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Singapore’s Governance, Prosperity, and Future Challenges

By Ian Austin

The Singapore government post-GFC has moved to “anchor” in selected sectors and the peak MNEs within these designs for long-term national economic growth, and it showed how the national polity through the varying 2011 and 2015 election results has placed new demands upon governance within the island nation. 

 

Singapore’s success story of attracting skilled professionals and multinational enterprises (MNEs) has been examined extensively as the small island state has, through rapid economic development, risen since the 1960s to become a global city.1 Singapore’s success has highlighted the crucial importance of good public governance; one able to adapt to new circumstances over time. The People’s Action Party (PAP) leadership’s highly pragmatic leanings, an international reputation for prudent financial management and an effective anti-corruption stance, has meant that foreign political and enterprise leaders have found the Singapore government easy to engage with. Recent efforts throughout the late 1990s and first decades of the 2000s to attract MNEs at the forefront of innovation (biotechnology, medicine, advanced electronics) have been built upon a foundation of a 30-year record of attracting and developing partnerships with MNEs looking to utilise Singapore at lower-level technical skills capacities (broad consumer electronics, shipping maintenance and others).

Recent efforts throughout the late 1990s and first decades of the 2000s to attract MNEs at the forefront of innovation have been built upon a foundation of a 30-year record of attracting and developing partnerships with MNEs looking to utilise Singapore at lower-level technical skills capacities.

The Singapore government’s relationship with private enterprise is clear; it has been willing to participate in the national economy as either a dominant state-owned enterprise (SOE), and done so across many sectors. At the same time, it has not sought to protect domestic enterprises at the expense of foreign MNE interests investing into the national economy. State-owned enterprises, government-linked corporations (GLCs), and state-encouraged enterprises, founded and developed by the government, have both secured domestic economic advancement, enhanced international trade activity, and provided valued partners to MNEs operations in the island state. Singapore Airlines, Changi Airport, the Port Authority of Singapore (PSA) and the SGX (Singapore Stock Exchange), to name a few, are all products of this effective state activism, and are now internationally recognised for excellence in their respective sectors. As a city-state with a small market and a large strategically located port, the government and commercial elite (the two being interchangeable) has been a constant champion of global free trade. Today, Singapore remains active in both bilateral and multilateral trade processes. The Singapore government argues that even when multilateral processes such as the Doha round of free trade talks break down, Free Trade Agreements (FTAs) remain the pathway forward for the city-economy.2  Singapore’s political and macroeconomic environment, therefore, are all attuned to the needs and wants of MNEs seeking a risk-free environment from which to launch their products and services into greater Asia. Indeed, there is little risk in stating that Singapore is without peer in enacting policy prescriptions that are favourable to MNEs operations, and supporting these with an array of practical infrastructure, legal, human resource and social initiatives. For all of these collective economic achievements, or because of them, however, the very nature of Singapore’s continuing interaction with the international economy over the coming decades will be shaped by the very same central question now confronting developed and developing economies alike. That question being: With dramatic changes taking place in macro-environmental areas, such as technological advancements and national demographic profiles, how will polity concerns over material and social/environmental inequality be managed by the nation’s stewards?

Singapore’s Economic Future

In the decade since the global financial crisis (GFC) (2007/08-2017/18), Singapore has consolidated its position as a successful economy highly attractive to MNE investment. Whilst Singapore, like so many other countries, experienced rapid economic declines in GDP growth rates throughout 2008 and 2009, the long-term soundness of its economic governance meant that by the end of 2010 the island nation was once again experiencing robust growth.3 The real and lasting impact of the GFC came then in the form of the intellectual reevaluation that took place within PAP leadership and the economic community over the strategic direction of future national economic progress. Further, China’s relentless emergence as a global economic powerhouse, seemingly unhindered by the economic calamity besetting the United States and Europe during the first decade of the 21st century, and India’s rise in international services placed the city-state with the challenge of operating within increasingly competitive international sectors. By all measures, Singapore post-GFC has countered these challenges.4 Singapore’s substantive state-backed investment funds, most notably the Government Investment Corporation (GIC) and Temasek Holding, over the last decade have been actively engaged in rapidly advancing the nation’s capacity to attract new growth sectors.5  More specifically, the Singapore government and its investment arms have sought growth sectors with attributes that make any GFC-like withdrawal from the island state either impossible or highly daunting and costly for the enterprise involved. The Singapore government has made it plain in the wake of the GFC that a crucial criteria for its engagement, political, policy and material, with MNEs will be the level to which they “anchor” themselves to the island nation.

Whilst Singapore, like so many other countries, experienced rapid economic declines in GDP growth rates throughout 2008 and 2009, the long-term soundness of its economic governance meant that by the end of 2010 the island nation was once again experiencing robust growth.

The most publicly-visible example of this anchoring policy has been the development of two large Integrated Resorts and Hotels complexes (IR&Hs, read casinos): Marina Bay Sands and Resorts World Sentosa. The impact of the IR&Hs upon the Singaporean economy since their opening in 2010 is undoubted and recognised by the continual utilisation of the Sands Marina Bay resort imagery as iconic of Singapore’s present and future.6 The logic of the PAP government’s decision to open IR&Hs (casinos) on the island state after many decades of most vocal opposition post-GFC is simply: the two massive casino development, whose accumulative investments totalled $US 12–14 billion, are entirely the product of state regulatory licenses: they simply cannot be relocated offshore. In return for this investment, and the significant domestic labour inputs required, the Singapore government has invested significant public funds to deliver to the ownership of the IR&Hs an international clientele profile. Equally, by design, the Singapore government rightly predicted that the development of the IR&Hs in themselves would see the clustering of high-end hotel and fashion brands in-and-around the Marina Bay Sands and Sentosa districts. International investors, professionals and clientele who associate themselves and their clients with the complete entertainment/lifestyle product surrounding the integrated resorts and hotels have added a new complexity to the nation’s service economy. The Singapore F1 Night Grand Prix, commenced in 2008, for example, stands as a pinnacle event in the effort to brand Singapore as a global city with its clustering of business, sports, design, leisure and entertainment interests.

Somewhat less visible has been the Singapore government’s moves to “anchor” international wealth management actors to the island nation’s future prosperity.7 Singapore has long been highly successful in attracting international financial sector enterprises. Since the GFC, the PAP has not only consolidated this position, but also enacted the Marina Bay Financial District to cement the island nation’s position as a top-tier international financial centre. The massive Swiss-based giant UBS, being but one example of an international wealth management actor who has been actively courted by the Singapore government elite (the GIC as the owner of 6.4 percent of UBS shares is one of the largest shareholders), and now making the island a global centre for various wealth generating operations.8 The sheer scale of the international banking and finance means that Singapore must be selective in its activities and focus on providing niche, but highly profitable services, most notably wealth management services (wealthy individuals or trusts). Along with traditional Western wealth management markets, Singapore has been even more successful in gaining market share within China, Russia, Latin America, Africa and the Middle East. There can be no doubt that Singapore’s ultimate aim is to surpass Switzerland as the home of private wealth management. Whilst this might have seemed fanciful prior the GFC, tectonic regulatory shifts in Europe and the United States have been altering the equation.9  Singapore’s position in Asia has proved decisive: the concentration of global wealth accumulation in the region continues unabated and Singapore has positioned itself as a most willing and capable servicer of this new wealth. The message from the Singapore authorities for greater Asia’s wealthy is uniform and assured: that high wealth individuals/trusts will find a welcoming and competent nation with a supporting regulatory and tax climate, including the vigorous enforcement of the strict privacy laws. As with the IR&H sector, the Singapore government’s combination of political, capital, education and other investments into the wealth management sector means that the cost of exiting the island state for any international entity would be high. Not least of all for the simple reason that the scale of accumulated state-directed wealth present makes the Singapore government a truly indispensable global client. As stated, by design, the Singapore government set out to anchor the leading banks and financiers within international wealth management sector to the island nation. International regulatory measures that have directly affected Switzerland to a greater degree than its Asian counterpart have no doubt been highly beneficial; but Singapore’s proactive endeavours have enabled it to define itself as a wealth platform for the Asian Century.

 

Singapore government has made it plain in the wake of the GFC that a crucial criteria for its engagement, political, policy and material, with MNEs will be the level to which they “anchor” themselves to the island nation.

Political Continuity and Change

Despite a near decade-long (2010 – 2018) record of economic growth and the transitioning of the economy into service sectors anchored through political-policy (legislative) and capital means, the long political paradigm of the PAP’s dominance over the island state has been far from smooth. The PAP’s popular vote dropped to 60.14 percent in the 2011 general election compared to 66.6 percent in 2006 general election, but rose again to 69.86 percent in the 2015 election.10 The reason for the significant 2011 election decline in PAP’s popular vote was widely ascribed, not least of all by the Prime Minister Lee Hsien Loong, as a need for the long-term governing party to listen fully and engage with the lived experience of the national polity. The 2011 election revealed that the distribution of wealth and social progress, and not the net material increase in Singapore’s wealth, was now a significant factor in the Singapore polities’ decision-making.11  In response, PAP executed policies, most notably legislative restriction on foreign labour entry, can be defined as a “Singapore-first” mandate. The nine percent upswing to the PAP in the 2015 general election revealed that these measures and others have met with broad domestic approval. Most significantly, they attracted a rare public response from the international investment community, and particularly the MNEs operating on the island nation, who have depended on the ability to bring in foreign sources and human capital when required. The PAP, always a champion of MNEs investment into the island nation, nevertheless delivered a forceful rebuttal to these enterprises’ call for adjustments. Put simply, the 2011 election result, and the PAP’s recalibration and success campaign in 2015, reinforced to all that no matter the historical dominance of a party, it is never far from threats to its legitimacy should the electorate decide that the local is no longer at its very heart; that no matter the extent of the economic advancements achieved, without communal connectedness, of a sense of shared and equitable progress, legitimacy dissipates.12   

Featured Image: Sands Marina Casino Photograph by Ian Austin

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About the Author

Dr. Ian Austin is Senior Lecturer in International Business at Edith Cowan University. Most of his works examine Singapore as a wealth management centre and as a global city. He previously worked in Singapore for both private enterprises and the public sector.

