August 12, 2022: Global News Roundup
Economic interdependence complicates foreign policy for US and Europe
The Global News Roundup collects news stories from entirely international (non-US) media sources on variety of pressing global political and economic issues and events.
This week, as the US and Europe continued to pursue national and regional security goals, reliance on hostile and competing powers for critical commodities complicated their efforts. Estonia and Finland suggested restricting cross-border tourist travel for Russian visa-holders, Switzerland adopted new sanctions against gold trade with Russia, and the UK created a register of overseas property holdings as part of a “crackdown on Russian oligarchs and corrupt elites laundering illicit wealth”. Following months of news about evasion and defiance of European and US sanctions, the EU relaxed oil and natural gas sanctions against Russia, as high prices continued to pummel European economies. “EU caves to Putin as bloc ‘retreats’ on its own ‘crushing’ regime of sanctions on Russia”, read a headline last week in the UK’s Express. And on Wednesday oil prices dipped slightly as news hit that Hungary and Slovakia worked around sanctions to pay pipeline transit fees, permitting crude flows to restart into central Europe via the southern branch of the Druzhba pipeline. “Russia doing better than expected despite sanctions”, reported the International Business Times.
The US is facing a similar situation with semiconductors, cotton, and other goods as its relationship with China grows increasingly hostile. Taiwan, from which the US sources the vast majority of its computer chips, was blockaded last week by China in response to a visit to the island by US Congresswoman Nancy Pelosi. While the military blockade has ended for now, China has committed to continued military drills moving forward as it prepares for “peaceful reunification” with Taiwan. Crucially, China has also ceased exports of silica sand to Taiwan, a critical input in the semiconductor production process. The US has passed domestic legislation, and is also pursuing the international CHIP-4 alliance (with Korea, Taiwan, and Japan), to mitigate its obvious vulnerability. The viability of the international alliance seems pretty uncertain at present, with China working hard to undermine the US, especially the US relationship with South Korea. It was further reported this week that Apple is strongly urging its Taiwanese suppliers of electronics to change their country of origin labels to read “Made in China”, instead of “Made in Taiwan”, in anticipation of future trade constraints.
The US’s efforts to confront and contain growing Chinese dominance has likewise complicated global cotton and textile supplies, among other key products manufactured in the Xinjiang region of China. The impact of the Uighur Forced Labor Protection Act, signed into law in the US late last year and explicitly directed toward products made in Xinjiang, is rippling across global markets. Alex Chen, secretary general of the Wenzhou Garment Chamber of Commerce, noted that “The whole industry has been impacted [by the US law], and in the future, with some other issues such as tensions around Taiwan, the continuation of the conflicts between Russia and Ukraine, the Sino-US relationship may become more subtle, then it may further affect [the garment exports to the US].” In Vietnam, which relies heavily on imported cotton products from Xinjiang, sourcing relationships are being reworked to avoid the US ban: “There is a rapidly growing demand for yarn imports in the global market amidst a shortage of supply from China.” American solar panel producers are also struggling to manufacture panels in the wake of the ban: “The U.S. solar industry is confronting fresh disruptions as U.S. officials crack down on human-rights abuses in China’s Xinjiang region, which produces almost half the world’s supply of a crucial component in solar panels [polysilicon].”
Things I’m keeping an eye on:
Tibet: The US and India announced joint military drills along the disputed border separating Tibet (which China claims as its own) and India, following parallel drills by the Chinese side earlier this week. This comes after last month’s introduction of a bill in the US Congress supporting Tibetan autonomy and last month’s announcement by China of construction of a major new highway along the border.
Gaza: A cease-fire went into effect this week, brokered by Egypt, following several days of Israeli bombardments.
Solomon Islands: The Prime Minister of the Solomon Islands, Manasseh Sogavare, has proposed a constitutional amendment to delay upcoming elections, on the back of several previous votes of no confidence. “After widespread rioting in the capital, Honiara, demanding his ouster late last year, Sogavare signed a secretive security pact with Beijing that — according to a leaked draft — would allow him to call in Chinese security forces to quell further unrest”, reports the Taipei Times. There are concerns that the Chinese military could in this way gain a foothold in the region.
Growing efforts around the world to return to pre-1970s styles of economic management, including import substitution (like the new US CHIP Act), price controls, buffer stocks, and stockpiling schemes. As another example, the Malaysian government just announced a chicken buffer stock program to stabilize prices and secure sufficient supplies. Such arrangements were, more or less, the norm across a broad range of agricultural and other markets after the Great Depression, through WWII, and up until the global free market revolution began in the 1970s/1980s.
This morning, reports are coming in about China delisting 5 state-owned firms from the NYSE, including commodities heavyweights Sinopec, Chalco, and PetroChina. As I’ve mentioned in previous posts, I’m keeping a very close eye on the consequences for financial and foreign exchange markets of rapid commodity market fragmentation and deglobalization.