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What will happen as a result of the Turkish Lira crisis?

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As often happens in these cases, the financial structure of the current Turkish crisis was quite simple initially: as is always the case during an electoral period, credit to businesses and families was “pumped” to such a point that, before the outbreak of the crisis, the Turkish inflation rate had already reached 16%.

Again during the campaign for the general election of June 24 last, President RecepTayyp Erdogan promised strong investment in infrastructure.

It is the usual, old theory of Napoleon III, quand le bâtimentva, tout va – but currently investment in infrastructure has a relatively low multiplier (1.9 on average) and is increasingly capital intensive rather than labour intensive.

Furthermore, the return on investment over time and the future average return, if any, become technically unpredictable.

Certainly the modern economic theory tells us that also higher infrastructure costs lead to net increases in sectors which are not directly dependent on infrastructure – such as the classic examples of the ferry cost and the restaurant owner’s profit on an island. Nevertheless the money borrowed for these operations is little or is such as to create short and relevant returns -and this can never happen.

President Erdogan’s electoral promises, however, were inevitable: according to the latest internal polls before June 24, 60% of the people who traditionally voted for AKP (Adaletve Kalkınma Partisi, the Justice and Development Party) were already loyal and stable, above all vis-à-vis the Party’s Leader. However, 30-40% of the old AKP voters were dissatisfied, to the point of calling their vote for President Erdogan into question, and 10-15% were fed up with the AKP and its Leader.

It would be the end if, God forbid, the United States sought President Erdogan’s economic destabilization to punish “the tyrant” – ideological nonsense in which it only believes – or if the European Union thought to destroy the “fascist” Erdogan to free the Turkish people, thus destabilizing a ‘huge and essential area for the European security. The uncontrolled migration would turn into an invasion and the direct contact between the EU strategic nothingness and the Middle East jihad would become lethal, but only for Europe.

During the campaign for the general elections of last June, President Erdogan had also promised public investment (and nowadays the globalized economy is such as not to allow to make promises on private investment, without funding State’s investment). He was faced with an unprecedented united front of the four opposition parties against the AKP, which did not augur well for the founder of the first Party in power.

Hence “international markets” need to become aware of it in time: without promises you can never win elections and without some electoral public spending there is no consensus. This holds true for both the West and the East. The Jordanian uprising of last spring is acase in point: nowadays springs are economic  and destabilize a larger area than the purely political ones of 2011.

“Communication”, manipulative spin, and taking some extra erotic “liberties” are no longer enough to win elections – as still happens, but not for much longer, in some Western countries.

People want and will always want employment, security, infrastructure, wages and pensions, and above all stability.

The problem, which also applies to Italy, is that the current capital is post-national and pays taxes nowhere, while the average incomes have been falling for eleven years and cannot be further attacked by tax authorities.

Hence, since we cannot generate inflation – considering that the “markets” are only interested in it – we do no longer understand where we should find the resources, even limited, to give the masses what they have always asked from politicians since the times of Marcus Agrippa.

Hence there is also the Turkish leader’s electoral reference to the figure of Atatürk – that is strange even within a traditionally neo-Ottoman and Sunni project and narrative like the ones of  President Erdogan’s Party – which would have been impossible years before. During the electoral campaign, President Erdogan also underlined the further Turkish engagement in Syria, another clearly nationalistic and even secular factor that no one would find in President Erdogan’s initial storytelling. Finally he also referred to the Turkish ties with the European Union.

Clearly the European Union currently becomes the natural strategic and economic counterpart, faced with the crisis with the United States, an old tension due to the presence of Fethüllah Gülen in the USA.

Gülen is a Turkish preacher and political scientist, allied with Erdogan until 2013, but since 1999 he has been living in the forests of Pennsylvania.

With his movement, namely Hizmit (“Service”), Fethullah Gülenis supposed to be the figure who traditionally inspired the strong penetration of the Turkish AKP bureaucracies’ into the intelligence services and Armed Forces, in particular, as well as the Turkish coup of July 15, 2016.

Probably, the United States has always looked to the Western political scientist and sapiential preacher it hosts as a sort of threat to Turkey, a sword of Damocles enabling America to prompt an “Arab spring” in Turkey or even a “colour revolution” where needed.