References:

  1. 1. Low, L. 2010. Exploring New Engines for Growth. in Chong, T. ed. 2010. Management of Success Singapore Revisited. Singapore: Institute of Southeast Asian Studies.
  2. 2. Singapore FTA Network. http://www.fta.gov.sg/ accessed April 2, 2009.
  3. 3. Chong, T. 2009. Singapore in 2008: Negotiating Domestic Issues, Confrontations and Global Challenge.  pp. 289-304. Southeast Asian Affairs 2009. (Singapore: Institute of Southeast Asian Studies).
  4. 4. Singapore Department of Statistics https://www.singstat.gov.sg/ ; International Monetary Fund https://www.imf.org/~/media/Files/Publications/CR/2017/cr17240.ashx
  5. 5. GIC https://www.gic.com.sg/ ; Temasek https://www.temasek.com.sg/en/index.html
  6. 6. https://www.youtube.com/watch?v=sBPszhAIaQI Singapore “What’s Possible” campaign.
  7. 7. Robins, B. (March 10, 2014), Singapore turns its hand to wealth management The Sydney Morning Herald, www.smh.com.au/business
  8. 8. UBS Asset Management in Singapore https://www.ubs.com/sg/en/asset-management.html
  9. 9. Grant, J. (July 23, 2013), Singapore loosens Switzerland’s grip on wealth management, Financial Times, www.ft.com/cms/s/048c3630
  10. 10. Elections Department Singapore http://www.eld.gov.sg/
  11. 11. Yahya, F.B. ed. 2015. Inequality in Singapore, World Scientific Publishing: Singapore. 
  12. 12. The electorate of Malaysia on May 9th 2018 sent this very message in a most profound way toppling the long-term UMNO governing coalition in a largely unanticipated electoral route.

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Mainstreaming Islamic Social Finance

Hua Lamphong is the informal name of the station, used by both foreign travellers and locals. The station is often named as Hua Lamphong in travel guide books and in the public press.

By Ebi Junaidi and Primandanu FA

Over the years, Zakah (mandatory alms-giving), waqf (Islamic endowment funds) and Islamic not-for-profit microfinance have been regarded as traditional and miniscule in importance. In this article, the authors present the direct effect of such condition as evident in several phenomena as well as how creative ideas on contextualising centuries old of Islamic social funds in the current lifestyle can result to a sweet fruit of giving helping hands to the needy.

 

It was such a typical gloomy winter morning in Durham back in early February. Yet, students were so passionate to come to the Durham Centre for Islamic Economics and Finance’s Professional Speaker Series. This time, the talk invited Dr. Mahmoud Mohieldin, Senior Vice President of the World Bank Group. The topic was Sustainable Development Goals (SDGs) and the Role of Islamic Finance – which is as much as interesting as the speaker, Dr. Mohieldin. Indeed, he is the right person to discuss on this matter, as he is the World Bank’s person-in-charge for delivering the SDGs as well as having a distinguished expertise on Islamic Finance.

One of the highlights in the talk was the use of Islamic Social Finance in achieving the SDGs’ 17 goals and 169 targets. The Islamic Social Finance is expected to cover part of the $3.1 trillion investment gap needed by 2030. Investment gap in this case is the difference between the total investment needed and the development fund available.

The Islamic Social Finance expected to cover the investment gap includes Zakah (mandatory alms-giving), waqf (Islamic endowment funds) and Islamic not-for-profit microfinance – sectors that over the years have been regarded as traditional and miniscule in importance. Prof. Mohamed Azmi Omar, former Director General or Islamic Research and Training Institute (IRTI) once even said, Islamic Social Finance “failed to catch the fancy of the (Islamic finance) professionals and practitioners.” As a result, he added, “mainstream Islamic finance is now understood to comprise banking, insurance and financial market participation (only).”

The direct effect of such condition can be found in several phenomena. Firstly, there was very less education given to the community over the importance of the provision and payment of Islamic social finance. The recent controversy over the Indonesia government’s plan over zakat collection on Muslim civil servant is just one of the consequence of it, despite the fact that Indonesia is the home of most populous Muslim country in the world. Looking back, the dimension of many teachings over Islamic social finance were mostly “hereafter-motivated” without many references on the significant role that the Islamic Social Finance can play in the world, let alone in development and poverty alleviation.

Secondly, human resources allocation is very limited in this sector, as working or dedicating career and life in this field is considered inferior, compared to Islamic banks, insurance and/or other institutions and sectors. This is understandable as Islamic social finance might remunerate its management lower compare to other corporate level Islamic finance institutions due to its micro size as well as its effort to ensure only minimal percentage of funds managed is utilised in this manner.

Putting Islamic social finance with its philanthropy and not-for-profit nature in the frame of SDGs has given it the challenges it may well perform and at the same time allowed Islamic Social Finance to be pictured in the mainstream Islamic Finance.

Thirdly, infrastructure to support Islamic social finance’s necessary professionalism in both fund-raising and fund-using has been minimal. Many of the Islamic social finance institutions operate based on trust and utilise public figure to create their social credibility. In the future, it is very important to build a standard measure on integrity, transparency, and good governance in these institutions. Therefore, putting Islamic social finance with its philanthropy and not-for-profit nature in the frame of SDGs has given it the challenges it may well perform and at the same time allowed Islamic Social Finance to be pictured in the mainstream Islamic Finance.

Looking back, we should thank IRTI of Islamic Development Bank (IDB), who has initiated the very first global report of Islamic Social Finance back in 2014 – covering Indonesia and some other countries in South and South East Asia. The report has enhanced public understanding over the sector by providing comprehensive information over existing conditions of the sectors as well as the future development directions.

Since then, not only other series of reports have been produced but effort towards mainstreaming Islamic social finance has also been taken place. One worth mentioning is the special session in the World Humanitarian Summit of The United Nation in May 2016 on “Islamic Social Finance as a New Alternative for Humanitarian Financing”. The humanitarian purpose is indeed at the very heart of Islamic social finance, even more urgent compared to developmental purpose such as the SDGs.

Co-existence and cooperation of private and small Islamic social finance organisations as well as traditional Islamic institutions will strengthen their ability to reach their objectives as well as enable us to realise the full potential of Islamic social finance.

It is interesting that the opportunity targeted within this summit is not only zakah and waqf but also include the possible issuance of humanitarian sukuk, directing at impact investors. The success of International Finance Facility for Immunisation (IFFIm) for its $US 500 millions and $US 200 millions humanitarian sukuk back in 2014 and 2015, inspired many humanitarian organisations to follow suit.

It is important to note that mainstreaming Islamic social finance does not mean corporatisation of zakah, waqf and other funds. Corporatisation does bring efficiency to the fund management by creating a large network, big organisation and other resources that enable it to collect and channel more funds. Yet, existing private and small Islamic social finance organisations as well as traditional Islamic institution such as the Masjids, Baitul Mal Wat Tamwil (BMTs), Waqf institution, etc. have been there playing their role not only giving helping hands to those who were missed by larger institutions, but also as the source of social capital within community.

Co-existence and cooperation of private and small Islamic social finance organisations as well as traditional Islamic institutions will strengthen their ability to reach their objectives as well as enable us to realise the full potential of Islamic social finance. In the context of Indonesia, we are talking about IDR 270 trillion from zakah [based on Indonesia’s National Alms giving Institution’s (Badan Amil Zakat Nasional) (estimate), and IDR 180 trillion from waqf (based on Badan Waqf Indonesia (BWI)’s estimate) annually. These numbers plus the savers in non-profit Islamic microfinance and prospective ethical investors on humanitarian sukuk can indeed significantly play a role in humanitarian and developmental projects; projects that echo the very early intent of the birth of Islamic Economics and Finance.

 

“Blending” the social finance with existing Economic and Financial Institutions

There were two interesting events related to the intensification of Islamic social funds collection in Indonesia. The first is the introduction of “sazadah”, a program that enable investors of stock markets to pay their sadaqah (voluntary giving) and Zakat (annual Islamic alms giving) by their stocks. The launching was followed by the opening of 36 counters around Indonesia that enable philanthropists to consult as well as donate their stocks with no hassle. The initiative of paying these social funds in the form of stock is considered as the first ever in the world. The program targets not only Islamic finance investors but also conventional investors as long as the stocks donated are listed under the Jakarta Islamic Index.

It is important to note that the Sazadah program was initiated by private securities company, The Henan Putihrai Security. The company sought approval from Indonesia’s Ulama Council which agreed on the ground that stocks is considered as class of assets subject to Islamic annual obligatory alms giving. For channelling the funds, the company smartly cooperated with Indonesia’s official national Zakat Institution planning to finance its Zakat Community Development

This is not the first time that this security company held hands with zakat institution. Almost two years ago, the company introduced a program that allows investors to donate indirectly while performing transaction trough their Sharia Online Trading System (SOTS). Every brokerage fee paid due to trading activities will have 20% taken for donation. The so-called “berkah” (blessing) program has an annual subscription growth of almost 100%, which increases the donation amount transferred to projects under the zakat institutions.

