Economic security

Economic Might, National Security, and the Future of American Statecraft

The COVID-19 crisis and the resulting economic devastation have fueled already growing concerns about the state of the U.S.-led world order.1 For the past decade, public figures have raised concerns about the rise of China,2 the erosion of the American dream,3 the perceived failures of American leadership,4 and America’s relative loss of power.5 Now, suffering through a tragic international crisis, it is only natural that people might wonder what the future holds. Whether one agrees with these concerns or not, it is undeniable that many Americans are uneasy about their country’s future.6
The reality of American power is complicated. By most measures, the United States still enjoys preeminence: It maintains the world’s most powerful military and is the global leader in technological development and innovation.7 It possesses unrivaled structural power, due both to its reserve currency and to America’s role in having shaped the principles of the global order and of international institutions.8 Its network of like-minded allies and partners has endowed it with a unique ability to influence international affairs.9 And a vibrant, strong economy has sustained the growth of American power,10 helped along by America’s unique political values and culture, and its standing as a symbol of democracy for the world.11

Economic security

China Could Use Rare Earths Dominance as Political Weapon

A new report suggests that the United States is vulnerable to China's lead in the rare-earth minerals industry and claims that the communist nation could even use it as a geopolitical weapon.

The Wall Street Journal cited a report compiled by Horizon Advisory, which said China knows full well that its dominance in rare earths — which are used in the technology, electric vehicle, and even the military industries — is a significant advantage.

"China's rare earths positioning both implicates and threatens the entire global system," the report reads.

With relations between China and the U.S. frayed because of trade disputes and the coronavirus pandemic, China is confident that rare earths can be used to swing the pendulum in its direction.

"They're not concerned with economic return in many of these cases," Horizon co-founder Nathan Picarsic said. "They see controlling this type of [industry] as a path to win without fighting."

Economic security


'The end of an era': oil price collapse may force Saudis to rein in arms spending

Saudi Arabia may be forced to forego new weapons contracts and delay already-agreed weapons purchases as a financial crisis grips the kingdom, experts predict.

The expected delay of new weapons deals could have long-term political repercussions for the country under the rule of Mohammed bin Salman, the crown prince and de facto ruler who has waged a bloody war with neighbouring Yemen.

Saudi Arabia is facing an unprecedented budget crunch because of the collapse of the oil markets and the global economic turmoil caused by the Covid-19 pandemic, which has reduced oil demand for the foreseeable future.

“I have no doubt, this is the end of an era. The era of the Persian Gulf having all this money is over,” said Bruce Riedel, a senior fellow at Brookings in Washington and 30-year veteran of the Central Intelligence Agency, who has served as an adviser on Middle East issues to several US administrations.

Saudi Arabia spent about $62bn (£51bn) in arms last year, making it the fifth largest spender on weapons globally. Although that figure was less than in 2018, it still represents about 8% of Saudi’s GDP, meaning that the country spent a larger portion of its wealth on weapons than the US (3.4%), China (1.9%), Russia (3.9%), or India (2.4%), according to research by the Stockholm International Peace Institute.

Economic security

COVID-19 Could Bring Down the Trading System

For three years, the administration of U.S. President Donald Trump has attacked the global trading system. Now other forces are battering international trade. The pandemic spread of COVID-19, the disease caused by the novel coronavirus, is stoking new pressure for protectionism, and the World Trade Organization (WTO) needs to prepare for more countries to capitulate under the strain.

If the trend is left unchecked, the world may repeat the experience of the 1930s, when industrial production fell by nearly 40 percent, unemployment soared, and economic activity remained anemic for the better part of a decade. Then as now, trade barriers did not cause the problems. America’s Smoot-Hawley Tariff Act did not trigger the Great Depression, and tariffs today will not have caused the COVID-19 depression. But such barriers could affect the recovery, especially given the modern importance of cross-border supply chains. What happens now will influence the shape the trading system will take for decades to come.

Economic security

China’s semiconductor stocks showing some signs of immunity as coronavirus rips through the rest of the world’s tech industry

The coronavirus pandemic has torn apart businesses and supply chains across the globe. But stock analysts say one sector is showing some signs of immunity: Chinese semiconductor manufacturers.

The Chinese makers of the tiny data-processing brains used in everything from laptops to cellphones and washing machines are getting a boost from surging demand at home, as domestic manufacturers turn to them to replace products they normally get from virus-stricken suppliers in the US and Europe.

Because China appears for now to have successfully beaten back the virus, most of its factories are already firing back up. While the rest of the world is under siege, leading to uncertain foreign demand, China’s domestic semiconductor makers are getting a major boost from Huawei. The Chinese tech giant began sourcing more of its semiconductor needs back home amid blacklisting by the US, which claims its products can be used for spying – a charge Huawei denies.