Islamic esoteric sects, sapiential and secret networks, halfway between coup and Revelation, often connected with the most refined Western culture and politics, as well as relations between politics, intelligence and esotericism.

Nil sub sole novi: when Italy still counted for something, even the Grand Orient of Italy was the only cover chosen by the “Young Turks”, who organized their political and military action within the ranks of the Italian Lodges of Alexandria of Egypt, Istanbul and Thessaloniki.

However, let us revert to the economy: in spite of everything, the debt-GDP ratio – the obsession of the poor-quality economists so fashionable today – is very low in Turkey (a mere 28%).

However, Turkey currently records a high trade deficit of current accounts, which amounts to 6%. Hence the private debt has risen to over 50% of GDP, thus obviously putting the currency in difficulties.

In early July, all foreign investors expected a sharp rise in the Turkish Lira interest rates- and it was a “rational expectation”.

But obviously Erdogan, who is above all a politician, a leader who, like everyone else, seeks re-election – as the political scientists of the Rational Choice school of thought maintain  – blocked the interest rates downwards, with a view to avoiding impacts on domestic consumption and on the cost of loans.

Apart from Erdogan’s direct and institutional-family influence on the Turkish Central Bank, the idea is that the interest rate growth is generated by high inflation – as maintained by the neoclassical economic theories currently fashionable everywhere. And if the opposite were true? Here the arrow of time is of great importance.

The impact was predictably negative: inflation rose very rapidly, considering that many goods and services came from abroad. Investors got scared and only at that juncture  President Trump’s new duties materialized, just to top it all off.

Furthermore, Turkish companies have always been asking for money, especially abroad, to be considered reliable, given that – like all the recent dangerous economic success stories – the AKP-led Turkey has configured itself as an almost exclusively export-oriented country.

Einaudi’s economic wisdom would recommend a balance between the internal market and the external market dimension. Today, however, everyone superficially read the fashionable manuals, where equations seem to be written for theoretical cases, not for real economies.

Apart from President Trump’s duties, which kill a dead man– as we will see later on – the critical structure of the Turkish economy is made up of the following issues, which are all still on the table: a) the free fall of the Turkish Lira, the primary index of foreign investors’ sentiment; the Turkish currency that fell for twelve days in a row as against the dollar; the longest “fall” of the Turkish lira since 1999, the year when Gülen took refuge in the United States and the International Monetary Fund had to intervene with a bailout in dollars.

Considering that Turkey lives on many strong currency imports as against an export-regulated economy, which must be based on a weak currency to have the size necessary for reaching equilibrium and break even. Hence always keeping the Turkish currency artificially “weak”, a Weimarian inflation rapidly emerged.

  1. b) The financial burdens which, as always happens in these cases, have risen more than inflation, because investors are asking for a guarantee both to offset inflation and to be hedged against the collapse of the currency.
  2. c) As to the current accounts – another structural problem – it is still obvious that, under these conditions, Turkey must attract capital from abroad with very high rates of return – only to balance the economy and break even.

This triggers an imbalance that is resolved as in the case of a drug addict: much foreign capital marginally ever harder to repay, even only for the interest share.

Later, as in a well-known Dürer’s print, the scourge of the greater incidence of foreign debt materializes, just when buying  “good” currency only with the Turkish Lira has a higher cost. Other scourges materialize such as the growth of non-performing loans and the complete Turkish dependence on foreign oil and gas, which are sold in dollars and, incidentally, are increasing their unit price.

As already seen, apart from the current situation, the structure of the Turkish economy is strictly export-oriented, with domestic imports that depend directly on the oil and natural gas prices.

The steadily increasing prices of oil and natural gas rapidly led to a Turkish trade balance deficit equal to 57 billion US dollars in the period between March 2017 and March 2018.

There is virtually no propensity for domestic savings (whereas the high rate of domestic savings is exactly what is rescuing and will rescue Italy) and therefore the Turkish dependence on foreign loans has become chronic. This dependence feeds on the low value of the Turkish lira, which is however the main problem when debt must be repaid.

The foreign debt incurred in 2018 already amounts to 240 billion US dollars.

Obviously, under these conditions, the Turkish companies operating abroad do not repatriate their profits, which remain in the most profitable markets, while the solvency of Turkish banks is exacerbating.

