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Trump’s Tariff War, Brexit, and Spats in East Asia … Stocks Plunge

Dr. Arshad M. Khan

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Can we believe their claims to represent the ordinary people if Donald Trump went to private military school and his friend British Prime Minister Boris Johnson went to Eton, one of England’s elite prep schools where he was a King’s Scholar?

Founded by Henry VI to educate 70 poor scholars (poor being a relative term), they were boarded and educated.  Open to competition now, King’s Scholars still live separately, that is, in the College.  Intellectually an elite, their fellow Etonians who are not scholars are labeled oppidans or ‘townies’.  These pay their way at Eton and naturally belong to the upper rich tier of society.  Not that Boris was not, but it should be clear by now, he is no fool, despite his tomfoolery.

But even for Boris the Irish gordian knot awaits.  He wants to leave Brexit, even without a deal, and reinstate the border between North and South in Ireland — a prospect not at all palatable to southern Ireland’s government, or for that matter to the people.  The previous prime minister Theresa May’s proposal was to make the Irish Sea the customs border.  But parliament voted it down as it could lead to Northern Ireland drifting away from the United Kingdom.

Her withdrawal agreement also smoothed out the trade jolts through a transition period during which other areas like business licenses and residency permits would be negotiated.  The UK then potentially could become like Switzerland, which is like a member through many mini-agreements without being one.

Boris has been doing the rounds.  Angela Merkel had soothing words; Macron in France was more blunt.  There could be a few tweaks to the withdrawal agreement but the Irish backstop, as the open border is called, was non-negotiable.  Where do we go from here?  If anyone thinks it is not relevant to us in the US, pause a moment to focus on your 401K and imagine what will happen to the stock market with an untidy breakup carrying severe economic consequences for Britain and costs, although less, for Europe, particularly Germany with its UK exports.

Making matters worse is the increasingly acrimonious war of words between two close US allies on the other side of the world:  Japan and South Korea.  It has led to the latter abandoning a military intelligence sharing agreement.  Bitter feelings from Japan’s colonial past in Korea are never too far beneath the surface and without Washington’s steady hand holding its two important allies together, they have bubbled up.  Trump, so intent on trade issues and lacking diplomatic sophistication, has become an example for others to emulate, to air differences and to act upon them.  If it leads to chaos, it is Trump’s chaos with no one else to blame. 

The G7 meeting in Biarritz, a resort in the southwest of France close to the Spanish border, awaits Trump with memories of his early walk out in Canada at the previous one never far from anyone’s mind.  This time Boris Johnson is also there fretting about Brexit on the side.  What can we expect?  Not much when Macron, preferring to err on the side of caution, has already abandoned the customary summit communique signed by all the members.  Trump did find time to slap new tariffs on China increasing his earlier rates by 5 percent; China responded swiftly, increasing their tariffs on $75 billion of U.S. goods by an additional 5 or 10 percent selectively.  Stocks plunged.

Trump has clearly chosen to abandon the fig leaves of mutual self-deception that smooth relations between friends with (sometimes) contradictory interests.

Dr. Arshad M. Khan is a former Professor based in the US. Educated at King's College London, OSU and The University of Chicago, he has a multidisciplinary background that has frequently informed his research. Thus he headed the analysis of an innovation survey of Norway, and his work on SMEs published in major journals has been widely cited. He has for several decades also written for the press: These articles and occasional comments have appeared in print media such as The Dallas Morning News, Dawn (Pakistan), The Fort Worth Star Telegram, The Monitor, The Wall Street Journal and others. On the internet, he has written for Antiwar.com, Asia Times, Common Dreams, Counterpunch, Countercurrents, Dissident Voice, Eurasia Review and Modern Diplomacy among many. His work has been quoted in the U.S. Congress and published in its Congressional Record.

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Economy

Are We Heading Toward Another Lost Decade for Latin America?

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According to World Bank data, between 2000 and 2019,  average annual growth in the Latin American and Caribbean region was 1.6%. That level of growth is clearly unacceptable both if we compare it with growth in other regions – East Asia (4.8%), Europe and Central Asia (1.9%), the Middle East (2.9%), South (6.5%) and Sub-Saharan Africa (3.5%) –  as well as if we put it in per capita terms, where the rate would be 0.56%, insufficient to rapidly improve living standards for the population.

It should come as no surprise then that the decade ended with protests in several Latin American countries, especially if we view these protests as an expression of the discontent with an economy that does not grow fast enough to satisfy society’s demands and expectations and with an inequality gap that remains too high, although it has decreased over the past decade (this region has the highest level of regional inequality in the world).