Economic security

The Revolution After The Crisis

We are on the cusp of a massive economic contraction and a total reset of the global economy. The Coronavirus pandemic has metastasized into a global crisis that experts predict will very likely kill millions and unleash a worldwide economic depression. As economist Nouriel Roubani writes, the sudden shock to the global economy from the COVID-19 pandemic is accelerating a massive collapse that will be more severe than either the 2008 global financial crisis or the Great Depression.

A propellant for both a liquidity crisis and a solvency crisis, the COVID-19 pandemic is currently engulfing a wide breadth of industries and capital investments at a pace we have not seen before. Even as central banks leverage quantitative easing (QE) to stimulate the global economy, the impact of the pandemic on employment and therefore consumption will ensure a collapse that is both broad and deep.

Economic security

Saudi crown prince gambles on an oil price war. His latest brash move could sink the world economy

Inside oil-rich Saudi Arabia, Mohammed bin Salman is both feared and loved. in the past few days, the world has witnessed what his subjects have come to know.

The powerful crown prince, known as MBS, will not shy away from confrontation if he thinks his and his kingdom's interests are under threat. In fact, his default desire often appears to be domination.

At the OPEC summit in Vienna last week, when Russia refused his call to cut oil production as demand dipped due to the global coronavirus outbreak, MBS upped the ante, challenging Moscow and threatening to ramp up Saudi production, triggering the steepest drop in oil prices since the US began bombarding Iraqi troops in Kuwait in 1991.

Saudi's king-in-waiting believes that Russia has been "cheating" on oil production agreements, and after giving them "many chances," according to one source close to the government, has decided that this is the moment to put his foot down.

The prince may not have wanted this confrontation right now -- or may have miscalculated the ability of his brother, the Saudi oil minister, to negotiate for him in Vienna -- but what is clear is that MBS, by default or design, can be a global disruptor.

Economic security

Millions of Chinese Firms Face Collapse If Banks Don’t Act

Brigita, a director at one of China’s largest car dealers, is running out of options. Her firm’s 100 outlets have been closed for about a month because of the coronavirus, cash reserves are dwindling and banks are reluctant to extend deadlines on billions of yuan in debt coming due over the next few months. There are also other creditors to think about.

“If we can’t pay back the bonds, it will be very, very bad,” said Brigita, whose company has 10,000 employees and sells mid- to high-end car brands such as BMWs. She asked that only her first name be used and that her firm not be identified because she isn’t authorized to speak to the press.

With much of China’s economy still idled as authorities try to contain an epidemic that has infected more than 75,000 people, millions of companies across the country are in a race against the clock to stay afloat.

A survey of small- and medium-sized Chinese companies conducted this month showed that a third of respondents only had enough cash to cover fixed expenses for a month, with another third running out within two months. Only 30% of such firms have managed to resume operations due to a complicated local government approval procedure as well as a lack of employees and financing, a government official said at a press conference on Monday.

Economic security

Some of the world's biggest economies are on the brink of recession

Markets closed out last week on an anxious note. It's not difficult to see why: the coronavirus continues to spread, and there are signs that some of the world's top economies could slide into recession as the outbreak compounds pre-existing weaknesses.
Take Japan: The world's third-largest economy shrank 1.6% in the fourth quarter of 2019 as the country absorbed the effects of a sales tax hike and a powerful typhoon. It was biggest contraction compared to the previous quarter since 2014.
Then there's Germany. The biggest economy in Europe ground to a halt right before the coronavirus outbreak set in, dragged down by the country's struggling factories. The closely-watched ZEW Indicator of Economic Sentiment in Germany decreased sharply for February, reflecting fears that the virus could hit world trade.
Bank of America economist Ethan Harris points to the number of smaller economies that are hurting, too. Hong Kong is in recession and Singapore could soon suffer a similar fate. Fourth quarter GDP data from Indonesia hit a three-year low, while Malaysia had its worst reading in a decade, he noted to clients on Friday.

Economic security

Disaster for Brussels as study predicts EU’s share of world trade to collapse

THE SHARE of world trade occupied by EU member states is to collapse in the coming decades according to a new study in a dramatic blow to Brussels.

Currently the 28 EU member states make up a little over 22 percent of world gross domestic product (GDP). This is down on the over 36 percent the same nations possessed in 1960.

However according to a new survey this will fall further, to just 9.9 percent in 2100.

The real figure is likely to be even lower as the study doesn’t incorporate the UK upcoming withdrawal from the EU.