Finally, however, the Turkish Central Bank reacted according to the too little too late classic rule, when the lira reached 4.9290 as against the dollar, thus restricting – only at that juncture – the monetary base and finally increasing interest rates.

Hence who is bearing the brunt of the crisis in Turkey? All the many people who have taken on debts in dollars or euros, but workers are certainly not better off.

Indirect taxation on employees’ incomes now accounts for 65% of their total salaries. Obviously unemployment (and hence the “cost of the politics”) increases and finally Turkish exports will also be devalued for a period covering at least the difference between the pre-crisis levels and those of the point in which markets will declare that the great Turkish inflation is over – inflation they have triggered off by taking advantage of Turkey’s mistakes.

Inflation resulting from the forced repayment of foreign debt, which was politically excessive. A precisely Weimarian structure.

The so-called Vision 2023, which Erdogan had made public in 2011, the year of the “Arab Springs”, will be probably put to an end.

Is it possible that after the stalemate in the Syrian crisis now won by Assad and Putin, the era of “Arab springs” has come, induced by the economic crisis rather than by the “democratic rebellions”, usually managed by the Muslim Brotherhood or by some fundamentalist group, with the agreement of the major Western democracies?

The Turkish crisis as if it were a sort of Egyptian, but only financial Tahrir Square, is a hypothesis not to be ruled out.

According to Erdogan’ statements, Vision 2023 aimed at a strong growth of average incomes and at an average per capita GDP of at least 25,000 US dollars, thus enabling Turkey to rank 10th in the world economy, to triple exports up to 500 billion dollars and create ten “global” Turkish brands (a good idea, which would apply also to Italy). Finally, the idea was to solve the long-standing issue of EU membership.

The Association Agreement between the EU and Turkey was signed in 1964.

The Final Stage of said agreement concerned a complete customs agreement between Turkey and the European Union. Later, in 1999, the “pre-accession policy” came, which imposed, inter alia, the constitutional change of relations between the Armed Forces and the political system, thus ensuring the rapid Islamization of the country. Was it a blind or silly strategy? We do not know the answer to this question.

In 2004 the EU still urged to open negotiations with Turkey – negotiations which are still underway. In 2016, a few days before the coup of July 15, there was a Declaration which “reaffirmed the commitment to implement the action plan as defined on November 29, 2015”, while the Parties agreed that the accession process should be “revitalized”.

Just lip service, as the opponents of the Soviet regime used to say, when they read the CPSU’s official statements.

Reverting to the economy, even the now unlikely Turkish plan for 2023 becomes possible only if a strong and long growth is recorded, or if we seriously increase – first and foremost – domestic savings. Investment and not consumption induced by strong currency regions must be generated, while the dependence of the Turkish lira on foreign capital must be reduced.

The shift between the dollar and the euro would be possible in Turkey, considering that now 70% of Foreign Direct Investment in the country comes from the EU, which is also a sort of legal, sociological and humanitarian minuet.

This will be possible if the Turkish economy is partially dedollarized and investment comes from areas such as the EU, in particular, as well as from the Russian Federation and its friends of the  Shanghai Cooperation Organization (SCO), and hence from China.

However, for the NATO’s second Armed Force, this means a radical change of strategic planning.

For China, Turkey should stop supporting the Turkmen jihadists of Xinjiang – something which, however, it is doing ever less. It should also seriously favour Russian operations in Syria, with the guarantee of the territorial non-continuity of the future Kurdish Rojava between Northern Syria and the Anatolian territory – but currently the Kurds fight together with the Syrians in Idlib. Finally, for the future Turkey, it should buy oil and natural gas in roubles and renminbi from China and Russia, with “branded” investment to enter the Central Asian and Far East markets.

A clear link between economic reconstruction and strategic repositioning, a new vision of the Atlantic Pact to the East, which would find itself bare vis-à-vis the Persian Gulf and deprived of areas enabling it to control the Russian Federation to the South.

A fundamental defeat of NATO, faced with the increase of US duties for Turkish goods. Pure madness.

Currently, however, Erdogan has also other certainties. He knows that we need to rely ever less on the Sunni Arab world (even if Vision 2023 seems to be almost similar to the one – bearing almost the same name – drafted by the Saudi Prince, Mohammad bin Salman), considering that Saudi Arabia has other things to think about and is already welcome in the world of high public debt held by foreign investors.