Thus, it appears that the reasons behind the unrest largely remain. If this situation is not addressed, there is risk that nothing will change and the next decade will be equally challenging in the region.  We have already experienced the first year of that future. Governments of the region need to make urgent, serious efforts to implement an agenda of inclusive growth. It is time to leave behind the cycle of disillusionment and simply building on the many conquests of the past to now respond to the needs of our societies, which are raising the bar with their demands. Recognizing this as a priority is the first step in transforming what seems like a challenge today into an opportunity for progress.

The region’s sluggish growth has different causes, both internal and external. Analyzing them is crucial. The World Bank has just presented its Global Economic Prospects (GEP) report, a semi-annual flagship publication analyzing the global economic situation, including economic growth estimates for 2019 and the outlook for 2020. The GEP can be taken as a thermometer that measures the health of the economy at the local, regional and global levels. Reviewing global trends can help put the economic situation of Latin America in context. Today that context is telling us that, for now, the cold snap will continue.

According to the GEP, the global situation remains fragile. Annual global growth for 2019 (2.4%) is the lowest since the 2008-2009 financial and economic crisis. While economic growth in 2020 is expected to improve (2.5%), this recovery will be modest. Anemic international trade and investment and a slowdown in productivity explain this fragility, among other reasons.

Latin American Winter

How does this global scenario affect the region? In the Latin American context, economic growth also cooled in 2019. Excluding Venezuela – where the economy contracted by an estimated 35% – the region grew just 0.8% last year as a result of weak investment and private consumption.

The slowdown was quite consistent both because it affected most Latin American countries and because it occurred in nearly all economic sectors. Currently, we expect growth to reach 1.8%. Clearly, this growth rate will not help close the per capita income gap between Latin American countries and more advanced nations. Once again, there is a fear that if history is not rewritten, it will repeat itself within the decade.

Beyond growth

It is well known that moderate growth limits economic opportunities for the population. If this occurs, we must be aware of the risks given the social tensions in several countries in 2019.  

But we also know that the ongoing issues of Latin America go well beyond those of economic growth. They are associated with structural problems that must be resolved, such as persistent inequality or the need to build the necessary consensus to support growth and social inclusion in government policies, based on a long-term vision.

We are talking about reforms that contribute to improving the business climate to attract private investment, which in Latin America is strikingly low.

And we are talking about improving governance to help enhance legal security.

These reforms are not easy for several reasons. Often, the business climate suffers because many established firms fail to see the positive side of implementing reforms that facilitate the market entry of new firms, which may threaten their dominant position. In the field of education, besides the need to persevere for many years to have a positive impact, implementing the economic policy of the reforms to improve education quality is exceedingly difficult. Additionally, we cannot ignore the problems that even the most reformist government will encounter when addressing deficient governance issues.

We could look at these deficits as elements of an inalterable reality and the seeds of future disappointments – or we could view them as the starting point for an in-depth discussion to forge the necessary agreements.

I choose this last option. I believe that the challenge of achieving broad consensus on government policy, with the involvement of all sectors of our societies, in an open, participatory dialogue in which all voices are heard, offers us the opportunity today to make social pacts that are the bases for more robust, inclusive growth in our region.

It is not an easy task, for sure. That dialogue must involve politicians, members of the business community, workers, civil society organizations and the many other sectors of our societies. Yet there is no other possible path if we want to avoid looking back in 10 years and being horrified by our wasted efforts. The discontent of the region’s societies in recent months is a call to action. We should capitalize on this opportunity to ensure that the recurring history of disillusionment does not repeat itself in Latin America and the Caribbean.

Source: World Bank/ El País

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Principal Trends in the Development of Eurasian Integration

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The development of the Eurasian Economic Union in 2019 was once again marked by deepening integration and the expansion of global trade and economic relations. Emerging trends include the improved quality of integration and the shaping of the Union as a pragmatic and responsible partner involved in international relations as an independent actor.

The EAEU is improving its institutions and mechanisms for regulating trade and economic cooperation, reducing the number of barriers to ensure the complete freedom of movement of goods, services, labour resources and capital within the single customs space of the member states.

The following regulatory instruments have been amended and improved in 2019:

-electronic customs declarations have been put into use; these declarations are connected to the unified information platforms currently being developed in all EAEU states;

-the procedure for offsetting customs duties using a system of advance payments has been modified (it will significantly speed up paperwork flow and reduce customs clearance times);

-the rules for calculating and collecting compensatory and anti-dumping duties have been streamlined;

-the terms and powers of state agencies have been specified; the areas of influence and regulatory control of the Eurasian Economic Commission (hereinafter the EEC) have been expanded in matters relating to the supervision and implementation of the EAEU anti-monopoly rules both on cross-border markets and throughout the EAEU in general;

-international treaties have been amended in the part pertaining to the distribution of customs duties collected between the treasuries of the member states (the following ratio has been stipulated: Armenia – 1.22 per cent; Belarus – 4.86 per cent; Kazakhstan – 6.955 per cent; Kyrgyzstan – 1.9 per cent; Russia – 85.065 per cent).

