January 6, 2023: Global News Roundup
Geopolitical and economic fault lines deepen, corruption scandals dog Western governments
This post was originally published on IPEwithSBB.org.
The Global News Roundup collects news stories from entirely international (non-US) media sources on variety of pressing global issues and events.
Happy New Year, and welcome back to IPEwithSBB! This week’s post is a bit longer than usual because a lot has happened over the holiday break. I’m planning to pare back to my usual 1000-1500 words next week. Thank you for reading and supporting my work!
After months of superficially neutral positioning, last week Chinese President Xi made some of his strongest statements yet about China’s close relationship with Russia: “China is ready to work with Russia and all progressive forces in the world that stand against hegemonism and power politics to jointly oppose unilateralism, protectionism and bullying, and to firmly safeguard sovereignty, security, and development interests of the two countries, as well as international equity and justice,” said President Xi, according to the state-run Global Times. Xi further stated that “China and Russia should increase mutual support on issues concerning each other's core interests and work together to resist interference and sabotage by external forces”. Xi also said that Putin pledged Russia’s support for “China's position on the Taiwan question and firmly abides by the one-China principle”. While he stopped short of explicitly siding with Russia on Ukraine, Xi did note his “appreciation” of Russia for never “[refusing] to resolve the conflict through diplomatic negotiations”. Following the meeting, Reuters reported that the US is “concerned” by “China’s alignment with Russia”.
Meanwhile, the $1.7 trillion omnibus appropriations bill passed in late December in the US, on the heels of Ukrainian President Zelensky’s extensive lobbying during his visit to Washington DC, includes massive support for both Ukraine and Taiwan, as well as substantial increases in overall military funding. Al Jazeera reported that, “The package includes a 10-percent increase in military spending, bringing the US military budget to $858bn, as well as…$45bn in additional military, economic and humanitarian assistance for Ukraine and NATO allies.” The bill additionally earmarks some $2 billion in new loans to Taiwan to purchase US-made weapons. The day after its passage, “71 Chinese military aircraft and 7 naval vessels were detected around Taiwan”.
Against the backdrop of hardening alliances, news from Taiwan over the past couple of weeks took on increasingly urgent tones. On December 23, as Chinese and Russian warships conducted joint naval exercises in the East China Sea, Taiwan’s President Tsai announced talks to extend the nation’s military draft, supplementing the mostly volunteer armed forces: “The government is reportedly planning to extend conscription for men aged 18 or older to one year from four months, as the nation faces growing threats from China”, reported the Taipei Times. The day before Tsai’s announcement, Beijing sent 39 planes and 3 ships toward the island in a show of force. Such demonstrations of military might have become much more common over the past year, with Chinese “incursions” into Taiwan’s air defense identification zone nearly doubling over the prior year (in 2022, China sent 1,727 planes into the air defense zone; fighter jet sorties more than doubled; and the first drone incursions ever were recorded, 71 in total since US Congresswoman Nancy Pelosi’s visit back in August).
Relatedly, over the past few weeks, Russian missile strikes on Ukraine have gotten more intense, targeting major cities and civilian infrastructure. Civilian casualties are mounting, and water and electricity supplies have been interrupted. This past week a US-supplied HIMARS missile struck a Russian barracks, killing at least 63 people. Russia is blaming both Ukraine and the US for the attack, and on Wednesday Putin announced the deployment of a hypersonic missile-capable frigate, the Admiral Gorshkov, to the Indian and Atlantic Oceans. Putin also called a 36-hour ceasefire for Orthodox Christmas that began this morning. Ukraine is not participating, believing it to be a “trick”.
At the same time, and reminiscent of the “non-aligned movement” (NAM) during the Cold War, other governments continue to chart a middle path, attempting to balance their reliance on and loyalties to the US-Europe bloc on the one hand with the China-Russia bloc on the other. I’m especially interested in Brazilian, Saudi, and Indian foreign policy in this context, given their centrality to the global economy, consistent refusals to “pick a side” on the Ukraine war, and frequent recent attempts to ‘thumb their nose’ at the US (e.g., see here and here and here on Ukraine, and also here and here for past posts in which I covered this dynamic).
In Brazil, for example, news over the past couple of weeks demonstrates how President Lula da Silva, who was just sworn into office this past Sunday, is positioning Brazil as an independent counterforce to US power and agendas in the region and around the world. On December 31st, Lula met with officials from Ukraine and Russia to call for peace and defend national sovereignty: “In Brazil we have a tradition of defending the integrity of nations and we are going to talk to whoever is possible for peace," said Lula. Similarly, Brazil also normalized relations with Venezuela this week, following a vote by the Venezuelan National Assembly last Friday to dissolve President Juan Guaidó’s “interim” government. During his recent campaign, Lula made clear his opposition to Guaidó’s rule, a shift from the position of his predecessor Jair Bolsonaro and in stark contrast to the US’s firm support for the interim leader. Brazilian officials further met with their Iranian counterparts during Lula’s inauguration, each pledging to renew and strengthen relations with the other. “Brazil can become the center of Iran's relations with South America in order to secure the common interests of the two nations and the nations of the region”, said Iran's Vice President for parliamentary affairs, Mohammad Hosseini. The inauguration additionally brought together officials from Iran and Saudi Arabia to discuss “rapprochement”, following several rounds of talks since 2021 in Baghdad about building friendlier relations.