Erdogan is still convinced that Russia remains an unreliable and – in any case, considering the size of its economy – unable to support Turkey, which is floundering in a crisis. He is also convinced that China has other strategic priorities in the Mediterranean and that Africa, where Erdogan invested significantly, is still a tiny market.

There would also be the EU 18th-century-style minuet, but we do not see a way out between a declaration of intent and the other.

Hence is this game worth the risk of President Trump’s increase in duties?

Let us analyse the situation. Pending the Turkish lira crisis, President Trump stated that the US import duties on the Turkish steel would increase by 50% and those on aluminium by 20%.

There is also the usual issue of Gülen in the tension between the USA and Turkey, as well as the new tension regarding the detention in Ankara of a North American Protestant pastor, Andrew Branson, accused by the Turkish Police and intelligence services of espionage in favour of the Kurds.

Considering the US intelligence services’ long tradition of use of their religious sects, this charge may be plausible.

Besides President Trump’s unpredictable tariff geoeconomics, there is also the FED’s action.

Since the 2008 Lehman crisis, the Federal Reserve has been buying and stabilizing with derivatives the sovereign and major banks’ bonds and securities issued or deposited in a phase on the verge of bankruptcy.

In 2017, however, the FED decided to “normalize” the budgets, thus leaving to the markets the already acquired securities of sovereign or non-sovereign entities, still in danger but stabilized and hence having a higher price. It sells them at a low price, but it earns more.

The FED’s portfolio of such bonds and securities is supposed to decrease by 315 billion US dollars in 2018 and by additional 437 billion US dollars in 2019.

A mass of paper that will revive short-term investment and markets’ “hit-and-run” transactions and operations.

Hence there are obvious effects prolonging the general crisis and the high absorption of capital by entities such as FED – capital that could instead be used for the economic recovery of the current peripheral areas of the world market.

What about the effects on the euro? There will be many effects, considering the presence of European economies in Turkey.

Hence a strong and stable pressure of the dollar on the euro cannot be ruled out, which will have geopolitical effects that are easy to predict.

The time needed to recover from the Turkish crisis will be measured as against the time needed for the Turkish domestic savings to recover and on the basis of the possible shift of the Turkish debt between the US currency and the currency of the EU, which is only partially a payer of last resort.

When Turkey has more money, there will be another inflationary squeeze caused by the leaders’ often inevitable political choices. And the carousel will start again.

A ride that is structurally ready, especially for the EU Southern economies.

Germany’s position on the Turkish crisis, which is fully strategic and obsessed with the migration issue, makes us lean towards this equation.

Germany will help Turkey, but with a view to opposing the USA (which will soon attack the German trade surplus with the “markets”) and, in any case, by severely restricting the Turkish exporting area, which shall anyway adapt to the German “value chains”.

Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr. Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs “International World Group”, he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group. In 1992 he was appointed Officier de la Légion d’Honneur de la République Francaise, with this motivation: “A man who can see across borders to understand the world” and in 2002 he received the title “Honorable” of the Académie des Sciences de l’Institut de France. “

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Bringing cultural and creative industries back in the game

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The lockdown and social exclusion interventions have highlighted the value of arts and culture for people’s mental wellbeing – and, likely, health, due to the increasingly recorded psychosomatic effects of cultural access. But their benefits do not stop there. In terms of economic impact and jobs, the cultural and creative fields are important in and of themselves. They encourage creativity all around the economy and lead without any doubt to a variety of other socially beneficial networks, such as education, inclusion, urban regeneration just to name a few. Despite their vital role in our societies, culture and creatives industries are among the hardest hit since the outbreak of the Covid-19 pandemic, with major cities also having the highest concentration of work openings.

In these unprecedented times, with multiple crisis emerging almost on a daily basis, one after another, people – and local actors are for most, all round the world, turning to public support, desperately hoping for strong actions. Economy recovery plans announced by governments have been a first very encouraging sign. But despite all efforts, following a review of the overall landscape of the cultural sector across the globe, policies to help businesses and employees during the pandemic may not be well-suited to the sector’s non-traditional business models and modes of employment. Policies should harness the economic and social impacts of culture in their wider recovery packages and efforts to transform local economies, in addition to short-term funding for artists and businesses from both the public and private sectors.

