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Global Trade After Covid-19

Nikola Popovic

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There are predictions that global trade will be reduced by a third as result of the recession caused by the effects of Covid-19. Determining the full scale and impact of major events is an obstacle.Political scientists who look to social and economic indicators face difficulties with this task. While ascertaining accurate information and data to forecast the impact of Covid-19 on trade remains a challenge, ensuing geopolitical tensions illustrate the direction that global trade may take. Currently at the backdrop of the coronavirus includes the US-China trade relations and the South China Sea dispute.

The US-China trade war could be reignited should China be unable to import more from the US.China’s export-oriented model and strong consumption of foreign goods and services began to weaken from February 2020. There is expected to be lower levels of trade given tensions at the political level. The political contours are being shaped by accusations made by Trump that China’s response to the Coronavirus was inadequate. Simultaneously, Beijing is directing blame onto the US, suggesting the coronavirus was created in American laboratories. A culmination of these factors implies that $77 billion of expected trade in goods and services between the US and China which are part of the Phase I deal is likely to be much lower.

The South China Sea dispute is one important factor complicating ties with the US and allies.The economic value of the South China Sea is a significant issue for US-China relations, but also global trade more broadly. There are $5.3trillion worth of goods that pass through the South China Sea and countries would need to cooperate with China to ensure the steady flow of worldwide trade.

The geopolitical context in which China and the US should overcome these obstacles convoluted due to the time it will take to introduce prevention. In seeking to beat the coronavirus, a race to find a vaccine is taking place and several counties, including the US and China, are involved in trialling their discoveries. Even while restrictions are beginning to loosen, social distancing measures will likely be employed until a vaccine is found. To date, government officials and experts believe that a vaccine is probably 12 to 18 months away. This is enough time for the global economy to feel even more strain particularly as global trade weakens and social distancing is prioritised.

The implications of Covid-19 reveals the low level of risk management across many trade-exposed industries. In turn, this has prompted economic sovereignty as a course of action. There are industries struggling to overcome the economic consequences of Covid-19 due to a lack of preparedness; an inability to mitigate risks and accept the task of diversification. The lack of preparedness derives from placing a strong focus on receiving income from one source – China – without implementing appropriate risk mitigation measures. There has been a stubborn insistence that China’seconomic growth rates above 6.0% over the past three decades was enough reason to think trade in goods and services would continue without any disruption.

Indeed, the story is not the same across all industries in countries that have significant trade relations with China. The mining industry in Australia received immense benefits from China-Australia trade relations and there are positive anticipations that this will continue despite the coronavirus.

Yet, other sectors such as tourism were slow in considering the need for diversification well before the coronavirus. There were some indicators revealing ambiguity about the ongoing growth of Chinese travel overseas. Like other Western countries, the number of Chinese tourists entering the US dropped by 5.7% in 2018. This comes as a consequence of the US-China trade war even while industries continued the ‘eggs in one basket’ approach. The point of the unfolding events is that industry leaders could have minimised the risks associated in trade relations with China. In essence, there were already signs that trade with China was beginning to slow down and this could have prompted risk control measures.

Similarly, given aspirations of creating a more technologically advanced state, China also aimed to reform domestic economic drivers. China has focused on investing in education because technological advances depend on an educated workforce. This means that there are a greater number of students remaining in China to complete their studies and this trend will likely continue over the next decade. Though Xi Jiping may have rallied the chant of economic globalisation at Davos, China still focused on domestic reform not just foreign trade.

The lack of preparedness has prompted sharp criticisms of trade relations with China. Some critics of China’s economic approach suggest that post-covid-19 will bring an era of economic sovereignty. Similar to the migration crisis of 2015 and the Global Financial Crisis, the Covid-19 has exacerbated anti-globalist sentiment. The cause of this anti-globalist fervour is based on anxiety arising from political integration and economic interdependence. The response to the coronavirus crisis has proven that state institutions resolve crises with many countries introducing national-wide health measures and stimulus packages.

Trump is now seizing the opportunity in mounting a campaign to see China move awaydeveloping country status. The assumption underpinning this strategy is that China benefited from the World Trade Organisation (WTO) to the detriment of the US economy and jobs. The global trade system based on trade rules, particularly the dispute resolution WTO have been dismissed. The US is the first country to reprove the validity of the decision made by the Appellate Body in a case involving Canada over countervailing duties on glossy magazine-quality paper. He previously stated that he would withdraw the US from the WTO if the organisation doesn’t ‘shape up’.

