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The Italian Strategic Fund -CDP Equity: Structure and Future

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The “Italian Strategic Fund” (FSI) was established on July 28, 2011, with the then Economy Minister, Giulio Tremonti, and with the collaboration of the Treasury Director General, Vittorio Grilli, under the chairmanship of Cassa Depositi e Prestiti (CDP), led at the time by Franco Bassanini, as well as with the support of CDP’s CEO, Giovanni GornoTempini.

 From the outset, like many but not all the several Strategic Funds existing in the world, the FSI has been a holding company with the primary aim of supporting strategic Italian companies.

 Strategic companies in terms of products, important for processes, decisive for technologies, essential for Italy’s cutting-edge technologies, like the Defence companies.

In this case, what does it really mean to be a “strategic company”?

The various schools of thought diverge on this point, but we could find a good definition by recalling that strategic companies are those essential for the medium-long term planning of the major and most promising sector of Italy’s industrial system.

 The idea of the FSI was also to favour the maximum efficiency of some companies and, in particular, to stimulate the enhancement  of their ability to “compete” at international level.

Initially, the FSI share capital was ridiculously low, i.e. one billion Euros, which rose almost immediately to 4 billion Euros.

However, in the initial projects and still today, the company’s endowment could have reached 7 billion Euros. Probably still too little.

Like all the similar funds currently operating in the world today, the Italian Strategic Fund is targeted to sound companies which, however, need a new capital injection.

Certainly, unlike before the great technological revolution of the Web and of logistic telecommunications, it is currently hard to speak about “national champions” as we had at the time of Renault or Fiat or, possibly, Autostrade.

Nowadays, with the Global Value Chains (GVCs), it is even hard to identify the direct nationality of products that we all consider characteristic and typical of a given nation.

With a view to understanding GVCs, we need to think above all about the geographical distribution of companies. All small and medium-sized enterprises. The other less known side of Schumacher’s “small is beautiful”.

 In the classic model of “delayed development”, which was generally accepted until the 1970s, the shift of the global production centre from the EU and the USA to Asia was interpreted only as the creation of a structural dependence of the non-Western peripheries on the Eurasian production centre.

The Marxist derivation of this model was Arghiri Emmanuel’s brilliant theory of unequal exchange, also developed in the early 1960s.

That was the origin of the theory of the world division between “rich” and “poor” countries. Currently, however, with the evident presence of world overproduction (and of financial securities to cover it) at the origin of the present economic crisis, since 2016there has been a tendency to think, instead, that there is an even more heuristic model, called “compressed development”.

Compressed development would be a criterion that puts at the centre of its interest the heterogeneity of the individual countries participating in the Global Value Chains, thus also taking into account the extraordinary difference in power of the large multinational companies compared to the infinite “peripheral” and often non-Western SMEs.

Hence the SMEs as essential factors of the new international division of labour, but depending on a higher system of GVC managers that is a cartel in individual sectors and a political and industrial agreement between different sectors.

Hence, while it is true that the highest value-added segments tend to still remain in the old Euro-American centre – although China is currently showing us a different strategy – it is equally true that a model explaining Global Value Chains with the old criterion of “comparative advantages” and asymmetry between centre and periphery no longer stands the test of time.

Hence what is the national economic interest? It is currently hard to answer this question.

 We are partially helped by Hecksler-Ohlin’s theory stating that a “nation mainly exports goods requiring factors of production it has in abundance (labour, specialized technology, capital) and that it can most efficiently and plentifully produce”.

Therefore, the share of comparative advantages stems from the composition of its primary production formula, which is selected by the global competition of SMEs compared to those who monopolistically control global chains. It also stems from the  national governments’ ability to create temporary advantages in GVCs, resulting from the definition of specific strategies and the “joint” approach of private companies.

This is currently Italy’s productive point.

 To bring some of Italy’s big national champions into the  geopolitical rather than economic oligopoly of the global companies leading the main Global Value Chains, so as to later organize the “voluntary” mechanisms that permit the hegemony of Italian SMEs in the various sectoral markets.