The second event is the cooperation of BAZNAS with one of Indonesia’s electronic money provider, Go-Pay. The cooperation allows donations to be paid through Go-Pay platform directly to BAZNAS’ account. Last year, cooperation among the two has contributed to a targeted 10,000 poor recipient families. The cooperation was on better donation channelling system. Indeed, distribution of donation, especially during Muslim holy month of Ramadan, has been challenging. This have caused not only an unbalance distribution and exclusion of some of the most needed donation targets, but also, in the case where direct distribution was done, casualties and inhumane queuing practices have frequently occurred.

The above two events are indeed just examples of how creative ideas on contextualising centuries old of Islamic social funds to current lifestyle can result to a sweet fruit of giving helping hands to the needy. There are indeed many more ways to eventually enable us to locate Islamic social funds to a place it deserves –  a place that reminds people, in any regular activities they are involved in, that there is a space to contribute to their fellow human being socially. A noble cause that penetrates the everydayness, which is what mainstreaming aims for.

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About the Authors

Ebi Junaidi is School of Economics Lecturer at Universitas Indonesia. He is currently pursuing his PhD in Islamic Finance at Durham University Business School. His research areas are Waqf, Trust, Venture Capital, Risk Attitude and Financial Decision. He is now the Chairman for Indonesia Islamic Economics Society-United Kingdom Representative.

Primandanu FA is currently pursuing Master’s degree in Islamic Finance at Durham University. He is now the General Secretary of Islamic Economics Society (MES-UK). He commenced his career at Capital Market Supervisory Agency in 2010 and has been working at Indonesia Financial Services Authority since 2013.

Identity Politics: Diversion from the Growing Economic Crisis?

concept of rich and poor in a person

By Ghada Chehade

Despite the reality of ever-increasing economic despair – including, and perhaps especially, for minorities – no one is willing to talk about class and economic issues. This is especially true among the so-called new left, which is more concerned with identity issues than class and politico-economic analysis. But lacking a larger analysis of the politico-economic system, identity politics is little more than a diversion and distraction from the larger issues that plague us all; and a convenient tool for the global establishment.

 

“It’s the Economy, Stupid”

We live in a world that often appears to be upside down; a world that has its priorities all mixed up. While we slip deeper into what can easily be described as the greatest economic depression of our time, no one on the “new left” (a.k.a. the liberal left) seems willing to talk about the bleak realities of ever-increasing economic despair. Instead, what we see and hear in the media, including the “left media,” in government, and across university campuses is an emphasis on special interest issues and personal identity. Rather than address the larger issues that plague the majority of people (including minorities) – i.e., the pitfalls of economic globalisation, unemployment and underemployment, mounting debt, the increased cost of living, economic austerity, imperial wars, etc. – we are distracted by the spectacle of identity politics and stifled by a liberal political correctness that imposes “tolerance” in a manner that actually limits freedom of thought and expression while serving the global establishment.

While identity politics claims to be concerned with helping minorities, it refuses to address economic issues, such as poverty and growing unemployment, which often disproportionately impact certain minority groups.1 One of the reasons that identity politics does not deal with class and economic issues is that it is rooted in postmodern theory, for which the explicit rejection of the centrality of class is somewhat of an obsession.2 Indeed, many proponents of identity politics are openly hostile towards classical or traditional left politics – which dealt largely with class, Empire, and economic issues – and its “failure” to address culture and identity. However, the traditional left has never denied the importance of racial, gender and ethnic division within classes. What it has emphasised, though, is the wider system which generates these differences and the need to join class forces to eliminate these inequalities at every point.3

Focusing on identity rather than class and economics negates the reality that many individuals are struggling financially at present;4 both within and across racial, gender and ethnic divisions. This is due in no small measure to the U.S.-led agenda of economic globalisation. As I explain elsewhere:

“Globalisation…exploits and relies upon global inequality and disparity. Globalisation exploits the developing world’s “comparative advantage” of cheap labour and lax regulations, and allows western companies to maintain the illusion of being domestic while benefitting from operating in countries where they pay far less for everything –  especially labour – and stand to gain immensely as a result.”

“This undermines western workers who have suffered mass underemployment due to economic globalisation and the offshoring of jobs and investment. And while it may be argued that globalisation benefits people of the developing world through employment…the harsh economic restructuring conditions that accompany globalisation and foreign investment actually hurt large segments within developing countries.5”

One result of globalisation in the west has been the collapse of the middle class. The loss of the traditional manufacturing economy (and the associated managerial and technical sectors) ushered in by globalisation, has forced much of the middle class to seek supplementary income. For instance, while services like Airbnb and Uber are regarded as hip and trendy modern conveniences, they are also indicators of a failing or degraded economy – what the mainstream media describes as a “transitioning economy.” But terms like the “sharing economy” and the “gig economy” are ultimately liberal euphemisms for those things that people must do to make ends meat. Because in reality, people don’t rent out their guest room or drive strangers around the city or sell used things online to make friends; they do it to make money. Making these supplementary outlets hip and trendy takes the stigma away from what is essentially and traditionally speaking being broke or poor. It also masks the growing reality of middle class economic decline and growing debt servitude, for minorities and non-minorities alike.

Class, poverty, and economic collapse are the elephants in the room that identity liberalism6, contemporary politicians, and the mainstream media refuse to address. Interestingly, and ironically, Donald Trump was able to persuade many of the older generations – including some Black and Latino populations – into voting for him by galvanising support around these populist issues. Of course, he has failed to deliver on any of his populist, economic promises. But his victory may be an indication of people’s growing economic desperation in the U.S.

 

Identity Politics as Diversion from Our Common Plight…and Protection for Wealth & Power

A politics that addresses identity and minority issues without examining the larger socioeconomic system and class relations cannot adequately address the disproportional disenfranchisement and economic despair experienced by minority groups. At the same time, a focus on identity and individual issues prevents us from seeing what we have in common, pitting different groups against one another and distracting them from – and from uniting over – their common economic plight.

While people may share a common race and heritage, wealth and the lack of wealth create a massive cleavage that identity cannot bridge.

Class, or economic situation, is the great unifier. At the present juncture, we may have more in commton with people of a similar economic situation than individuals of a similar ethnic, racial, gender, or sexual orientation identity. Poor people everywhere share something in common – their poverty or economic despair – and wealthy people everywhere also share something in common – their immense wealth – regardless of cultural or identity differences. For instance, while African Americans may share a common racial identity, the majority of black people in the U.S. have very little in common with the uber-rich Oprah Winfrey or the Obamas. The immense wealth, power and influence of Oprah or the Obamas puts them in a reality altogether different, and far more privileged, than the majority of everyday African American people in the U.S. The same can be said of any racial or ethnic group. While people may share a common race and heritage (or a common gender, sexual orientation, etc.), wealth and the lack of wealth create a massive cleavage that identity cannot bridge.

And the opposite is also true. While we may differ in pigmentation, ethnicity, sex, gender, sexual orientation, religion, etc., what more and more people presently have in common is that we are being increasingly impoverished and exploited by the global regime of greed and hegemony. At the same time, we are increasingly more politically disempowered, controlled, monitored, spied upon, and surveilled than we have ever been, especially in the west. Ironically, it seems rather convenient that the more austere the economy becomes and the more authoritarian the State becomes, the more identity issues and cultural issues are pushed to the foreground, especially in academia and the establishment media. If we stopped “celebrating” our differences and/or fighting over our differences long enough to see our common plight, we just might wake up to the reality that class, economic austerity, and western totalitarianism are among the most pressing issues of our time. Related to these, are issues such as war, interventionist foreign policy, and international sanctions, which are all deployed in the service of the global wealth and power establishment (i.e., Empire).

One of the biggest problems with identity politics is that it can mask how politically and economically disenfranchised we all are – and especially for minorities – by giving token victories and token representation in a rigged and corrupt system. This is especially true in the mainstream media and popular culture as well as in politics – which in places like the U.S. is beginning to look more and more like pop culture – where token representation for women and people of colour plays into the the distract, divide, and conquer agenda of the establishment. For instance, having more women and more people of colour in government jobs or in the media does little to address the larger issue of the inequalities of wealth and power. And I say this as a female person of colour.

One of the biggest problems with identity politics is that it can mask how politically and economically disenfranchised we all are – and especially for minorities – by giving token victories and token representation in a rigged and corrupt system.

What’s more, the endless “identity choices” we presently have – such as the ever-increasing number of gender choices – can hide, and distract us from, the lack of political and economic choice in contemporary society. For instance, in the United States, there is very little authentic political choice or variety given that the two overwhelmingly dominant political parties increasingly adhere to the same neo-liberal/neo-con political, economic, and foreign policy agenda. In reality, identity liberalism may even protect and excuse the perpetrators and/or perpetuators of this agenda by making heroes and saints out of minority politicians simply because they happen to be a member of a minority group. A prime example is the former Obama administration in the U.S. In his first term as president, Barack Obama and his Secretary of State, Hillary Clinton, continued the war mongering, imperial agenda of the Bush administration but received far less criticism and public outcry – especially from liberals and progressives – for it.

And during the 2016 presidential elections many in the identity liberalism camp insisted that Clinton should win simply because she is a woman. This type of identity reasoning is wholly irrational, apolitical and very dangerous. It divorces the political actions and crimes from the person in question and looks only at their identity. The “logic” is that having a female president will aid the cause and rights of women in the U.S. But what about the rights of the scores of women Hillary has helped to kill via murderous U.S. foreign policy; a policy that claims to “humanitarianly intervene”7 on behalf of people in some countries while completing ignoring or helping to create the humanitarian crisis in others countries (such as the U.S.-backed Saudi offensive against the people of Yemen or in the case of Palestine)? And that’s not to even mention how little Hillary did for the plight of American women during her tenure in politics. There were no policies or initiatives to create a paid maternal leave program, or to provide affordable childcare to working mothers, or help lift single mothers out of poverty. And Obama did even less for everyday African Americans. Where were his initiatives to create jobs for African Americans or reduce the poverty rates in black communities or address the overwhelming presence of drugs in these communities? Ironically, the same politicians that play the identity card do, and care, very little for the members of their particular identity or minority group once in power.