Even though China’s major trading partners may want to embrace economic sovereignty, adopting a pragmatic approach is still an important diplomatic measure. Under certain conditions, trade is an arm of economic growth. The key to ensuring countries engage in economic development is being attune with what Linda Weiss calls ‘governed interdependence’. The term suggests processes of economic change, albeit global trade, can be managed by strategic government-industry linkages.  It also applied to show the success of East Asian economies such as Japan and the way in which government consultation and coordination with the private sector was employed. The processes involved in building state-industry networks are measures that can help build internationally competitive industries. In this way, countries can avoid the poor risk management that occurred across many industries during the course of Covid-19. Even Adam Smith believed that government was a key stakeholder in bringing conditioned market forces to life. Coordination brings both strong and stable economic development, but this should never lead to over-regulation by government.

Nikola Popovic has worked as an adviser and researcher across state and federal governments in Australia. He holds a Master of International Relations from the University of Sydney.

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A post-COVID recovery presents significant challenges for the French economy

Kareem Salem

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As France tentatively eases its lockdown measures, the French government is faced with dealing with an unprecedented economic crisis.

The curb in economic activity during the coronavirus pandemic has considerably strained the second biggest economy of the eurozone. During the first economic quarter, the French economy plunged by 5.8% – which factored only one month of confinement where 67 million people were ordered to stay at home.

The resultant health security measures required the French government to act swiftly to prevent redundancies, by launching a partial unemployment scheme ‘chômage partiel’, under which fixed-term workers received partial unemployment benefits from the French government. Public aid was also granted to small businesses to prevent them from going bankrupt during this uncertain period.

Whilst these measures have prevented significant job losses during the confinement, the easing of restrictions now requires the French government to stimulate the economy. Economic activity figures are expected to continue to decline in the second quarter and real GDP is expected to drop by 8% overall this year.

Since the relaxation of the lockdown measures, only non-essential enterprises that can guarantee social distancing practices have been allowed to resume their business activities. The tourism sector, which accounts for8% of national wealth and 2 million jobs, has received 18 billion euros in rescue funds in response to the remaining closure of hotels, restaurants and cafes.

Yet, there are also other strategic sectors that urgently require government support. These sectors include entities operating in the automotive, aerospace and retail sectors. Well-Known French car manufacturers such as the Peugeot group and Renault, have seen their business operations severely affected by the Covid-19 pandemic since the lockdown of Wuhan, where their assembly plants are located. Subsequent health restriction measures taken by the French government have also led to a significant 84% decline in their operating sales results due to the closure of car dealerships during this period. 

The standstill of the airline industry has inevitably affected the financial stability of aircraft manufacturers and their supply chains in France. Falling sales have led Airbus to reduce the production capacity of its Toulouse manufacturing plant by and is expected to increase further by June, which will inexorably affect the financial stability of their suppliers. The halt in air traffic is expected to result in the loss of 26000 jobs for Airbus and 85000 for its subcontractors in the Occitanie region.

In the retail sector, entities that were in difficulty before the health restriction measures, also saw their financial situation considerably impeded. Between March and May, the retailer La Halle incurred a loss of 106 million euros in sales. Other prominent retailers, notably NAF NAF, which employs 1170 people and owns 160 stores, has been placed under judicial rehabilitation proceedings – redressement judiciaire.

The precarious predicament of certain sectors requires the French government to intervene to prevent greater financial strain mounting in key strategic sectors. The Minister of Economy and Finance has specified his intention to establish a recovery support package for the automotive and aerospace sector in the coming weeks.

The challenge for Bercy is straightforward – ensure that the recovery package meets the needs of both sectors. This is important considering that the automotive sector accounts for 36%of government revenue while the aerospace sector accounts for 12% of French exports of goods. This inevitably requires Bercy to ensure that stimulus packages for both sectors cover employee job security and the freezing of production taxes for aircraft and car manufacturers in order to alleviate their financial strain. This is particularly important for manufacturers in the aerospace sector, which will continue to be affected by the slow and progressive return of air travel.

The post-pandemic period also requires automobile manufacturers and retail sector entities to restructure their business strategy to regain the competitiveness lost during the confinement. The loss in business activity from the lockdown necessitates entities in these sectors most in difficulty, to extend their working hours and limit the number of vacation days in order to produce new wealth, which will enable them to mitigate the economic losses incurred during the confinement. The production of greater wealth will enable the French State to increase its tax base and thus revenues and repay more rapidly the debt accumulated during the pandemic.