According to the OECD report ‘’Culture shock: COVID-19 and the cultural and creative sectors’’, Cultural and Creative Sectors (CCS),including tourism, are among the most impacted by the present situation, with job losses varying from 0.8 to 5.5 percent of total employment across the creatives sector. It has been witnessed that social distancing policies have the greatest impact on venues-based industries (such as museums, performing arts, live music, concerts, cinema, and so on). The sudden decline in sales has put their financial stability in jeopardy, resulting in lower-wage earnings and layoffs, with ramifications for their suppliers’ value chain, both innovative and non-creative.

Because of a variety of factors, the consequences can last a long time. In the coming months, if not years, the effects of the recession and a decline in cultural sector investment might have an impact on the development of cultural products and services, as well as their diversity. Lower levels of international and domestic tourism, a drop in purchasing power, and reductions to public and private funds for arts and culture, especially at the local level, may accelerate this worrying growth in the medium term. And unfortunately, this is only the tip of the iceberg.

And it goes without saying that the downsizing of cultural and artistic industries would have a detrimental effect on cities and regions in terms of employment and revenues, levels of innovation, public well-being, and the richness and inclusion of communities in the absence of responsive public funding and recovery strategies. This though is inspiring dread. With vaccination programs promising us to get our ‘’normal lives” back in a near future, can we imagine actually living in a place with less theatres, less museums, less creativity? At a time when some major cultural institutions are on the verge of bankruptcy, having to choose between keeping their loyal employees or selling a master piece, this horror script is closer than ever. On top of that, the crisis has brought to light the financial vulnerability of some of the sector’s producers. Indeed, microbusinesses, non-profit organizations, and artistic practitioners make up the majority of the cultural and creative industries, which are frequently on the edge of financial viability. For the provision of innovative goods and services, broad public and private cultural institutions and companies depend on this diverse cultural ecosystem.

The dysfunctionality of public assistance programs that are inadequately applied to cultural and creative sectors business models and job opportunities has created more trouble for this sector. In view of the pandemic, national and local governments around the world have indeed adopted a slew of initiatives to support workers and companies, but many of them, especially those not aimed at CCS, are unsuited to the industry’s peculiarities. Jobs and state benefits programs are not always available or tailored to the modern and non-standard types of work that are more unstable and prevalent in the CCS. And this is how we fail at bringing back to life such a vital sector. From an economic point of view, but also societal.

But there is hope. There are solutions. Proposals. Specific policies, targeting the core of the problem, can be implemented at corporate and government level to enhance the cultural sector’s growth. Indeed, first of all, both private and public sectors need to work hands in hands if we want to give a chance to the creative industries to recover from this pandemic, and be part of the global recovery we are all craving for. In the short term, it should be made sure at government level that public support for COVID-19 relief does not discriminate against cultural and creative sector businesses and employees because of their non-traditional business models and job contracts. Furthermore, initiatives shall be taken to increase the effectiveness of policy initiatives, CCS network organizations, self-employed workers, small cultural and innovative enterprises, and sectoral employer organizations were consulted. By simplifying eligibility requirements and making them open to hybrid types of jobs, gaps in self-employment support systems can be filled. In addition, non-profit organizations should be included in funding programs aimed at helping small companies retain workers along with assurances that the funding for cultural organizations exceeds artifacts. On the medium and long term, private and government bodies should promote greater complementarities between culture and other policy sectors. For instance, advances in the cultural and creative sectors can also benefit education, especially in the use of new digital tools based on gaming technology for example and new forms of cultural material. Greater collaboration between health care and the cultural and artistic sectors will help to enhance well-being, prevent disease, or postpone its occurrence, encourage the development of healthier behaviors, and prevent social isolation. Development of new local cultural tourism strategies that resolve several large-scale or intensive tour operators’ socially and environmentally unsustainable practices. There is indeed a very wide range of possibilities. Endless possibilities within our reach. The potential is unlimited if only we decide to seriously consider it.

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Innovative ways to resume international travel

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International travel was predictably impacted as a result of covid 19 and the tourism industry suffered severe losses.

According to the UNWTO (United Nations World Tourism organization) barometer, the period from January-October 2020 witnessed a whopping 72% drop in tourist arrivals (international tourist arrivals dropped by 900 Million when compared to the January-October 2019 period). The loss in export revenues, year on year, from the tourist sector were a staggering 945 Billion USD. Tourist arrivals across regions witnessed a drop. According to the UNWTO barometer, the drop in tourism would cause a loss of 2 Trillion USD to the global economy.