Emphasizing the “Digital” Aspect

In 2019, the EAEU actively developed and improved the digital agenda in various segments of the common market. Projects for implementing a digitalization programme have been developed and approved. The programme stipulates the procedure for implementing digitalization projects through the consolidated efforts of all EAEU members.

In particular, in order to simplify the paperwork flow, speed up customs proceedings, and make it easier to do business in the Union, the EAEU adopted the decision to streamline the rules and functioning of the “one window” system. For all the members of the EAEU market, this could serve as a platform for an electronic information exchange system for all EAEU market participants regardless of their country of origin, as well as a venue for interacting with the licensing and regulatory system.

The EAEU also adopted the Concept of Cross-Border Information Interaction, which lays down the legal framework for the exchange of information among EAEU market participants and can be used as a platform for the development of the information services market in the future.

The digital agenda programme also extends to the real sector of the economy, which is provided for by the project for industrial cooperation, sub-contracting and technology transfer. The project entails developing a system of e-contracts between industrial enterprises. The advisory body, the Industrial Policy Council, has been tasked with managing the implementation of this project.

Single Sectoral Markets

2019 saw the adoption of the Concept for the Creation of a Common Financial Market of the Eurasian Economic Union, which entails free mutual access to national markets for banking and insurance institutions (regulating the process of streamlining and aligning the rules and mechanism for issuing licenses and their mutual recognition). The Concept will boost competition on the banking services and insurance markets, expand the range of available financial services, and stimulate investment and capital mobility.

The complexity and scale of reforms necessary to create common banking, insurance and securities markets require a lengthy preparatory period in order to coordinate, streamline and aligning macroeconomic criteria, standardize indicators to ensure the stability of the financial and insurance sectors, as well as the legislative framework, by 2025. A transitional model of the common financial market will subsequently be launched.

Energy is Key

The transitional model of the EAEU common energy market has been launched. An important detail in the concepts of energy market integration is the fact that, when negotiations on the Union Treaty were in progress, the objective of creating a single common market for all types of energy sources was abolished in favour of creating the common market format (CEM) as a target objective for the integration of the energy sector.

The EAEU CEM entails free pricing on energy and energy transmission using the following mechanisms: long-term contracts between independent companies use agreed prices set with due account of the equilibrium price of the common market that has been written into contracts, and exchanges operate with free pricing.

Trade is organized with the use of an e-system for swap contracts, forwards and futures, and with the use of the Single Information System (SIS) accessible for all wholesale market participants. However, only authorized organizations are authorized to conclude long-term transactions and determine the volumes of surplus energy offered for bidding.

Before launching the gas market, the upper and lower price limits for surplus electricity and service tariffs are to be regulated within internal prices. This means that the “freedom” of pricing for energy and services is from the very outset established in accordance with the terms and conditions and within the limits of the manufacturing, resource, technical and technological potential of national natural monopolies, and the common market only adjusts pricing depending on the current supply and demand at a specific moment in time.

This is a transitional format for the functioning of the EAEU CEM, and it fits perfectly into the integrational model of cross-border trade cooperation, which entails achieving the objectives set for the common market by increasing trade volumes and ensuring equal access to the services and infrastructure of national monopolists.

Consequently, the development of Eurasian integration made it possible to preserve the growth of the positive influence that integration has on the stability of the macroeconomic situation in member states and on the degree of macroeconomic convergence in the EAEU in 2019. As a result of applying the single customs tariff of the Customs Code of the EAEU and expanding the list of technical regulations implemented by all states, conditions on the commodities markets are becoming streamlined at a rapid pace, and equal competition conditions are being created for all actors on the EAEU common market. These developments make it possible to stem the drop in growth rates that were predicted for the global market at the beginning of 2019.

Streamlining the rules governing trade in goods and services on the common EAEU market in 2019 made it possible to ensure a smaller drop in mutual trade in monetary terms within the Union compared to the decline in foreign trade with third countries. The decrease in bilateral trade in January–September 2019 was 1.3 per cent, compared to the 2018 trade decline of 2.5 per cent with third countries.

