti-cartel enforcement, among others. Enacting these reforms would allow firms to be more competitive and better integrated into the global economy, the report finds.

Implementing economy-wide reforms will pay off in a variety of ways. For instance, with all else being equal, a more integrated Mercosur- with lower external tariffs and streamlined internal non-tariff measures – would expand Argentina’s GDP by at least 1%over baseline projections for 2030. Increasing competition in the manufacturing sector would add 7 percent to annual growth labor productivity. Reducing the restrictiveness of market regulation in Argentinian services sectors (such as energy, transport, professional services, and telecommunications) would translate into an additional 0.1 percent to 0.6 percent growth in annual GDP.

Argentina’s government recognizes these opportunities and is taking active steps to open its markets. The Macri administration, which took office in 2015, has already reduced export taxes, replaced the import licensing system, approved reductions in energy and transport subsidies, pushed for a new Competition Law and facilitated $102 billion in new future investments in just 24 months.

“We are convinced that to defeat poverty, Argentina needs a profound productive transformation to become a developed country,” said Miguel Braun, Secretario de Comercio de la Nación, at an event in December 2017.

To reap the benefits of an open economy and increase prosperity in Argentina, the World Bank Group suggests tackling reforms across all three policy areas simultaneously, prioritizing those that can offer short-term wins and tangible benefits.

“No one policy alone ensures that firms can integrate into the global economy,” explains Martha Martinez-Licetti, Lead Economist in the World Bank Group’s Macroeconomics, Trade & Investment Global Practice and Lead Author of the report. “More must be done to ensure that everyone shares fully in the benefits of trade. Policies that help all people benefit from the opportunities that come with trade include investment and competition policies. It is only when implemented in a coherent way that reforms to trade, investment and competition can bring positive effects for the economy as a whole, better jobs for Argentine people, and more variety of goods and services at lower prices for consumers.”

The reforms suggested by the World Bank Group aim to address four particular challenges that firms in Argentina face.

  • Opportunities to enter and/or invest;
  • Access to efficient market inputs;
  • Ability to compete on a level playing field;
  • Capacity to thrive in global markets.

In the past, government interventions prevented investment from expanding or thriving. But today, Argentina is looking to the future and building policies that will help it reintegrate into the world economy.

“Even in this turbulence that we are experiencing, there is an opportunity to intelligently join the world,” said Argentina’s Minister of Production, Francisco Cabrera. “This report is an analytical anchor to understand where we are standing and to be able to make decisions.”

World Bank

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Economy

Growth Expected to Rebound in Middle East and North Africa

MD Staff

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The World Bank Group’s latest Middle East and North Africa Economic Monitor projects regional growth to increase to 3.1% in 2018, up from 2% in 2017. The increase in growth is expected to be broad based, driven by a favorable global economic environment, stability in the oil market at slightly higher prices, and the resumption of post-conflict reconstruction.

“There are grounds for optimism,” said Hafez Ghanem, World Bank Vice President for the Middle East and North Africa Region. “Now is the time to focus on creating more jobs and economic opportunities for youth. The positive outlook is an opportunity to speed up reforms for a renewed private sector as an engine of growth and job creation.”

On the back of a good performance by Gulf Cooperation Council countries, oil exporters could see growth reach 3% in 2018, double the rate in 2017. Growth among oil importers is expected to increase to 4% on average from 2018 to 2020, driven by a sharp rebound in Egypt and a rise in remittances, tourism and exports. Almost all countries in the region have embarked on major reforms to reduce or eliminate energy subsidies, identify new sources of non-oil revenues, and expand social safety nets to shield the poor from adverse effects of change.

“While stabilization policies have helped economies adjust in recent years, we need much faster growth to absorb the hundreds of millions of young people who will enter the labor market in the coming decades,” said Rabah Arezki, World Bank Chief Economist for the Middle East and North Africa Region, “In this report, we study ways for transforming rather than adjusting the region’s economies, to achieve the growth needed.”

Low oil prices and a global shift toward renewable energy to meet climate goals poses risks and opportunities. With its abundant sunshine, the region can leverage the power of solar technology. Turning risks into opportunities will require innovation and the adoption of new technologies. Along with helping the region adapt to the new reality of low oil prices, leveraging new technologies could be a new engine of growth and jobs for the regions. A focus on corporate governance will need to accompany efforts to improve the business environment, to create a new system of incentives at the firm level that encourages the bold and creative thinking required for economic transformation.

Adopting new technologies will require significant investments in infrastructure, which will require greater leveraging of private finance. This can be achieved through public-private partnerships, which Jordan has used to build the Queen Alia airport, and Egypt to attract sizeable private investments in its energy sector. Public-Private partnerships have the added advantage of drawing on the innovation and efficiency of the private sector, and are a step toward changing the role of the state from the main provider of employment to an enabler of private sector activity.

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