Recently my friend Paolo Savona has spoken about the “return of the  State as master”, but the future will enable us to have only two real forms of control of global value chains: either with a top-down approach, by producing universal enterprises that lead the chains, or with a bottom-up approach, by organizing the groups of SMEs that prevail – with public and private support – over their competitors in the division created by GVCs.

 However, all the latest statistical analyses show us that in the Euro area countries there have been massive and now excessive share transfers of State entities, as well as liberalisations, often of goods and services which are – even in the free-trade and liberal economic tradition – “natural monopolies”, but with a significant slowdown in share transfers and divestments, which in Italy, France and Germany started as early as the early 2000s.

Furthermore, Ronald Reagan – the politician epitomizing the free-trade and liberal revival – had not at all cut public spending in general, but had cut the traditional spending for civilian Welfare, with a view to favouring his specific military Welfare.

  A deficit military spending, which had no immediate inflationary repercussions, but rather acted as a technological stimulus for innovation, also in civilian enterprises.

Without “inclusive institutions”, however, i.e. without stable public organizations enabling sufficient segments of the population to have access to some wealth, all modern States tend to be relegated to be failed States, thus becoming easy prey for their structural and global geoeconomic opponents – and even at the lowest possible cost.

 This is what – inter alia – Sovereign Funds are for.

 In fact, they ensure the public or semi-public ownership of the enterprises that a State and a society choose – moment by moment – to guide their economic and social future in the medium-long term.

Hence the Sovereign Funds must be protected from the raids of possible and real competitors. Raids are continuous, while growth projects are temporary.

It should be recalled that in Gilpin’s opinion, the “aim of economic activities is to provide benefits to consumers, not to strengthen the State security”.

 But the State security is also a primary asset, which allows to quickly eliminate adverse geoeconomic actions and hence avoid  the immediate colonization of the development potential of a State and of a society.

Edward Luttwakhas also rigthly said that any economic globalization is always strategically dangerous, since it inevitably leads to what he calls “paroxysmal competition”, which is an inevitable feature of turbo-capitalism: a very rapid increase in the size and speed of trade, always combined with post-Cold War globalization, which does not accept any geographical limit to its expansion.

 If turbo-capitalism stops, it immediately melts away under the sun of value realization.

The excessive trade speed mimics its actual productivity and the size of trade sometimes masks its very low value which, however, is maintained thanks to excessive speed, which does not allow the rational and technical assessment of risks.

Hence, against the Hobbesian state of bellum omnium contra omnes typical of turbo-capitalism, which usually does not sufficiently invest in product or process innovation, we need to  think of two solutions, called the State of Economic Intelligence or the Geoeconomic State.

 Paolo Savona and Carlo Jean have spoken of the ever-increasing role of economic intelligence, which should become the axis of every modern State’s economic, financial and productive choices.

 Without Sovereign Funds, however, there is no economic intelligence.

Hence we need to firmly keep a sector, at least one, which is comparatively very advanced,  but above all export-led, and which is also protected with all the non-tariff mechanisms that are now commonly used in everyday economic warfare.

This is the reason why, for at least five years all the major Western countries have been rethinking their old deindustrialization and delocalization policies, which often deprive societies and States of the necessary systems for controlling global, financial and productive flows. Not to mention the fiscal deprivation and over-costs for maintaining structural unemployment.

In the evolution of the most recent international trade theory, we have even gone so far as to develop a Strategic Trade Theory, a model underlining the companies’ and State’s ability to improve the trade balance by working strategically -i.e. in the medium-long term – in imperfect global markets.

The oligopolistic markets are always those where leading products or services are developed, usually with public investment in Research and Development.

 This is the true nature of the Keynesian model: the State funds  what is not yet profitable, but the private sector deals mainly with “mature” or growing companies, which have already found their market.

 Hence we also need the theory of the Innovating State, i.e. the Entrepreneurial State, recently developed by Mariana Mazzuccato.