As France tentatively moves out of confinement, it is also important for Bercy to encourage consumers to support French manufacturing entities. It is apparent during the eight weeks of confinement, households saved tens of billions of euros. In this perspective, positive deconfinement results coupled with the ease in lockdown measures will gradually rehabilitate consumer confidence. Providing economic incentives for low-income earners is also necessary to encourage them to purchase a new car, which will help boost the sales growth of car manufacturers.

Recovery also requires the collective support of EU member states. Paris and Berlin are seeking to push forward a 500 billion eurosrecovery fund, in which the European Commission will borrow on the financial markets in order to disperse the recovery funds through grants to European economies hit hardest by the pandemic.Its repayment would be the financial responsibility of the entire block.

Yet the naysayer countries Austria, Netherlands, Denmark and Sweden, have instantly rejected the idea of greater fiscal integration. The four’s main concernis the plan of Paris and Berlin to propose grants instead of loans. The challenge for Macron and Merkel is to convey to their European partners that this mechanism is important for Europe to recover less painfully from the pandemic and to shield off anti-European and populist sentiment, especially in the block’s southern countries.

For Bercy, the European solidarity fund will provide much-needed respite for French public finances, which have been significantly strained by the chômage partiel provision, which amountsto26 billion euros.

All in all, while the COVID-19 pandemic poses major challenges for the French economy, support of the French government and European collective action, combined with an overhaul of corporate strategy, will enable Europe’s second largest economy to recover from the crisis more rapidly.

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Stimulating the economy sustainably after coronavirus

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Authors: Yao Zhe and Wu Yixiu*

As the Covid-19 outbreak stabilises in China, the central government is starting to talk about protecting the economy as well as mitigating the virus.

On 3 February, the politburo standing committee called for China to “tackle the epidemic with one hand, and develop the economy with the other”, and continue working “to realise the year’s economic and social goals”. It reiterated this approach on 12 February.

This year marks the end of the 13th Five Year Plan, which includes the goal of creating a “moderately prosperous society”. Over the plan period (2016-20), national GDP and average incomes were meant to double compared to 2010. For that to happen, GDP would need to grow around 6% this year. There is no doubt the government will produce a stimulus package to help. But a programme focused on infrastructure such as railways and roads will hamper the country’s transition to a sustainable economy.

Heavy industry on the mend

Covid-19 led to the extension of the Chinese New Year holidays to almost a month, which affected all parts of the economy. For heavy industry, the biggest uncertainty was demand. Downstream manufacturers and property developers have been slow to get back to work and the economy in general is sluggish. With demand not yet recovered, output of the raw materials produced by heavy industry, such as steel and aluminium, has fallen, though not precipitously. Steel mill utilisation rates remain at a normal level of about 70%, with no major reduction in output. First quarter steel output is expected to be down about 3%.

The return to work has picked up since 10 February. Coal consumption at six major power plants has increased slowly but steadily, indicating industry is getting back on track. Work on key infrastructure projects such as roads and bridges resumed on 15 February, with considerable fanfare. Experts answering questions online for the Ministry of Ecology and Environment said that despite widespread stoppages in construction, services and labour-intensive manufacturing, the heavy industries that supply these sectors continued to operate through the Chinese New Year and beyond. It’s not economical, for example, to stop furnaces in a steel factory for a week or two, so these continued to burn while producing less steel.

The analyst Lauri Myllyvirta pointed out that China has excess heavy industrial capacity and the sector will be able to ramp up to meet any increased demand, with industrial output and power consumption soon recovering. Experts have said the epidemic will mean a significant but short-term drop in energy consumption by heavy industry in the first quarter of the year, until the epidemic is brought under control.

Signs of an infrastructure-focused stimulus

Covid-19 is a new challenge for a Chinese economy already facing a slowdown. The government’s usual response to economic pressure is to use public spending to promote investment, particularly in infrastructure, and there are signs this will again be the case.

Tens of trillions of yuan of investment is planned in major projects across China this year, according to figures in the Economic Information Daily. The latest figures indicate that among the batch of special-purpose bonds (SPBs) issued by local governments earlier in the year, about 67% are to the infrastructure sector. SPBs are designed to help local governments inject funds into specific projects, such as irrigation and toll roads, to help boost their economies. Since January, local governments have issued about 950 billion yuan (US$136 billion) of SPBs, accounting for about 73.6% of the front-loaded SPB quota for this year.