Countries looking to resume international flights

During the midst of the pandemic, agreements were signed to facilitate essential travel between various countries (priority was given to workers, students or individuals who had to travel for emergency purposes).

Countries which have been successful in dealing with the pandemic have been looking to gradually resume international flights. Since October 2020, Singapore whose economy is significantly dependent upon tourism  had signed agreements with certain countries to ensure that travel for important purposes was less restrictive — either the quarantine period was reduced, or in some cases was not required at all.

New Zealand will be allowing quarantine free travel from Australia for the first time from April 19. New Zealand PM, Jacinda Ardern:

‘The Trans-Tasman travel bubble represents a start of a new chapter in our COVID response and recovery, one that people have worked so hard at’

Australia has been permitting travellers from New Zealand to enter most parts of the country without quarantine, though this has not been reciprocated.

A travel bubble has also opened between Taiwan (which has reported a little over 1,000 cases and 10 deaths) and the Island of Palau (which has reported 0 deaths) where travellers need not quarantine themselves (there are a number of other restrictions though).

Vaccine Passports, Digital Pass and differing perspectives

As countries get ready to open up travel, there has been a debate with regard to using ‘vaccine passports’ (these are documents which show that travellers have been vaccinated against Covid-19 or recently tested negative for the virus).

One country which is using this experiment domestically is Israel. It has issued a document known as ‘Green Pass’ to those who have been vaccinated or if they have developed immunity. This Green Pass can be used  for entry into gyms, hotels,  restaurants and theatres. The UK and US too are mooting the idea of introducing such an arrangement. This idea has faced fervent opposition in both countries. In UK, opposition parties Labour, Liberal Democrats and the Scottish National Party (SNP) have opposed the idea of such a covid certification document. The reasons cited for opposition are concerns with regard to ‘equity, ethics and privacy’.  The UK government has stated that a covid status certificate would not be introduced before June, and trials of various schemes to ensure safe opening up of the UK economy would carry on.

In the US, Republicans are opposing the idea of a vaccine passport saying that such an idea would be an attack on personal freedoms. Donald Trump’s son Donald Trump Jr urged Republicans to ‘vocally and aggressively’ stand up against vaccine passports.

If one were to look at international travel, International Airport Transport Association (IATA) has introduced a travel pass, a digital certificate, which will confirm a flyer’s COVID-19 test result and vaccination status. Singapore will be accepting travellers using this mobile digital pass from May 2021.While the pass has been tested by Singapore Airlines, 20 airlines (including Emirates and Malaysia Airlines) are in the process of testing the pass.

While one of the pitfalls of a covid status certificate or Vaccine passport is the impingement upon privacy, it has also been argued that developing countries will be at a disadvantage given the relatively slow rate of vaccination in the developing world. While remarking in the context of Africa,Dr. John Nkengasong the head of the Africa Centers for Disease Control and Prevention, said:

‘We are already in a situation where we don’t have vaccines, and it will be extremely unfortunate that countries impose a travel requirement of immunization certificates whereas the rest of the world has not had the chance to have access to vaccines.’

Conclusion

In conclusion, it is important for innovative ways to resume international travel. Safety needs to be balanced with equity, for this it is imperative that all actors engage in a constructive manner. A number of observers have suggested that vaccine passports/covid status certificates should be made optional, and that there is nothing wrong in using technology per se but it should not be thrust on anyone. The fight against the pandemic and revival of international travel are a golden opportunity for countries to reverse the increasing sense of insularity and inequity which has risen in recent years.

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Will the trade war between China and the United States come to end?

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USA China Trade War

Authors: Raihan Ronodipuro& Hafizha Dwi Ulfa*

The recent trade conflict between the United States and China has had a direct effect on some of the world’s economic players. These two countries are attacking each other with declarations and a trade war; the relationship between the two countries can be defined as a love-hate relationship because the two countries have a lot of mistrust for each other, but they still need each other.

The United States requires China as a global source of low-wage labor as well as a market for marketing American products, and China requires the United States as an investor in its companies as well as a market for marketing Chinese products known for their low-cost. What makes these two countries to be so cold to one another? To answer the question, let’s go back to when this trade war saga started.