 The State imagined by Mazzuccato explores the whole scenario of business risk, thus creating above all new markets. In particular, the State creates the markets in which we need to have strong investment in situations of maximum uncertainty, thus acting as a risk taker and hence later as a market shaper.

 The “Administrative State” is a public administration “serving” private individuals, but the Entrepreneurial-Innovating State is the one that does not make the unemployed people dig the classic Keynesian holes, in the inevitable periods of production contraction, which is above all – Marxistically – tendential over-production.

 But, if anything, the Entrepreneurial-Innovating State invests in new high-quality technologies, which create original markets where, in fact, the Entrepreneurial State controls the future oligopoly. Another role of Sovereign Funds.

Technically, however, the Funds are investment funds which manage financial asset portfolios denominated in foreign currencies, according to the global rules of what we currently call the grey economy.

In theory, the Funds are divided between those which invest resources coming from raw materials or oil and gas (SWF Commodity) and all the others which, instead, invest surpluses coming from the currency surpluses of the trade balances.

 This is clearly our case.

 According to the “Santiago Principles”, a code for Sovereign Funds developed based on the International Monetary Fund’s indications, the Sovereign Wealth Funds (SWFs) are “special purpose” investment funds owned by national governments.

 Therefore, SWFs have five primary characteristics: a) they are always held by a Sovereign State; b) they make investment in foreign currency; c) they carry out their activities over a long term, with low indebtedness and without withdrawals or distribution of profit to participants; d) their accounting is strictly separate from that of Central Banks and Finance Ministries; e) they carry out research for investment with returns above the risk-free rate.

 The first real Sovereign Funds were the Kuwait Investment Authority, created in 1953, to obviously invest the capital originating from the extraction and sale of local oil, as well as the old Revenue Equalization Reverse Fund, set up by the British administration of the then colony of the Gilbert Islands, the current Republic of Kiribati, to invest the surplus from the sale of phosphates.

 The secret agreement between Kissinger and King Fahd of Saudi Arabia, after the Yom Kippur war, later channelled the extraordinary surpluses stemming from the very significant increase in the OPEC oil barrel price into US government bonds. Hence petrodollars were created.

 In the phase following the booming prices of some fundamental raw materials when, in fact, oil prices plunged, namely in the 1980s, the Sovereign Funds became the primary instrument for diversifying investment and hence for the financial stability of the countries producing raw materials (or commercial surpluses) which had already adopted them.

From then until 2005, the Sovereign Funds became the main instrument, for Asian countries in particular, to accumulate and use the foreign currency reserves arriving in the Asian countries which were more export-led and more linked to the US dollar cycle.

 To avoid having to resort to the often dangerous therapies of the International Monetary Fund, especially when the global reference currency fell, the top Asian export-led countries combined their industrial expansion policies with specific exchange rate policies, which tended to accumulate very large foreign currency funds.

 Obviously that happened only to avoid the manipulation of  currency markets in a condition of objective weakness created by an exclusively export-oriented economy – with exports to countries having a very strong currency.

In 1978 the SWF Temasek, the “historic” Singapore investment fund, came up with the idea of using Sovereign Funds for that purpose.

Temasek invested its considerable surpluses in the acquisition of companies and financial holdings in the Asian area directly bordering on Singapore, thus making the city-State – which was also the first model for Deng Xiaping’s Four Modernizations –  overcome its structural limits, thus protecting it from enemy and adverse operations on its exchange rates and on its productive system.

 Finally, from the beginning of the great subprime crisis, the Funds have spread mainly in the so-called BRICs (Brazil, Russia, India, China and South Africa) and also in some “First World” countries, especially to acquire minority shareholdings or to carry out hostile takeover operations towards competitors or potential penetrators of their national markets, possibly even with dumping actions –  and it would not be the first time.

 In 2020 SWFs are supposed to reach, worldwide, an amount of managed assets of approximately 15 trillion US dollars.

 75% of the capital managed by the Funds is currently concentrated on the top 10 operators. Obviously the SWF market is highly oligopolistic and the top 10 operators are now all Middle East or Asian entities.

The history of modern European Sovereign Funds began with  Sarkozy’s Presidency in France.