In closing, not only is identity politics or identity liberalism an inconvenient agenda for addressing minority issues, it may be an obstacle to it. Minorities are among the most economically disenfranchised in society, and one cannot begin to address “minority issues” without also critically examining the broader politic-economic factors at play at the present juncture. Indeed, the apolitical manner in which identity politics functions, and its refusal to address class and economic crisis, serves as a convenient diversion and distraction from the larger issues that presently plague minorities and non-minorities alike. These issues are linked to the inequalities of wealth and power and cannot be properly addressed without a broader analysis of class and the growing economic and social devastation wrought by globalisation and Empire. Without this level of analysis, identity politics can offer little more than token victories while feeding into the divide and conquer the agenda of the global establishment.

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About the Author

Ghada Chehade is an independent socio-political analyst, writer and performance poet. Her doctoral research won the Award for Best Dissertation from the Canadian Association for the Study of Discourse and Writing (CASDW). She is a contributor on globalesearch.ca. Her emerging areas of interest deal with alternative scientific theories. She blogs at https://soapbox-blog.com.

 

References

1. Berthoud, R. (2002). “Poverty and prosperity among Britain’s ethnic minorities.” Benefits, Volume 10, Number 1, 1 February 2002, pp. 3-8(6)

2. Best, S. & D. Kellner. “Postmodern Politics and the Battle For the Future” http://www.uta.edu/huma/illuminations/kell28.htm [11/07/04]

3. Petras, J. (1997/1998). “A Marxist Critique of Post-Marxists” Links no 9.

4. Smith, D. (2011). “Rich Nations, Poor People: The Cause For Rising Poverty In The Western World.”https://www.economywatch.com/economy-business-and-finance-news/rich-nations-poor-people.23-11.html?page=full

5. Chehade, G. (March 2017). “Economic Globalization: Global Integration or Exploitation of Global Disparity?” The Global Analyst, Volume 6, Issue 3, pp. 22-25

6. I use the terms identity politics and identity liberalism interchangeably

7. This is a practice referred to as humanitarian imperialism. See Bricmont, J. (2006). Humanitarian imperialism: Using human rights to sell war. New York, NY: Monthly Review Press.

Helsinki – Trump and Putin – a Showdown for Summer Doldrums or a Genuine Attempt Towards Peace?

By Peter Koenig

The Helsinki Summit – or the Treason Summit, as some call it – of the 16th of July, has come and gone. It left a smell of burning hot air behind.

President Trump, opened the meeting by saying that up to now relations between the United States and Russia were bad, and confessing that the US was to blame for it. He wanted them to improve and hoped that this meeting – he indicated that others of similar nature may follow – may be a first step towards normalizing relations between the two atomic super-powers which together, he said, control 90% of the world’s nuclear destructive force. A timely admission, but ignoring the most dangerous and unpredictable atomic power, the rogue nation of Israel.

President Trump, opened the meeting by saying that up to now relations between the United States and Russia were bad, and confessing that the US was to blame for it.

If ever the promising dream-like sounds of Donald Trump of denuclearizing the globe were to see the light of day, Israel would have to be among the first countries to be de-nuclearized – which would be a real step towards world security and peace in the Middle East.

During the later Press Conference, Trump though voicing his appreciation for the ‘fine’ secret services of his country, he admitted that he trusted more Putin’s word on Russia’s non-interference than that of his secret service, “why would they interfere?”, for which he was trashed at home by his adversaries, the MSM, the democrats and even the Republicans. Now, back home, Trump has to accommodate the public, telling them he mispronounced ‘would’; he really meant “wouldn’t”… a first rate spectacle of idiocy that, surely, after a while will go away, as everything does that has no solution, but gambles with dishonesty.

There is no winning in the indoctrinated and brainwashed to the bones American public. It couldn’t be more obvious, how the media are rallying the American people for war with Russia. The greedy military needs war – and the economy of the US of A also needs war to boost her GDP, or rather for sheer economic survival. The topic of Russian interference in the 2016 Presidential Elections, will just not be dropped. After a zillion of proven false accusations, in a reasonable world it would fade away. Not in the US. It is a clear sign of the decline of the empire. It’s the desperate hopelessness of the naked emperor that speaks.

The greedy military needs war – and the economy of the US of A also needs war to boost her GDP, or rather for sheer economic survival

So, they call Trump treacherous towards his country – a President who dares saying the truth publicly is called by the slimy Democrats and the yet slimier Republicans – and foremost by the mainstream media – a case for impeachment.

There is an internal battle raging in the United States. It pulls the country apart. It’s the want of making America Great Again, by concentrating on internal production for local markets, versus the globalized aspirations – the drive for a dollar world hegemony and the full and total subjugation of the peoples and their resources of this globe. The latter will not be possible without an all-out war – and the elite doesn’t really want to live underground perhaps for years in protection of a nuclear fallout nobody knows how long it may last. Trump’s handlers are aware of the alternative, ‘building from within’. Is what Trump is propagating, “America First”, the right approach? – Maybe not, but the concept might be right, given the destitute state of the world, where sanctions and trade wars, also initiated by Trump, are creating havoc among former partners.

A regrouping of nations, aiming at self-sufficiency and selective trading partners according to cultural and political similarities might bring back national sovereignties, abolishing the corporate globalized approach that has been doing harm to 90% of the people. WTO, the monster made by the west to further advance corporate power over the weak, should and would become obsolete.

Trump’s contradictions are what defeats his credibility. He admonishes Madame Merkel for being enslaved by Russia for buying Russian gas instead of the US’s environmentally destructive fracking gas. “We put NATO in Europe to protect you from the enemy, Russia, yet you prefer buying Russian gas than dealing with those who protect you”.

It didn’t occur to any of the European NATO halfwits to tell Trump that all that NATO has done so far is destroying countries throughout the Middle East and the world, and that they, the Europeans, have supported the US in their senseless destruction, creating a flood of refugees which now threatens to suffocate Europe. – There was nothing, but nothing about protection by NATO. If anything, NATO was an aggressive force, moving ever closer to Russia and flanking China on the eastern front. None of this was said, though, by the European NATO puppets.

Trump then goes to Helsinki, meets Putin and says he likes him and he wants to be friends and make peace with Russia. – Of course. We all want peace. But who can believe him, when a few days before he accused Germany of playing into the hands of the enemy, Russia?

Remember, a year ago at the G7 summit in Hamburg, Trump was shaking Putin’s hand and said ‘I like him’. At the recent disastrous G7 conference in Canada, which turned out to be a G6+1 summit, before running off to Singapore to meet North Koreas Kim Jong-Un, Trump dropped a little bomb, “why not converting the G7 again to the G8 and include Russia?” – He left the group stunned and speechless. – So, his drive towards improved relations with Russia is nothing new. It’s just not accepted by the warriors in Washington.

The Helsinki summit looked and sounded like a summer show – just to continue the attention deviation maneuvers of the World Cup that ended the day before in Russia. – What’s going on behind the scenes? – It’s one of those hot summers when nobody wants to think, just to be entertained, never mind the farces and lies – like during Roman Empire times – it’s the modernized Colosseum, adopted to the age of cell phones, tablets and micro-chips. The Colosseum is the all-so transparent veil that should shield the world’s eyes from the empire’s auto-destruction.

Today’s gladiators are the peoples of entire countries, continents, slaughtered or made homeless by the millions, by teleguided missiles and bombs, causing the largest migration streams – by far – in modern history; 70 million worldwide and upwards are on the move. Generations without homes, education; generations without a future, drifting across the seas in desperate hope of survival.

Mr. Putin’s words in Helsinki were words of wisdom, propagating peace as a good thing and dismissing Russian interference in the American elections. Not even discussing the re-inclusion of Crimea. Period. He could have mentioned, instead, the hundreds of elections and regime changes that Washington initiated, manipulated and manufactured around the globe within the last 70 years alone, but he didn’t. Wise man; non-aggression. It is obvious, the “muttonized” world of Americans and European vassals don’t even think that far anymore. For them it’s natural that the ‘exceptional nation’ does what she wants with impunity – but the same rights wouldn’t apply to others.

President Putin handed Trump a list of steps and actions to consider to embark on a denuclearization process. Trump and those of the deep state elite who’s love for life is too great to risk a nuclear war, may just take advantage and do something about it.

The enigma Trump is perfect for the Deep Dark state – he is a roller-coaster of confusion and contradictions. To the NATO members, at the recent Brussels NATO summit, he ordered “pay up, or else’’ – which could mean, or we pull out of NATO. Though that is the desire of a large majority of Europeans, for Trump it’s a contradiction, as he pretends that NATO is supposed to defend Europe against her arch-enemy, Russia. But, then, in turn, Mr. Trump moves on, courting this very “arch-enemy’’, by responding to the peace bells Mr. Putin has been offering ever since he came to power, never a negative word against Washington, calmly calling the demonizers ‘our partners’.

Confused people can easily be taken off-guard and manipulated.

Who knows what the real agenda of the Trump handlers has in store. Trump’s bold statements on the side of President Putin, will make his demonization at home easier. Though the people at large clearly want peaceful relations between the two nations; everybody fears war, but they will continue to be indoctrinated by the CNN-NBC-BBC’s of this world. Let’s face it, after the collapse of the Soviet Union, there was and is no reason to make Putin and Russia America’s enemy. But Putin’s assertiveness in bringing Russia to the fore and onto the world stage again, was a good reason to upset the self-appointed Uni-Power, US of A.