Britain is set to leave the EU on January 31, with Boris Johnson having secured a Parliamentary majority for this objective.

The study was conducted by the University of Denver’s Pardee Centre.

Economic security

Here’s how China became the world’s No. 2 economy and how it plans on being No. 1

China is on the cusp of keeping a big promise — a vow to double its GDP and income in a decade and take the country to the forefront of the global economic power structure.

The nation now faces the challenge of keeping the momentum going in the face of mounting challenges.

The ascension began in the late 1970s with a move to more open markets. It continued through aggressive central planning, utilizing the advantages of cheap labor, a devalued currency and a robust factory system to spread its products around the world.

All of that changed the economy from slumbering rural decay to a prospering diverse superpower. The country now seems on a inexorable path to No. 1.

China has climbed to No. 2 in the world, with a GDP of $13.1 trillion that, while still trailing the U.S., keeps getting closer. Forecasters expect that growth just north of 6% in 2020 will get to the stated goal of doubling the economy from 2011-20.

Economic security

Here’s how China became the world’s No. 2 economy and how it plans on being No. 1

China is on the cusp of keeping a big promise — a vow to double its GDP and income in a decade and take the country to the forefront of the global economic power structure.

The nation now faces the challenge of keeping the momentum going in the face of mounting challenges.

The ascension began in the late 1970s with a move to more open markets. It continued through aggressive central planning, utilizing the advantages of cheap labor, a devalued currency and a robust factory system to spread its products around the world.

All of that changed the economy from slumbering rural decay to a prospering diverse superpower. The country now seems on a inexorable path to No. 1.

China has climbed to No. 2 in the world, with a GDP of $13.1 trillion that, while still trailing the U.S., keeps getting closer. Forecasters expect that growth just north of 6% in 2020 will get to the stated goal of doubling the economy from 2011-20.

Economic security

The Next Recession May Come By Stealth

Markets have been blowing hot and cold regarding the prospects of a recession in the U.S. The Institute of Supply Management’s November survey shows that the index of factory activities in the U.S. fell to 48.1 from 48.3 in October (any reading below 50 is indicative of a contraction). This is confounding the expectation that America’s domestic industrial production would improve in anticipation of a “deal” in the U.S.-China trade war. However, the Department of Labor also reported that 266,000 jobs have been added to the economy in November, bringing unemployment rate down to a historic low of 3.5%. A confusing situation has just been made more confusing.

It has been said that generals are always fighting the last war. It’s not that different when it comes to fighting economic downturns. Since the global financial crisis a decade ago, we have been scouring the horizon for any signs of financial fragility, such as asset bubbles, that could plunge us into the next global recession. 

Economic security

The World May Have a Bigger Problem Than a Potential Recession

Explore what’s moving the global economy in the new season of the Stephanomics podcast. Subscribe via Apple Podcast, Spotify or Pocket Cast.

The global economy is stuck in a rut that it won’t exit unless governments revolutionize policies and how they invest, rather than just hoping for a cyclical upswing, the OECD said.

The latest outlook and policy prescriptions from the Paris-based group mark a step beyond its repeated warnings about threats to growth from U.S.-China tensions, weak investment and trade flows. Those remain, but it also flags more systemic challenges from climate change, technology and the fact that the trade war is just part of a bigger shift in the global order.

For OECD Chief Economist Laurence Boone, the worry is that the world could continue to suffer in the decades to come if authorities offer short-term fiscal and monetary fixes as the only response.

“The biggest concern… is that the deterioration of the outlook continues unabated, reflecting unaddressed structural changes more than any cyclical shock,” Boone said. “It would be a policy mistake to consider these shifts as temporary factors that can be addressed with monetary and fiscal policy: they are structural.”

Economic security

Why Dow 28,000 could mark that ‘blowoff top’ bears have been predicting

Last month, the Federal Reserve began snatching up short-term Treasury debtto the tune of $60 billion per month in response to the repo mess that sent a chill through Wall Street back in September.

While it might sound like another round of quantitative easing, Fed Chair Jerome Powell wanted to make it clear: It’s not. “In no sense is this QE,” he said.

Charles Hugh Smith, the author behind the “Of Two Minds” blog, isn’t buying it. In a recent post, he recounted a riddle Abraham Lincoln apparently once told: “If I should call a sheep’s tail a leg, how many legs would it have?” — Five! — “No, only four; for my calling the tail a leg would not make it so.”