As early as 2008, the French centre-right leader set up the Fond Strategiqued’ Investissement (Strategic Investment Fund), based on two already existing financial structures, namely the Caisse des Dépôts et Consignations(the State Bank handling official deposits, which is the equivalent of the prominent Italian investment bank known as Cassa Depositi e Prestiti) and the Fond de Réserve pour les Retraites(Pension Reserve Fund), with capitalisations – at the time – of 80 and 33.8 billion Euros respectively.

However, 51% of the new French Sovereign Fund was owned by the Caisse des Dépôts and the remaining 49% by the Agence des Participations d’État (Government Shareholding Agency).

 The aim of the Fund created by Sarkozy was to invest mainly in French and foreign small and medium-sized enterprises, characterized by strong growth but having no longer access to standard market financing (although we do not know why).

The French Fund also set in when the company was overtly  threatened by a hostile takeover, or any acquisition, by foreign companies.

 The French Fund could also intervene directly in the capital of innovative industries.

 As early as 2008, however, the Italian intelligence Services have focused on the very strong need to protect the national know-how, considering that the operational plans of other Sovereign Funds interested in Italy could be useful for acquiring specific technologies.

 It has already happened: in the machine tools, agri-food,  specialized pharmaceutics and fine mechanics sectors, Italy’s top large SMEs have already been acquired by French, German and Chinese companies.

In their report to Parliament in 2010, the Italian intelligence Services already spoke of a “liquidity threat” to Italy’s companies.

The foreign private equity funds, in fact, are mainly targeted to banking, biotechnology, energy, entertainment and even online gaming companies.

Currently, however, the Cassa Depositi e Prestiti has two instruments to support companies, especially the technologically advanced ones: the Italian Strategic Fund – now CDP Private Equity – and the Italian Investment Fund.

The latter was launched in 2010, with the collaboration of some private banks, and – as usual – it is targeted primarily to small and medium-sized enterprises.

It has two operating structures: the Venture Capital Fund for innovative start-ups and the Minibond Fund, which supports the bond issues of small and medium-sized enterprises.

 The Italian Strategic Fund – 90% of which is held by Cassa Depositi e Prestiti(CDP) and the remaining 10% by FINTECNA, which is in any case fully owned by CDP – was launched in 2011 with a capital of 4.4 billion Euros and, as already mentioned, rose to 7 billion Euros.

However, why setting limits?

The Italian Strategic Fund was born with a negative experience to be made good, considering that those were the years of the takeovers for Parmalat, which had just been redressed financially, and for Bulgari, not to mention the future and possible “friendly” sales – well hyped by the Italian media- of Alitalia and Edison.

 The Italian Strategic Fund dealt mainly with medium-large companies having “significant national interest”, while, from the beginning, it created strong ties with Qatar Holding, the Russian Direct Investment Fund, the Kuwait Investment Authority and the Korea Investment Corporation.

 Moreover, in 2012 the Italian Strategic Fund signed an agreement with Qatar Holding LLC for the creation of a joint venture, called IQ Made in Italy Venture, to invest in the typical Made in Italy companies.

 The idea, which has not yet fully materialized, was to create a “luxury district”.

 The Maastricht restrictions on the so-called “State aid” always make it difficult for the Italian Strategic Fund to operate. It would possibly need an arm abroad, capable of operating on our companies without EU constraints. It would also be necessary to deem it legitimate for the Italian Strategic Fund to invest in companies of significant national interest, but regardless of the average return on the capital invested in the medium term.

 Therefore, unlike the old twentieth century economic statism, the Italian Strategic Fund invests in healthy companies and it plays -quietly and without nervousness – the role of minority shareholder. It also follows the private criteria of investment profitability and efficiency and does not follow the natural distortions, often originated by public entities, but also by powerful private entities, to manipulate production formulas and intermediate markets.

 Hence rethinking and expanding the Fund’s operations, or possibly creating specific areas of intervention for the Fund,  would be an excellent evolution of the fundamental policy lines on which the Italian Strategic Fund was conceived.

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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