Though the people at large clearly want peaceful relations between the two nations; everybody fears war, but they will continue to be indoctrinated by the CNN-NBC-BBC’s of this world.

The US super-power lives of wars, and this lifestyle requires enemies. Russia and China are ideal, as they control huge land masses with almost unlimited natural resources. They have done nothing of what the mainstream accuses them of. And if the President of the United States annuls the key enemy, turning him from foe to friend, such a President becomes a liability for the swamp of Washington – a liability, indeed – “or else”.

Featured Image:Vladimir Putin and Donald Trump shook hands in Helsinki by Wikimedia Commons 

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About the Author

Peter Koenig is an economist and geopolitical analyst. He is also a water resources and environmental specialist. He worked for over 30 years with the World Bank and the World Health Organization around the world in the fields of environment and water. He lectures at universities in the US, Europe and South America. He writes regularly for Global Research; ICH; RT; Sputnik; PressTV; The 21st Century; TeleSUR; The Vineyard of The Saker Blog; and other internet sites. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe. He is also a co-author of The World Order and Revolution! – Essays from the Resistance.

How International Observers Undervalue the Chinese Bond Market

Three-dimensional synthetic works, China's economic and financial stock market

By Dan Steinbock    

Criticism is typical of vibrant international media. Yet, prejudiced biases in financial matters have the potential to harm investors worldwide. The Chinese bond market is a case in point.

 

Not only is China’s bond market growing explosively, but it has become diversified and provides broad investment options to both Chinese and foreign investors.

However, should you believe the hype, China’s bond era is about to “go through a rough patch” (CNBC), will be “tested by rising defaults” (Bloomberg) and may have “more defaults” in the future (Wall Street Journal). While China bulls might accuse such coverage of being excessive “glass is half empty” reporting, a more substantial problem haunts these briefings.

Essentially, such reports tend to assess the financial future of large emerging economies, which have relatively high growth rates but low living standards, with the same benchmarks as major advanced economies, which are amid secular stagnation but have high living standards.

As a result, such reports systematically undervalue financial futures in emerging economies, while overvaluing those in advanced economies. That’s misleading to investors at a historical moment of transition when financial might is following economic power toward emerging economies.

Low foreign participation as an investment opportunity

Rather than a great one-time opportunity for foreign investors, the low share of these investors in China’s bond market is often portrayed as a major liability. This is then explained by a higher number of corporate bond defaults, a weaker yuan versus the U.S. dollar or technical issues with the bond program that hinder foreign participation.

Here are the realities: not only is China the world’s second largest economy today, but China also has the world’s third-largest bond market, which was valued at about $12 trillion in year-end 2017. Currently, foreign investors own only 1.6% of the total market. That is not a problem, but an investment opportunity, however.

Here’s why: Since the early 1990s, the Chinese bond market has achieved an annualized average growth rate of almost 40%. Just as Chinese industrialization took off in the late 20th century and accelerated in the early 21st century, China’s financial sector is following in these footprints, but with a time lag.

In the West, that may seem like a delay, but let’s put this in context. In the U.S., the Treasury bond market was created as part of the funding plans for World War I. In other words, it took almost 140 years of independence to create the first bond markets in America. In China, the bond market was created in the early ‘90s; barely 40 years after China’s independence – that is, more than three times faster than in the U.S.

Here are the realities: not only is China the world’s second largest economy today, but China also has the world’s third-largest bond market.

It is the historical pace and structural importance of the Chinese bond market to ordinary Chinese and Beijing’s central government that should make it attractive to international investors as well. Here’s why: After four decades of the most rapid catch-up in world history, Chinese per capita incomes, adjusted to purchasing power, are today on average about $18,100; or 30% of those in the U.S. In America, multiple generations have contributed to the bond market; in China, barely one.

Due to the lower prosperity levels of individual Chinese and Beijing’s national growth plan, the Chinese bond market is a priority for the well-being of Chinese families and for Beijing’s economic welfare plans – a priority that now can benefit foreign investors as well.

 

China’s impending financial expansion               

In the past four decades, China’s economy has grown almost six-fold to more than 12% of the global economy. In the future, that share will continue to expand, as evidenced by the Chinese contribution to global growth, which has been around 30% since the 2008 global crisis. This is about 2.5 times more than its current share of the global GDP.

Relative to its rising economic importance, China’s role in the global financial market was limited until the early 2000s. Financial reforms started with pilot programs a decade ago and have dramatically accelerated, along with the internationalization of the renminbi. At the same time, sovereign paper, which dominated the bond market until the late 2000s, has been augmented by corporate bond issuance, particularly after the global crisis.

Not only is China’s bond market growing explosively, but it has become diversified, which provides broad investment options to both Chinese and foreign investors. Today, it comprises an expansive mix of sovereign, quasi-sovereign (policy banks), sub-government (municipal and state-owned enterprises, SOEs) and corporate bonds.

Not only is China’s bond market growing explosively, but it has become diversified, which provides broad investment options to both Chinese and foreign investors.

The rapid growth of the Chinese bond market is not likely to be exhausted any time soon. By 2020, China is likely to catch up with Japan as the second-largest bond market in the world. But the Chinese bond market has much more space to grow: relative to the $12 trillion economy, the bond market is less than 100% of China’s GDP. This ratio is far smaller than those in major economies. In the U.S., that ratio is closer to 200%. Moreover, China’s population base is more than four times larger than that of the U.S.

 

Caveats less valid today

Media caveats about China’s bond market focus largely on short-term forces and thus tends to neglect the long-term opportunities, while reflecting dated realities.

After fast appreciation earlier in the decade, a mix of RMB depreciation and rising onshore interest rates did alienate international interest in China bonds, especially after the 2015 correction. However, the fundamentals have changed.

First of all, the RMB trends have largely reversed and stabilized. Second, onshore interest rates are likely to remain around 3.5 – 4% in 2018. Third, the medium-term outlook of the RMB relies in part on China’s impending financial reforms, which are seen as critical to government policies, the middle class and to combat aging demographics. Fourth, the international landscape is signaling constraints of financial developments in advanced economies, due to secular stagnation, aging demographics, lingering growth and productivity. Fifth, trade wars may penalize global growth prospects but are also likely to speed up Chinese financial reforms, which will ensure easier access to the Chinese market for foreign investors.

Finally, while cases of defaults and downgrades in the Chinese bond market have increased in recent years, these have remained under the control of the government, particularly regarding the state-owned enterprises (SOE) and local government subsidiaries (e.g. local government financing vehicles, LGFVs) – which only a decade ago were often portrayed as fatal to China’s economy by a slate of “China crash” theorists.

The Chinese government may even have used some defaults as “demonstration effects” to signal the need for greater budget and market discipline, while the campaign against corruption has enhanced regulators’ grip over potential credit events in the future.

As the gap between media perceptions and investor realities has broadened, many investors have opted to ignore media reports that downplay opportunities, as evidenced by June data suggesting that overseas investors are pouring funds into China’s domestic bonds at record pace, despite what media portray as the “yuan’s jitters.”

 

Chinese bond market’s international takeoff

The future of Chinese bond market expansion is likely to mimic that of China’s role in the IMF’s reserve currency basket (SDR), which is today 11%. That’s less than that of the U.S. dollar (42%) and the Euro (31%), but more than the Japanese yen (8%) and the UK pound (8%).

Private-sector investors – pension funds, insurance companies and asset managers – remain largely underrepresented.

For all practical purposes, the Chinese bond market is likely to emulate the SDR allocations, which would imply that foreign participation has the potential to grow at least six-fold. Unsurprisingly, central banks and sovereign-wealth funds were the first to participate in RMB following its inclusion in the IMF’s SDR basket.

In contrast, private-sector investors – pension funds, insurance companies and asset managers – remain largely underrepresented. Yet, in the past few years, the likelihood of their entry has been boosted by a number of highly-regarded global index operators that have incorporated Chinese assets into their index space, including the IMF (SDR for global reserve currencies), MSCI (global equities) and Bloomberg-Barclays (BBGAI for global bonds).

It is the critical moments of historical transition— such as the coming explosion of the Chinese bond market as a part of the global bond market— that highlight the importance of unbiased financial observers, investment analysts and the international media.

Unfortunately, it is also such historical moments that are increasingly exploited by those Western geopolitical interests that try to sustain entrenched interests that may no longer be warranted. Such efforts seek to downplay and subdue dramatic changes in the international economic and financial landscape – but at the expense of retail investors, and even institutions, in the major advanced economies, particularly the United States.

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About the Author

Dr. Dan Steinbock is the founder of Difference Group and has served as research director of international business at the India, China and America Institute (US) and a visiting fellow at the Shanghai Institute for International Studies (China) and the EU Center (Singapore). For more, see http://www.differencegroup.net/

The original commentary was released by China-US Focus on July 12, 2018.

The European Divorce: How will Brexit Affect People on Both Sides?

The Brexit is one of the most highly contested political events of our time. It is fraught with difficulty, confusion, and uncertainty. When Britons voted to leave the European Union on June 23, 2016, talking heads and political pundits were convinced that the vote would be a resounding no. Instead, what transpired was an historic vote to leave the European Union by a margin of 51.9% to 48.1%. 17,410,742 votes in favour of a Brexit meant that the 16,141,241 votes opposed to a Brexit were saddled with an economic and political quagmire.

According to the results of that decision some 2 years ago, 46.6% of England voted to remain and 53.4% voted to leave. 55.8% of Northern Ireland voted to remain and 44.2% voted to leave. In Scotland, 62% of voters wanted to remain in the EU and 38% wanted to leave. In Wales, 47.5% voted to remain and 52.5% voted to leave. The vote itself was one thing, and there was mass hysteria stirred up on both sides of this prickly affair. The Pro-Brexit camp championed by the Tories got their way, but it didn’t take long before the complexities of a Brexit brought the chickens home to roost.