Economic security

Two of the world's biggest economies are at risk of recession

Investors have recently put fears about the pace of global growth aside, opting for optimism on a "phase one" US-China trade deal. But muted economic data expected out of Europe this week could change the mood.
Germany may post data Thursday indicating that it's in recession. Economists surveyed by Reuters believe the world's fourth largest economy shrank 0.1% between July and September — marking two straight quarters of negative growth.
It's possible that Germany — which has been hit by the trade war, as well as falling global demand for autos — just dodged a bullet. Exports unexpectedly rebounded in September, rising 1.5% compared to the previous month. August data was also revised upward.
"With today's data, a technical recession is not yet a done deal," Carsten Brzeski, ING's chief German economist, told clients, noting that Germany could have avoided another contraction "at the very last minute."

Economic security

The US has been left alone to drive the world economy; China should help out

As always, America’s close friends and allies – Japan and Germany – will continue their free riding on the U.S. economy, and will make no net contribution to growth and employment in the rest of the world.

With a 0.6% average annual growth in the year to last June, Japan’s finance ministry announced last week that it was not considering measures to prop up its sluggish economy. Undeterred, punters went on betting about large support packages – probably one of those where it is impossible to decipher what is, as the Japanese say, a “clear water” stimulus and what is just a meaningless numbers game.

Germany, the indisputable pace-setter of the European economy, keeps saying the same thing: There is no need for any support to its recessionary economy, which is expected to stagnate in the months ahead.

Adding Japan to the German-run Europe, one gets a quarter of the world economy that wants to live off exports – which amount to $1.1 trillion dumped on the U.S. and China in 2018.

Economic security

Here Are The Countries On The Brink Of Recession Going Into 2020

Topline: Amid a global slowdown in economic growth that has seen central banks lower interest rates near zero or below in an effort to provide stimulus, here’s a look at which of the major economies are on high recession alert.

• Hong Kong, following five months of citizen protests that have battered the city’s economy, has entered into a “technical recession,” with industries like tourism and retail especially hard hit from the ongoing turmoil.
• The U.K., with its ongoing uncertainty over leaving the European Union (and still no end in sight), has watched its economy recently shrink for the first time since 2012, and a no-deal Brexit could well slide it into a recession.
• Germany, the EU’s biggest economy, is set to slide into a recession thanks to a continued decline in its manufacturing sector as well as lackluster global auto sales.
• Italy, the EU’s fourth-largest economy, was in a technical recession for the second half of 2018 and has faced continued economic woes from weak productivity, high unemployment, huge debt and political turmoil.
• China’s economy has continued to slow amid the trade war, too, although not yet in a recession: The IMF forecast only 5.8% growth for the world’s second-largest economy in 2020, down from 6.6% in 2018 and 6.1% forecast in 2019.

Other highly stressed economies around the world include Turkey, Argentina, Iran, Mexico and Brazil, among others.

Economic security

The American System of Tipping Makes No Sense

Here’s a simple question. It’s Sunday. You order coffee and a simple breakfast—eggs, bacon, toast—at a local diner. The service is efficient, but not memorable. The bill comes, and it’s $10. What’s the tip?
$1.50, according to typical online guides for foreign travelers in America
$2.00 at least, according to The Washington Post
$3.00 for sure, according to The New York Times

Whatever the hell you want, according to some guys on Twitter,

I have no confidence that anything I write here will persuade readers to increase or decrease their average tip. To me, the range of answers raises a larger question: Why are we still crowdfunding worker salaries when tippers so clearly do not know what the hell they’re doing?

The history of tipping isn’t well documented, but it’s thought that aristocrats in England kicked the whole thing off when they started leaving hoteliers a little something extra on the way out. The practice then spread to the rest of Europe and the United States in the 1700s. While Europe’s political revolutions in the 19th century mostly did away with the custom, tipping persisted west of the Atlantic. Gratuity took hold in U.S. restaurants and barbershops and shoeshine stands and everywhere else where American customers could be made to feel, briefly, like a pampered aristocrat.

Economic security

Mystery traders 'made $1.8bn from stock bet' placed hours before Trump tweeted talks with China were ‘back on track’

Unknown actors may have made billions from the turmoil Donald Trump has created in the markets through erratic tweets, shoot-from-the-hip foreign policy, and the trade war with China, according to a new report.

A Vanity Fair deep-dive into stock market activity has uncovered several instances where advantageous trades were made suspiciously close to market-moving events.

One trade, made just before Iranian drones attacked Saudi Arabian oil production facilities, netted $180m. Another trade, made shortly before Mr Trump announced a delay in tariffs on Chinese goods, made $190m. The biggest trade of all came on June 28, while Mr Trump was at the G20 meeting. There, he met with President Xi and announced trade negotiations were "back on track."

Those trades ended up being worth $1.8bn thanks to an 84 point boost in the S&P 500 index following Trump's announcement.