Donald Trump is a successful businessman who owns enterprises and corporations all over the world. His candidacy for President of the United States in 2016 poses several concerns, including whether Trump is eligible to run for office. Trump replied by becoming the 45th President of the United States, succeeding Obama.

Trump adopted a protectionism agenda in order to shield the US economy from what he referred to as the “robber from China.” Trump has released a law stating that all steel and aluminum products entering the United States from Europe, China, Canada, and Mexico would be subject to 25% and 10% tariffs, respectively. Of course, China is outraged that the United States issued this order, as well as a related policy on all tribal products. Automobile components, as well as agriculture and fishery products, are manufactured in the United States.

In addition to the tariff battle, President Trump has expressly demanded that the TikTok and WeChat apps be prohibited from running in the United States. We know that these two technologies are very common in the larger population. Giant corporations, such as Huawei, have not survived Trump’s “rampage,” with the Chinese telecommunications giant accused of leaking US national security data to China through Huawei’s contract with US security authorities.

As a result, many US firms were forced to cancel contracts with Huawei or face sanctions. Google is one of the companies impacted by this contract termination, which means that all Huawei smartphone devices manufactured in 2019 and after will lack any of Google’s services such as the Google Play Store, Gmail, and YouTube.

Many of the world’s economic organizations predict a 0.7 percent drop in GDP in 2018 and a 2% growth in 2020. Coupled with the Coronavirus pandemic, the global economy has become increasingly stagnant, with global economic growth expected to be less than 0%.

Amid the tough trade negotiations between the United States and China, COVID-19 pandemic is also affecting their relationship. The United States domestic pressure to contain the pandemic, has led Trump to accuse China of being the virus spread source.  As a consequence, Trump put the US-China future relations at stake with his “China’s Virus” label. Besides, the United States absence from World Health Organization (WHO) during Trump administration along the pandemic, that become a new opportunity for China to expand its influence.  China uses the Covid-19 pandemic issue as an opportunity.

China’s successful in controlling the pandemic,  has also made China confident in facing the United States. Meanwhile, the United States is increasingly threatened by its position. Moreover, the United States dependence on overcoming Covid-19 which requires relations from many parties, including China, makes the United States’ position weak as a superpower.

This is what we hoped for when Biden took office. Many consider President Joe Biden to be willing to “soften” the United States’ stance on the trade war with China. After his inauguration on January 20, 2021, Biden has made many contacts with Beijing to address a variety of issues, one of which is the continuation of the trade war.

The United States and China agreed to meet in Anchorage, Alaska, on March 18-20, 2021, to discuss this issue. The meeting produced no bright spots in the escalation of the US-China trade war, but rather posed questions concerning the Middle East, Xinjiang, North Korea, and Taiwan.

The Biden administration stressed that it does not plan to abolish various regulations passed during the Trump administration’s term in the trade war with China, but it also does not intend to employ the same negotiation strategies as the Trump administration, which seemed to be very offensive. Besides, the Biden administration must be careful, If Biden prioritizes domestic challenges then China has room to push its agendas, including in the field of technology and territorial issues

Furthermore, the Biden administration’s policy has shifted from imposing tariffs on China to investing in industries that Biden believes are less competitive with China, such as nanotechnology and communication networks.

In conclusion, the trade war between the United States and China has ushered in a new age in the global economy, one in which China is going forward to replace the United States’ status as a world economic force, something that the United States fears.

The door to investment is being opened as broad as possible, the private sector is being encouraged to participate (under tight government oversight, of course), the cost of living is being raised, and the defense spending is being expanded. Today, we can see how the Chinese economy is advancing, becoming the world’s second largest economy after the United States, selling goods all over the world to challenge the United States’ status, and even having the world’s largest military after the United States.

The rise of China is what the US is scared of; after initially dismissing China’s problem as insignificant, the US under the Trump administration takes China and Xi Jinping’s problems seriously by starting a trade war that is still underway.

Will this trade war enter a new chapter in the Biden presidency, where the relationship with China will be more ‘calm’ and the trade war can be ended, or can it stalemate and maintain the stance as during the previous president’s presidency?

*Hafizha Dwi Ulfa is a Research Assistant of the Indonesian International Relations Study Center (IIRS Center) with analysis focus on ASEAN, East Asia, and Indo-Pacific studies.

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