 

What issues are making a Brexit for Britain difficult?

EU talks with the UK have been hamstrung by several major obstacles, including what the UK is expected to pay for the right to leave the EU. This is known as the divorce bill, and it covers the UK spending commitments to the EU. Multiple aspects need to be factored in, including scientific research costs, current contracts, and the pensions for government workers across the EU. Fortunately for these bureaucrats, the United Kingdom has vowed to meet these commitments. Other issues include trade and tariffs, given that the European Union is the biggest trading partner of the United Kingdom. Bilateral agreements between these two economic power blocs need to be safely in place to ensure that fair trade takes place.

The rights of migrants in Britain and the European Union need to be factored into the equation. The Republic of Ireland has seen a slew of passport applications in recent months from people in the UK. Since they are scared to lose their EU membership, they are looking to secure Irish citizenship and the coveted passport. Border controls are another issue that are threatening to derail the current Brexit talks. Given that the United Kingdom and the Republic of Ireland are effectively the UK and the EU, the border with Northern Ireland is an important consideration vis-à-vis the single market. If Scottish voters decide to leave Britain this could further complicate matters.

 

How will international money transfers be affected by the Brexit?

Prior to the Brexit decision, companies operating in the United Kingdom and in the European Union had passporting rights to offer their services to customers in the single economic bloc. Put simply, this means that financial entities like banks, insurance companies, investment brokerages and the like had no foibles regarding transferring funds abroad. The Brexit threatens to derail the smooth processing of international payments transfers. The strength of the euro and sterling are dependent upon economic stability at home. If there is uncertainty in the UK, this means that £1 will buy fewer €1 as weakness persists. This does not bode well for UK citizens wanting to invest funds abroad at a later stage.

On the flip side, EU citizens will likely be pleased with a weaker GBP since this means that they can get more bang for their buck when they convert euros into sterling. The red tape that will likely accompany international bank transfers will add on to the costs of these international money transfers. As such, people on both sides of the equation are looking to fintech companies and non-bank entities to transfer funds. There is a growing sense of urgency among many folks in the UK to send money abroad before sterling depreciates. One of the better performing European countries is France, with the newly elected Emmanuel Macron.

Thanks to these non-bank companies, it is relatively easy to process, UK to France money transfers and safeguard the buying power of GBP now by converting it into EUR. These investments typically take the form of real estate and stock holdings. There are many advantages of shifting assets from the UK to France, including the extensive transportation network which is highly cost-effective in France. Other options include an efficient schooling schedule, and the highest number of paid vacation days in the world with a week off for every 7 weeks worked. For these and many other reasons, France is a highly prized destination for many Britons fearing the worst from a Brexit. Of course, there are some downsides such as a high VAT at 19% and a housing tax of 0.2%. Regardless, those with the money now are looking to shift it abroad at the best rates before the sterling devalues post 2019.

Dr Steinbock Update: Mexico’s Historical Election and Obrador’s Triumph

By Dan Steinbock                                                                        

For decades, the specter of Andrés Manuel López Obrador has haunted Mexico’s ruling elites. After July 1, his coalition triumph – after years of contested elections – could change the country’s domestic, regional, even international policies.

 

For a year or two, international media touted the neoliberal reforms of President Enrique Peña Nieto. However, as the “reform” narrative has proved hollow, Nieto’s approval rating has plunged from almost 50 percent to barely 10 percent. So the media narrative has been revised it by downplaying Nieto but focusing on the flawed portrayal of Obrador as Mexico’s Chávez who will undermine Mexico’s future.

Perhaps that’s why the Economist portrayed Obrador as “Mexico’s answer to Donald Trump” whose “nationalist populism” offers “many reasons to worry about Mexico’s most likely next president.” Similarly, U.S.-based economic hit men and political risk groups, including Ian Bremmer’s Eurasia Group, have framed Obrador’s popular front as a “significant market risk.”

With few variations, the same narrative has been replicated in leading US dailies (Washington Post, New York Times), weeklies (Time and Newsweek), and the UK-based Financial Times. Theirs is a story about the “firebrand leftist” whose biography is “replete with danger signals.”

What these ideological briefings will not report is that Obrador is neither an overnight phenomenon nor Trump-induced collateral damage. In reality, Obrador’s movement is a belated triumph for Mexico’s popular will, after decades of electoral fraud.

 

Change is coming

In the past six years, Nieto’s administration has sold Mexico’s public assets to foreign bidders and opened financial markets to speculation, while accommodating loyally Washington’s policies. At the same time, corruption, crime, narco-violence and rising murder rates have soared. While neoliberal elites portray the past decade as that of rising competitiveness, market realities prove otherwise. Mexico’s real GDP growth has fallen significantly behind its BRIC potential during the years of Calderon (2006-12) and Nieto (2012-18) (see Figure below).

But change may be at the door, finally. Obrador’s coalition “Juntos Haremos Historia” (Together We’ll Make History) rests on popular will, not on the needs of the oligarchic economic and political elite, or what Obrador calls the “power mafia.”

Sectorally, he is pushing for the rejuvenation of the agricultural sector. In particular, he would like to develop the agricultural economy of Southern Mexico, which has been hurt by cheap (and tacitly subsidized) U.S. food imports. In contrast to Nieto’s “energy reform” – which ended Pemex’s monopoly in the oil industry and brought foreign investors to Mexican energy markets – Obrador wants a popular referendum over the energy sector, knowing well that many Mexicans oppose are highly skeptical about the sale of national assets to foreign speculators.

 

Figure Real GDP Growth vs BRIC Potential, 2005-E2020*

After Trump’s inauguration, Obrador published a best-selling book called Oye, Trump, in which he takes a critical look at the American “Caligura on Twitter.” While he is politically too shrewd to challenge Trump head on, he is not an appeaser like Nieto. And unlike Nieto, Obrador also had no hurry to conclude the Trump talks about the North American Free Trade Agreement (NAFTA). Through the election campaigns, he supported the delay of the renegotiations of NAFTA until the elections, to have a say in the final outcome.

Obrador seeks increased spending for welfare, which should be a central political objective in a large emerging economy. He is also a strong proponent of cutting the salaries of the political elite to avoid penalizing ordinary Mexicans. He is willing to walk the talk: he has cut his own public-service salary, several times.

Instead of pushing elite educational objectives, Obrador seeks educational reforms through universal access to public colleges and proposes increases in financial aid to students and the elderly.

Obrador seeks increased spending for welfare, which should be a central political objective in a large emerging economy.

Like President Duterte in the Philippines, Obrador, having served in both Tabasco and as mayor of Mexico City, knows only too well how the ruling elite operates in the imperial metropolis. As a result, he is strongly for the decentralization of the executive cabinet by moving secretaries from the capital to the states – closer to the people that they should serve, further from the lobbies they tend to collude with.

In contrast to ‘law and order’ candidates that in the past have colluded with the drug kingpins, he wants to restore law and order and thus peace and stability, in order to focus on economic development. He might even seek to negotiate an amnesty for the key narco criminals.

Obrador’s platform reflects popular will. That’s why it has been marginalized by the oligarchic elites for decades – even with electoral fraud.

 

Decades of electoral fraud

Born in 1953, Andrés Manuel López Obrador, often abbreviated as AMLO, is everything but a new force or overnight phenomenon in Mexican politics. Starting his career in 1976 in the then-dominant Institutional Revolutionary Party (PRI) in Tabasco, on the Gulf of Mexico, he soon became the party’s state leader. In this capacity, Obrador saw intimately how PRI’s longstanding political monopoly began to crumble as domestic elites and foreign interests paved the way to Carlos Salinas’s presidency (1988-94).

Following a highly controversial electoral process and reported electoral fraud, Salinas who had been groomed at elite US universities, subjected Mexico to neoliberal reforms, which led to years of economic rollercoaster climaxing with the NAFTA. As a series of other presidents ensued – from Zedillo and Fox to Felipe Calderón and Enrique Peña Nieto – they all promised economic reforms, war against drugs and a better future. Yet, each, despite different parties, shared a common denominator: neoliberal economic policies – which were predicated on the continued embrace of NAFTA, the expansion of cartels, and bandwagoning of US policies.

Those were never Obrador’s political objectives. He resigned from PRI years before NAFTA and joined the Party of the Democratic Revolution (PRD), a social-democratic coalition that was formed after the contested election of 1988. Although early results suggested a clear win to Cuauhtemoc Cárdenas, the corrupt Salinas was declared the new president.

While he is politically too shrewd to challenge Trump head on, he is not an appeaser like Nieto.

In the 1990s, Obrador succeeded Cárdenas. In 1994, he run for Tabasco’s governor but lost to the PRI’s candidate. After the election, a supporter informed Obrador the PRI had spent $95 million dollars on an election in which half a million people voted. In 2000, Obrador became Mexico City’s mayor. After more national exposure, he entered the 2006 presidential election, representing a PRD-led coalition of center-left parties. Obrador’s ‘Coalition for the Good of All’ appeared to be winning until he was declared to have lost by 0.58 percent. That led to a massive, takeover of Paseo de la Reforma and the Zocalo in Mexico City, where protests endured for months.

In the 2012 election, Obrador again represented a coalition of PRD and various labor and citizen movements. However, Peña Nieto’s domestic and foreign supporters took a more proactive stance against Obrador’s popular movement. Despite mass popular opposition to Nieto’s perceived “corruption, tyranny and authoritarianism,” printed and televised media, particularly the pro-Nieto Televisa, downplayed or left unreported much of the criticism. A few years later, Bloomberg discovered that hired Colombian hackers had been paid hundreds of thousands of dollars by Nieto’s PRI to undermine his adversaries and manipulate social media. The election was contested, but despite post-electoral protests, claims of fraud, and Obrador’s formal request to invalidate the election, popular will was discounted – once again.