Transport and energy infrastructure – including gas pipelines, oil refineries and nuclear power plants – are well represented in the project lists that some provinces have published. For example, Jiangsu province plans to invest 220 billion yuan (US$30 billion) in infrastructure out of the 540 billion yuan that is going into 240 major projects. Of the 233 major projects listed by Shandong province, 25 are road or rail construction and 16 are building projects. Meanwhile, Yunnan province announced an infrastructure construction plan at a recent press conference on Covid-19, including 100 billion yuan for high-speed rail.

Economic analysts expect to see infrastructure investment in China climb by as much as 8% to 9% this year.

Lauri Myllyvirta has calculated that the extended holiday cut China’s carbon emissions in the first two weeks of the lunar new year by a quarter year-on-year. These climate savings may be offset by a government stimulus package favouring infrastructure projects. According to Zhang Shuwei, director of the Draworld Environment Research Center: “If the government eases monetary policy and boosts infrastructure construction, we may see a nationwide increase in the energy intensity of the economy. It’s likely that energy consumption will not be affected, or will even jump quite a bit.”

If an economic stimulus is unavoidable, it should at least be targeted and not run contrary to China’s efforts to improve the structure of the economy. The service sector, which has been rocked by Covid-19, accounts for 54% of China’s GDP and provides huge numbers of jobs. Support tailored to it will be crucial for rebuilding resilience and confidence, and is in line with China’s economic transition.

Sustainable stimulus?

Chinese economists often debate how best to direct public finances in order to stimulate the economy. The coronavirus has brought something new to that discussion, by highlighting that public services like hospitals and schools suffer from a lack of resources and capacity to respond to emergencies.

Former mayor of Chongqing, Huang Qifan, wrote that government spending has long favoured transportation and construction, while overlooking public facilities and services. Huang believes spending on the latter would be a more effective way to boost GDP while also meeting public needs. He thinks government spending should incentivise consumption of public goods and services “to promote sustainable and high-quality economic growth.”

Heilongjiang and Jiangsu provinces are adding public health and other “catch-up” projects to their list of major projects, with funding support for those chosen. Nationally, the decision on whether to make improving the public health and emergency response systems a key target for government investment will be a test for policymakers.

Covid-19 is believed to have spread to humans via wild animal consumption. The public is now more aware of the importance to health of living in better harmony with the natural world. What is less recognised is that as well as bringing us disease, the overexploitation of nature also brings systemic risks that could cause disastrous “black swan” events. Four of the five major risks listed in the World Economic Forum’s 2020 Global Risks Report are environmental: climate change, biodiversity loss, extreme weather and the water crisis. As these risks interact rather than stand alone, they could cause a chain reaction.

If we are to increase our resilience, we need to fully understand these risks and ensure the facilities and mechanisms to respond are in place to prevent incidents escalating catastrophically. Environmental risks, like public health risks, need major investment to guard against. There are two aspects to this investment: one is spending on restoring our damaged environment and minimising further damage; the second is investment in environmentally-friendly technologies and industries that can change our mode of economic growth – to increase the “compatibility” of our society and economy with the environment.

How will we restore the economy once the epidemic has passed? If we direct government spending to high-carbon infrastructure construction and heavy industry, as usual, we will place ourselves at huge climate risk. This kind of investment is clearly not sustainable.

According to Zhang Shuwei: “The key is what we see when we look back at the lessons of the epidemic. Will we focus solely on the joy of victory, or acquire an awe at how nature, society and ourselves rely on each other? Our answer will lead us down different paths.”

From our partner chinadialogue

*Wu Yixiu is team leader of chinadialogue’s Strategic Climate Communication Initiatives. Before joining the team she was campaign manager with Greenpeace East Asia responsible for international policies. She also worked as a reporter at the English Service of China Radio International. Yixiu holds a B.A. in History in Fudan University and a master’s degree in Journalism from University of Westminster, London.

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Pandemic Recovery Shape: WWW

Naseem Javed

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Evelyn Dunbar painting 1947

Like a World-Wide-War, the pandemic recovery appears WWW shaped amidst fog of misinformation. It’s a global war of sorts showcased on global stage; nation by nation, multi-layered battlefields, tackling healthcare, economy, upskilling, and social justice with complex or comical dialogues, shielded with expert narratives or proclamations of stupidity avoiding bullets of facts and sciences.  

Casualty counts on battlefields rise with bodies littered across the world, sufferers gasping for the last oxygen and masked combat warriors on frontlines in out of control interactions but all yelling for truth. The highs and lows of competency levels publicly acrobated each day, hastily sensationalized by media, super-glazed by political punditry has created new lower standards of deployments. Equally, it has successfully fertilized the global mindshare to ask serious questions while novelty dances of national leaderships and political behavior picks up new rhythms to fix the old broken systems.  The masses of the new world now want large scale change. American elections ready for battle.