Armenia (6.4 per cent) and Belarus (3.5 per cent) demonstrated positive growth in mutual trade, while the other states demonstrated a decrease in trade turnover of approximately 3 per cent on average. As in previous years, minerals (26 per cent of the total mutual trade in the EAEU), machinery, equipment and vehicles (20 per cent, with Russia and Belarus remaining the principal suppliers), agricultural raw materials (15 per cent), metals and metal goods (13 per cent), and chemicals (12 per cent) remained the principal drivers of growth.

The EEC estimates that the dynamics of mutual trade in comparable prices (calculated using the physical volume of supplies index) demonstrate stable trade volumes, remaining at the 2018 level, and a drop in prices of 1.5 times, which led to a decrease in the cost indicator of mutual trade volumes. Consequently, the Eurasian integration factor retains its positive effects and can be bolstered by stepping up integration processes.

The potential of expanding trade cooperation can be realized by expanding the circle of partners in the preferential regime of economic cooperation. In 2019, the EAEU continued its work to develop international cooperation. One example of this is the Agreement on Trade and Economic Cooperation between the Eurasian Economic Union and the People’s Republic of China, which went into force in 2019. Cooperation agreements were signed with Serbia and Singapore, memorandums on cooperation were signed with Indonesia, and a partnership declaration was signed with the Pacific Alliance. In addition, negotiations were launched on agreeing on the terms and conditions of partnership agreements based on previously signed memorandums of cooperation with the African Union, Bangladesh, Argentina, the United Nations Economic and Social Commission for Asia and the Pacific, the World Intellectual Property Organization and the Global Medical Device Nomenclature Agency.

The EAEU’s activity in the international arena is testimony to its great development.

From our partner RIAC

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Economy

WEF 2020: A Blank Check on Climate Change Costs

Naseem Javed

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At the WEF Davos 2020, is there already a blank check issued from stakeholder capitalists to Greta Thunberg to go and fix global climate damages? If not, too bad…just relax full payment may be coming.

First some facts; big and small governments have no money, big businesses have no money, what disappears in heavenly bushes of the paradise-accounting always stays there. The world is basically broke to fix this monumental problem; broke it’s mentally and crushed morally, broke is also the global populace, exhausted and restless, unless their survival on sustenance, equality and social justice not addressed at much faster rate over populism mobs may appear.

The Blank Check: Enters the five million small medium businesses of the world; a super economic force to reckon with on platform economy.

In broader strokes, as a simple example, The United States Business Administration, the SBA has some 13 million small medium size enterprises as members. Now imagine, if five million of such enterprises, already doing USD$2-5 million in annual turnover were placed on national mobilization of entrepreneurialism to boost special skills on innovative excellence to produce exportable quality. Now imagine if each one added only one-million in additional revenue to their current operations what will happen, basic math. Five million small enterprises times one million new revenue each equals 5,000,000 x 1,000,000 = 1,000,000,000,000 or one trillion.

Now imagine, if there were 25 million such enterprises scattered across the world, each adding two million dollars as a base per year that will be 50 trillion dollars… or 10 five times the revenue of the world’s five largest and most powerful technology companies. This is a wake-up call to exhausted economies. These operations are less new funding dependant they are execution hungry and deployment starved.

There are some 100 million SME in such mix around the world; if mobilized on national entrepreneurial platforms would have enough strength to help and fix local community issues, as entrepreneurs by their DNA are cause centric and will take care of such global climate issues, unlike short term shareholders on money schemes. The lack of discussion on SME revival are main reason, such silence proves lack of vision and global-age knowledge on entrepreneurial transformation and most importantly about global consumption and how to create real value creation. The spotlight on hedge funded value manipulations take all the attention and systematically the entrepreneurial talent of SME suppressed for not being glamorous enough on talk shows over earth shattering robotic technologies.

Fact: The world can easily absorb unlimited exportable ideas in unlimited vertical markets. Fact: The well-designed innovative ideas are worthy of such quadrupled volumes. Fact: The entrepreneurial and dormant talents of a nation are capable of such tasks. Fact: The new global age skills, knowledge and execution are now the missing links

The world is changing fast; this is no longer a cliché, now a serious warning: You can always tryout a change and start with some 500 small and medium enterprises in your own local region on national mobilization of entrepreneurialism protocols and measure the impact of innovative excellence on the local grassroots prosperity. Currently there are already 11,000 Chamber of Commerce in the world with combined membership of 45 million, somewhere here in lack of digital platforms are 25 million enterprises eager and ready to boost their revenues by million each. The art and science of global showcasing of its members with global bounce is a solid start on export strategy. Bold and open debates will streamline the fears of missing skills at the top to tackle such large scale deployments.

The rest is easy

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