So Obrador left the PRD and founded the National Regeneration Movement (MORENA) creating his current coalition “Juntos Haremos Historia.” He concluded that to win in Mexico, an alternative candidate needs a broader popular front. So he tailored his platform accordingly. As a result, this time around, his pre-election ratings were almost twice as high as his closest rivals.

While Obrador’s success has been augmented by Trump’s protectionism and immigration phobias, his electoral success in 2018 is the direct result of personal integrity and political resilience.

 

Toward sovereign Mexico

As Mexicans elected new president until 2024, they also elected 128 members of the Senate for six years and 500 members of the Chamber of Deputies for three years.

If Mexico opts for a new direction, the consequences will be historical in domestically, regionally, even internationally. Not only the White House, but Mexicans may well review the role of NAFTA. Moreover, the drug trade that is maintained by mainly U.S. demand will be under new scrutiny as well. It is time; the cartel violence has taken the lives of more than 200,000 Mexicans.

With more than 122 million people, Mexico is the world’s 15th largest economy and its 11th most populous democracy; a large, emerging economy that could morph into one of the leading global economies by 2050. To win the future, one has to know where one comes from. Having written half a dozen books about Mexico’s history, Obrador is acutely aware of his country’s past, and the territories that were lost following U.S. interventions in the 19th century.

If Mexico opts for a new direction, the consequences will be historical in domestically, regionally, even internationally. 

Unlike his modern-day elite peers, Obrador’s political idols reflect Mexico’s decades of industrialization and modernization. He has written particularly warmly about Benito Juárez who had poor, rural origins but rose to national power and presidency (1858-72). Juárez won the War of the Reform and beat the French invasion. He was not an ideologue, but smart, pragmatic and – when necessary – ruthless. Despite his charm with the masses, Obrador’s nickname is El Peje, which refers to abasco’s freshwater gar – an ancient fish with an alligator’s face.

Ultimately, Obrador seeks economic development. In his world, “Mexico First” would be a poor match with a global economy. Yet, unlike Nieto and the neoliberals, he does believe that a sovereign Mexico belongs to the Mexican people.

Andres Manuel Lopez Obrador (Photo Credit: Raúl Pérez/ proceso.com)

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About the Author

Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (US), the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net/

 

The original commentary was released by Difference Group on July 1, 2018.

United States Deficits 101

Financial games

By Richard Westra

Beginning in the 1980s the United States transitioned from its position as predominant national economy and workshop of the post-war world to a global economy, dependent on the world for the consumer goods demanded by its populace as tantamount to their “freedom” and for financing of it quadruple deficits, while remaining in the global driver seat due its currency being world money. There are no business-as-usual policy ways out of this morass.

 

In the aftermath of World War II (WWII) the United States (US) salvaged the international capitalist order by rebuilding it around three poles of prosperity. Erstwhile belligerents Germany and Japan were reconstructed through US beneficence as showcase economies for their regions while the US shaped development in the Americas. Yet, by the 1970s, as Germany and Japan surpassed US industrial prowess, their own multinational corporations (MNCs) now prowling world markets, the US economy became a victim of the very success of the international system it helped create.¹

The first casualty was the international monetary system “contracted” among major economies at Bretton Woods. Two key features of this system had potential conflict of interest written all over them. First, the possibility of maintaining exchange rate stability hinged on the exchange rate of all currencies in the post WWII international system being fixed in terms of the US dollar. The dollar exchange rate was then fixed in terms of gold. Only if dollars were accumulated in excess by this or that country would gold ever be brought into the equation and dollars be redeemed for it. Second, the currency of every country, including the US, was issued as “fiat money”. Fiat money, quite simply, is money issued as legal tender by the state or “created” through credit issuance by commercial banks, based not on anything of real value such as gold. Rather it is based on “high powered” money or government debt IOUs held by the central bank. Only on the basis of fiat money could major economies maintain welfare states and regimes of macroeconomic policymaking.

The US economy became a victim of the very success of the international system it helped create.

Much to its chagrin, as US competitiveness waned, international demands increased to exchange accumulating dollar surpluses for gold. In 1971, the US responded by closing the gold window to unilaterally exit Bretton Woods. But US difficulties did not end there. US waning global competitiveness had domestic origins in declining MNC profits and slowed investment that its casting of blame upon allies disguised. Responding to these travails, the US turned to the fiat money pump. This spurred domestic inflation as it weakened the dollar. According to accepted economic norms, declining international competitiveness is reflected in currency devaluation. In the post WWII order, the International Monetary Fund (IMF) was tasked with smoothing balance of payments deficits of the sort that the US economy began to experience from the early 1970s for the first time since 1891! Yet the US was not just another economy here. With the dollar as world money, combating its domestic recession while simultaneously expanding military adventurism abroad exported US inflation across the globe.²

Chimera of Globalization

As global grumblings about replacing the dollar as hub currency reached a crescendo, October 1979 saw US Fed chair Paul Volcker launch his “coup” raising interest rates astronomically.³ For the US, Volcker’s coup changed everything. First, the interest rate hike halted the inflationary spiral. Second, it dramatically appreciated the dollar in world markets. Third, it restored global confidence in the dollar as hub currency. Lastly, as US interest rates spiked, global money flooded into US dollar savings instruments and dollar denominated assets.

However, for the world economy as a whole and working people everywhere the story turns dark. With MNC profitability and global growth in the doldrums a perverse situation arose where interest rates outstripped rates of profit and global growth, impelling global money not only into US dollar denominated instruments but short term speculative opportunities being engineered on Wall Street and its international satellites. Further, not only in the US but globally, because borrowing turned on the US dollar as hub currency, every class of borrower from individuals to businesses, cities and countries found themselves beholden to creditors like never before. In the US, exploding budget deficits from the late 1970s and early 80s destroyed the social consensus over the welfare state and almost brought the US banking system to its knees.4

For the US, Volcker’s coup changed everything.

Hardest hit were the mass of third world states which had sought to build their own manufacturing infrastructure by taking advantage of the low real interest environment US dollar inflation engendered across the 1970s. Plunged into inescapable debt crises, former “miracle” economies like Mexico and Venezuela along with other borrowers around the world found themselves at the mercy of IMF “structural adjustment” programs enforcing neoliberal norms upon them, purging all of whatever pretensions leaders might have harboured to build national industrial economies. Instead, all manner of development institutions and public investment was exorcized while third world countries were compelled to promote “export led growth” that in practice meant allowing foreign MNCs to reorient economies toward mostly mineral and agricultural export for sale to the wealthy world.

Rapid appreciation of the US dollar against other major currencies worked in the US to price its goods out of global markets. If US MNCs had commenced outsourcing in the 1970s accompanied by a measure of attrition against unionized workers, during the 1980s organised labour was zapped as MNCs disintegrated their production systems disarticulating them across the globe. US MNCs by the 1990s reconfigured themselves as “brands” that didn’t actually make anything. Yet the information and technology (ICT) revolution empowered MNC brands to control global value chains (GVCs) through which goods produced in low wage, weak regulatory third world regimes, tenderized by structural adjustment programs, flowed.

From 1986, Japan eclipsed the US as the number one creditor economy in the world, with its foreign asset acquisitions and net creditor position vis-à-vis the global economy expanding into the 21st century.

With the US writhing in the throes of outsourcing convulsions, Japan in the late 1970s and early 1980s restructured its integrated industrial economy around ICT and “lean” production techniques. Japan’s MNCs also transformed their low value added supply systems by fostering a network of small and medium size subcontracting firms across the East and Southeast Asian region. Where Japan’s MNCs did make major foreign direct capital investments was in the US particularly in automobile production and parts supply. China enters the GVC equation at this juncture as its leaders became increasingly enamoured by the dynamic potential of special economic zones (SPZs) which had been operating with success producing for export to global markets from places such as Taiwan and Malaysia. By the mid 1990s Japan’s technology exports to affiliates in Asia, particularly China proliferated. Japan opened a large trade surplus during the 1980s which rose in tandem with a widening US trade deficit. Still believing during the 1980s that it could resurrect its industrial might, the US hit Japan with Plaza Accords that forced a gigantic appreciation of the Japanese yen. However, this did nothing to impact the US trade deficit that continued its meteoric growth. And, from 1986, Japan eclipsed the US as the number one creditor economy in the world, with its foreign asset acquisitions and net creditor position vis-à-vis the global economy expanding into the 21st century.5

Taking the world as a whole, when one looked statistically at what was going on evidence showed a huge increase in manufacturing taking place in East and Southeast Asia, particularly of ICT products. But this phenomenon has little to do with the previous capitalist drives toward fully integrated industrial economies as occurred in 1970s South Korea, for example. Rather, it was characterised by intraregional movements of “intermediate goods” or sub-products. This peculiar trade flow fed high and medium value added parts and components to China which emerged as the assembly hub and final exporter to the US and world at large. Economies in the region including South Korea witnessed significant jumps in their export dependency ratios. The result of this seismic shift in global manufacturing GVCs was the perverse international “imbalance” where the US represented over half of total global current account deficits with China accounting for almost a quarter of total global current account surpluses along with a third of the US trade deficit by 2007, while the share of the US deficit held by Japan and other Asian exporters ultimately fell.6

 

United States Transition to a Global Economy  

At the time of the Volcker coup, US policymakers and their ruling class masters certainly had no grand scheme in mind beyond quashing inflation and maintaining global status of the dollar. However, over the course of the 1980s, and certainly by the 1990s, US policymakers came to understand that even if the US abdicated its manufacturing economy, power of the US dollar as world money, anchored in nothing more than government IOUs would serve ruling class interests with a vengeance. The key question was then how such an excrescence might be brought about?