There never ever was a call for all G7 or G100 meeting on Day One of the pandemic, the greatest opportunities to step up on global platform missed. The narcissism prevented such humanistic dialogue; exceptionalism is only worthy when measured to serve humanity, otherwise just self-destructionist.

This unforgiving mistake for not having frank, globally open, scientifically intelligent dialogue, streamed live 24×7 global-access on digital-stage to acquaint global masses is a historic failure. Nation by nation, the politics and science mixture shakedown did not create some fine Angostura cocktails rather it turned into a Molotov. The restless citizenry of the world is hoping for truthful solutions. The irony of this pandemic will not be forgotten but immortalized in heavily casted monumental war memorial remembering  the crisis, the fighters and the lost ones; the wise and not so wise of the battle.

Nevertheless, few leadership teams are handling superbly while majority in visible chaos.

The only reward left amongst the casualty of war, if the global populace of billions can claim of at least acquiring some new wisdom while quarantined, earned as a weapon against tyranny, social justice and fairness to enable some balance on the economical charades and some truth to achieve some equality. In this case, cost of human sufferings may become bearable, otherwise, just a cruel reality wrapped in fakery.

The world must open global all-nation dialogue to tackle complex borderless mankind suffering issues; deep silence only becoming living proofs of incompetency and lack of precise knowledge to articulate on such issues.

The world must set new leadership standards on global crisis management as new challenges;

The omnipresence of the pandemic; whensocial front strikes like a hidden kiss of death; the response demands strict quarantines, the impact resulting in bankrupt economies. The damaged economies stretched, stronger ones counting days, any national shut down over 30 day is like creating a year of depression for that nation. A year-long closing, opening, closing and reopening is unimaginable wave to break down civil and economic structure. It’s a world-wide-war but not yet open for a “global stage daily briefing by global experts” the mankind suffers.

The omnipotence of the fear; when risk of exposure lingers for months and years, creating recovery shaped like WWW demands new thinking and open debates. The economic policies, business protocols, and global trade all in YOYO Economy will go up and down with every major shift and shock reactions unbalancing the progress. The fear if filled with new high quality open debates and discussions designed as constructive upskilling platforms shifts into hope and options and eliminating seek and destroy mentality.

The omnicompetent entrepreneurialism; historically, across the world, entrepreneurs created the origin of economic landscapes; they will do it again, as natural risk takers on earth shattering, mind-bending and life-altering creations for the advancements of mankind.  A quick study of the last 1000 entrepreneurs on global stage will provide the proof and blueprints. How do you uplift national citizenry and upskilling hidden talents, the dead silence from national gatekeepers will eventually turn into higher notes. The national trade groups like Chambers, Associations and government departments with vested interest in local economic development must rise all together with digital platform mobilization.

The post pandemic world will positively overflow with billion new entrepreneurs on march from Asia and all the other global entrepreneurialism suddenly bounce on advanced digital platforms, in an office-less, work-less, retail-less, remote-working, remote-learning, remote-shopping and remote living world; creating brand new solutions.

The omnidirectional thinking; the old-business-world is dying for mostly failing to create local grassroots prosperity; they may finally reemerge with new bloodstreams based on global interconnectivity of global trade and consumption with maximum technology and free platforms. The damage caused over decades already visible for ignoring entrepreneurialism as national hidden assets in local SME and ignoring women entrepreneurs as top quality untapped resource, now the day of lip service are almost over. The workers of the world, the thinkers and alpha dreamers, will go remote and carve out global access and digital paths to thousands of cities for their goods and services and create a far more fluid and rewarding culture of trade and commerce. Futurism is workless but NOT trade-less, study deeply

The critical need for new agents of change; covidism mastery is a new art and science, living the new normal as abnormal new learning, the entrepreneurial business world desperately needs ‘agents of change’ the masters of covidism, the new critical thinkers, the dreamers, complex problem solvers and fighter of better quality work models and economical survival strategies. Something mostly unavailable in universities degrees and critically lacking in the corner-offices of the world, but hidden as unknown talent in the working citizenry of any nation. National mobilization to harness such powers of young and old men and women entrepreneurs, nation by nation will rebuild and foster progress.

Study very deeply; plan next 1000 days very meticulously, as you too may have to answer about your own future, very soon 

Rest is easy

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