Processes euphemised as globalization where global production is broken down into GVCs which run through Asia, with China as the final assembly hub, was the initial play. Of course, there had to be something in this for advanced economy MNCs. This was concentrating on their “core competencies” such as design, intellectual property, finance, R&D and marketing. Remember, only a few percent of total value of an iPhone, for example, accrues to manufacturing in China. And, to add icing to the cake, MNCs showed spectacular profitability rises with financial gamesmanship buying and selling their own stock. Beaten down third world countries picked up the agricultural and minerals supply slack to advanced economies, much of this processed and marketed by major global MNC brands.7

But for the US, with a bloating trade deficit, swelling government budget deficits due to “supply-side” tax cuts for businesses and the wealthy plus unending US military escapades, this coupled with plummeting national savings due to the fact that working people were forced into debt just to make ends meet, the money had to come from somewhere!

In short, globalization in many ways is really just a sexed up term for the US becoming a global economy dependent upon a world economy it has spent decades remaking.

Step one, for the US, was to use the carrot of its stratospheric interest rates following the Volcker coup and stick of its power in the global economy to compel advanced economy allies to deregulate and liberalize their financial sectors. By 1986 that was largely completed. Wall Street thus became the vortex through which global finance ebbed and flowed. De facto deregulation and liberalization had already been forced upon the third world as a condition of debt relief and access to global credit. Given the predominant position of Wall Street and its international satellites, the short term, speculative casino orientation of Wall Street acted as a surreptitious industrial policy for the world ensuring that MNCs managing GVCs and countries hosting them no longer strived to resurrect integrated industrial economies without suffering the costs of delinking from the global economy shaped by US dollar power.

Step two for the US was to ensure that its dollar and dollar denominated assets never ever fall out of favor. Part of the answer here entails global “dollarisation”. With the dollar as world money states must either sell more than they buy to accumulate dollar surpluses. Or they have to borrow dollars to buy. Another part stems from volatility a global monetary of liberalised financial systems, unanchored currencies and financial activity oriented toward speculation, manifests. Countries are forced to hold US dollars as a significant component of their national reserves to battle back speculative attacks on their currencies. It is this latter point that drew China into the game outpacing even Japan in the purchase of US Treasury IOUs and holding of US dollar reserves. In fact, using the net international investment position (NIIP) which calculates a ratio of global external assets vs. liabilities as a metric to assess what is going on here, by the mid 1990s Japan’s positive balance was a near mirror image of the US negative balance. At the end of the first decade of the 21st century, the mirror image to US negative NIIP was furnished by a combination of Japan’s and China’s positive NIIP.8

The upshot of this is that the US is able to hold the world’s largest gross national debt. And notwithstanding its trade deficit, current account deficit, capital account deficit and savings rate deficit, with the dollar as world money remain as firmly in the global driver seat as it was after WWII when it was workshop of the world. With the dollar as world money the US gains an automatic borrowing mechanism giving it the global policy autonomy. Due to the US current account deficit being essentially financed by savings of the world US government spending on global military domination and other priorities can expand without “crowding out” private sector borrowing. Though the US savings rate has veered to naught borrowing in the US exercises little pressure on interest rates which easily been manipulated to zero. In the end, the US spends well in excess of its domestic savings plus government tax revenues without engendering price inflation.

In short, globalization in many ways is really just a sexed up term for the US becoming a global economy dependent upon a world economy it has spent decades remaking. There is no simple policy exit from this for the US or those countries whose ruling classes bought into it.

Featured Image: Financial games concept by Amankris

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About the Author

Richard Westra is Designated Professor in the Graduate School of Law, Nagoya University Japan. His recent books include Socialism in the 21st Century, Unleashing Usury, and Exit from Globalization.

 

References:

  1. A. Saad-Filho, “Monetary Policy in the Neo-liberal Transition: A Political Economy Critique of Keynesianism, Monetarism and Inflation Targeting” in R. Albritton, B. Jessop and R. Westra (eds.) Political Economy and Global Capitalism: The 21st Century, Present and Future (London: Anthem, 2007) p 93.
  2. E. Altvater and K. Hubner, “The End of the U.S. American Empire?” in W. Vath (ed.) Political Regulation in the Great Crisis (Berlin: Sigma, 1989)
  3. G. Dumenil and D. Levy, Capital Resurgent: The Roots of the Neoliberal Revolution (Cambridge, Mass: Harvard University Press, 2004) p. 69.
  4. Altvater and Hubner, “The End of the U.S. American Empire?”
  5. Richard Westra, The Evil Axis of Finance: The US-Japan-China Stranglehold on the Global Future (Atlanta: Clarity, 2012).
  6. M. Hart-Landsberg, Capitalist Globalization: Consequences, Resistance, and Alternatives (New York: Monthly Review Press, 2013) pp. 31-9.
  7. W. Milberg and D. Winkler, Outsourcing Economics: Global Value Chains in Capitalist Development (Cambridge: Cambridge University Press, 2013).
  8. Westra, The Evil Axis of Finance, p. 166.

Trump’s Tariffs Undermining America’s Economic Future

China and US on trading

By Dan Steinbock

As President Trump is again suspending the opportunity for trade compromise, new US tariffs are not only alienating US allies and partners but undermining America’s own future prospects.

 

On Monday, US President Donald Trump threatened to impose a new 10 percent tariff on $200 billion of Chinese goods. That will not only re-escalate the trade war with China but contribute to new risks of collateral damage to the US economy.

And make no mistake: While China is the first target; the next ones will include some of the largest trading economies in Europe, East Asia and Americas.

 

US tech giants will not be immune

US semiconductor chipmakers, including as Intel and Qualcomm, generate $15 billion each in annual revenue in China. The two are amid a great unease as US government is considering tariffs on chips imported from China, which has a critical place in their supply chains.

Due to increasing global interdependency, US unilateral moves are undermining the profitability and future prospects of not just US and Chinese companies, but other companies that are held up by the trade war. While Qualcomm needs China’s approval for its $44 billion buy of NXP Semiconductors, the latter is linked with US relief for Chinese telecom giant ZTE, which Trump supports but US Congress may oppose. That means uncertainty to the Dutch NXP’s workers, suppliers and buyers.

Due to increasing global interdependency, US unilateral moves are undermining the profitability and future prospects of not just US and Chinese companies, but other companies that are held up by the trade war.

The leading global technology companies have an estimated $100-150 billion at stake in the US-China trade war.

For Apple and Intel, China accounts almost a fourth of revenues (read: $45 billion and $15 billion, respectively). In Broadcom and Microsoft each, a tenth of revenues ($9-$10 billion in each) come from China. After Google shut down its Chinese search engine in 2010, it has dreamed about a return. In turn, Facebook’s CEO Mark Zuckerberg hopes to launch his site in the mainland. Trump’s message to both is: Dream on.

The greater is the Chinese segment in US multinationals’ revenues, the greater headwinds they now expect. Boeing’s shares are down, as the US giant seeks for a cut in the $1.1 trillion that China will spend in the next 20 years to buy new airplanes. After all, Beijing could also purchase its planes from France.

How the trade wars will hurt America

The new Trump tariffs threaten to increase barriers to Chinese markets, while alienating Chinese consumers from US products and services, thus penalizing US export potential, investment projects and low-cost advantages.

Without a compromise, US businesses may lose $70 billion in energy, agriculture and manufacturing that China has offered to purchase, if the Trump administration will suspend tariffs on Chinese products. The energy story alone is alarming. When Washington in 2015 lifted its 40-year export ban for crude oil, China’s imports of US crude soared to 450,000 barrels a day. It is now one of the largest US markets. But as Trump tariffs will result in proportionate Chinese retaliation, those profits could dissipate.

Without a compromise, US businesses may lose $70 billion in energy, agriculture and manufacturing that China has offered to purchase, if the Trump administration will suspend tariffs on Chinese products.

In 2017, US exports to China soared to $130 billion. In the absence of a trade compromise, the most lucrative export groups, including civilian aircraft and engines, soybeans, passenger cars and semiconductors, industrial machines, crude oil, and plastic materials, are likely to feel new pressures in the coming months.

China could also defer the huge trade and investment deals that were signed during Trump’s visit to Beijing. As the US is erecting new barriers against Chinese investments in the US, China can respond in kind, while launching restrictions on imports of US services.

 

The worst is still ahead

Trump’s trade wars have only begun. The White House’s ultimate objective is to target America’s largest trade-deficit partners in Asia (China, Japan, and South Korea), Americas (Canada, Mexico) and Europe (Germany, Italy).

Misled by his trade-hawk advisors, Trump has opted for tariffs that the White House hopes will “break” China’s resistance, which will then serve as a warning to US NAFTA partners and allies in Europe and East Asia. Yet, wishful dreams aren’t economic realities.

That’s also why these countries plan to counter every Trump blow with proportionate retaliation.

What these tariffs could (and should) achieve is a united front of world’s major economies that support global trading regime that has ensured sustained global growth prospects since 1945. That’s why China, along with major European and Asian economies, is likely to challenge the US in the WTO dispute mechanism. That’s also why these countries plan to counter every Trump blow with proportionate retaliation.

In the US, that means accelerated economic erosion, volatility in global markets and new uncertainty as clouds are darkening over the post-global crisis recovery.

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About the Author

Dan Steinbock is the Founder of Difference Group and has served as Research Director of International Business at the India China and America Institute (US) and a Visiting Fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). For more, see http://www.differencegroup.net

 

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