Historically, periods of major transition and structural change in the international system—many of them not unlike the one we’re living through now—tended to coincide with widespread economic disruption and distress. The World Bank noted in a recent discussion that the recession that began this past fall follows “one of the most internationally synchronous episodes of monetary and fiscal policy tightening the world has seen in 50 years”. The fiscal and monetary policy synchronicity means, among other things, that opportunities to mitigate and manage recession-related trade and investment risks via geographic diversification are diminished (these opportunities are shrinking for other reasons, too, such as trade protectionism, war, etc.). To this point, the FT reported this week that companies are “flocking to the Middle East to raise capital”, attending an annual finance conference this week nicknamed “Davos in the Desert”: “The region is increasingly viewed as one of the [few] remaining sources of abundant capital”. Davos, Switzerland is the site of the annual World Economic Forum meeting, a gathering of global corporate, political, and cultural elites to coordinate and strategize with one another. The annual Davos meeting is coming up later this month. I’ll keep you posted.
At the same time, and in spite of the short-run declines in food, energy, and metals prices in recent weeks, supply-side issues in commodities markets are poised to keep prices relatively high in 2023 even as global growth slows. The combination of food and energy price inflation with pandemic-related economic scarring, supply chain break ups, high interest rates, a soaring dollar, and slowing global growth is a recipe for sovereign debt crises, which are imminent across the developing world and may not ultimately spare even the largest economies.
Complicating matters further are the interactions between the Ukraine war and commodities prices, especially in oil, gas, and grain markets. The Black Sea Grain Initiative establishing a “grain corridor” to ensure that Ukrainian food exports reach global markets—established last July and renewed in November through March 2023—has proven to be critically important for managing global food prices, but highly unstable. Russia has demonstrated its willingness to suspend shipments through the corridor as circumstances dictate, and this week the Manila Times reported that extensive inspection delays are slowing passage through the corridor. On a similar note, in late December, Russia retaliated against the price cap imposed by the US and EU, banning sales of crude oil and oil products to countries that abide by the cap.
(Image: A worker loads a truck with barley at the Ukrainian Port of Odesa on the Black Sea, June 2022, courtesy of Reuters via the Nile Post, in the original here.)
Following up on my discussion from last time, EU ministers did ultimately agree in December on a price cap level for front-month Dutch TTF gas contracts. Predictably, exchanges are considering ceasing trading in this contract altogether. As I noted last month, price caps are fundamentally incompatible with large, liquid futures markets (see here for the Intercontinental Exchange’s response to the gas price cap; see this doc for a more in depth discussion of the possible consequences of the cap, starting on p. 3). Further, the Netherlands-centered trading network for physical gas supplies connected to this particular contract is extensive, and all of these connected parties would in theory be impacted if the cap is triggered (the cap only comes into play if gas prices rise above a certain threshold).
In other news, Russia and China signed an agreement to build a joint base on the moon which is expected to be completed by 2035. Powerful earthquakes struck California two weeks ago and the Philippines last week. And it was announced in mid-December that giant panda Yong Ming will be returning to home to China, having lived in Shirahama, Japan since 1994. Yong Ming celebrated his 30th birthday this year (see image below) and will be moved to the China Conservation and Research Center for the Giant Panda in Chengdu with two of his daughters in February.
(Image: Giant panda Yong Ming celebrates his 30th birthday. Photo courtesy of the Global Times, in the original here.)
Things I’m keeping an eye on:
1. Government corruption in the EU: Following shocking revelations this past fall about secretive communications between EC President Ursula von der Leyen and Pfizer CEO Albert Bourla to negotiate covid vaccine contracts, European officials are again in the hotseat with a new set of corruption allegations involving bribes to EU officials from the Government of Qatar to garner support for its World Cup bid.
2. Government corruption in the US: US politicians are increasingly implicated in corruption and malfeasance around the FTX crypto collapse. The exchange’s founder, Sam Bankman-Fried, was charged in the US this week with eight criminal counts, including wire fraud and money laundering. “Customer funds were also used and laundered through political donations…”, said federal prosecutor Danielle Sassoon. While some prominent recipients of the laundered funds are preparing to return them, “the full scope of his giving remains unclear”. Also in the US, the “Twitter Files” recently revealed explosive evidence of direct coordination between US government intelligence agencies and major social media companies to censor and manipulate information available to the public on a variety of critical issues, including information about connections between President Biden’s son and an energy company in Ukraine (Burisma). See here and here and here and here for international coverage of this story.
3. Crypto contagion: Yesterday, news broke about massive customer withdrawals (over US$8 billion) from US-based crypto bank Silvergate between September and December. By late Thursday morning, their shares were down 40%.
4. US tech carnage: Amazon announced layoffs this week (18,000) people, continuing the trend we’ve seen across the tech sector (Meta, Twitter, Snap, etc.).
5. Metals markets: “The London Metal Exchange will enter 2023 with the smallest available warehouse stockpiles in at least 25 years, setting the stage for future squeezes and spikes if demand turns out stronger than expected. Available inventories of the six main metals traded on the LME plunged by two thirds in 2022...”.
6. Chip War: The SCMP reports that China’s attempts to re-shape its semiconductor supply chain via partnerships with Europe is not working well so far. I’m concerned that China feels backed into a corner on this issue with no good ways out (see also my discussion from October).
7. Consequences of US monetary policy/strong dollar: In 2022, Asian equity markets (Taiwan, India, the Philippines, Vietnam, Thailand, Indonesia, South Korea) experienced massive capital flight as foreign investors moved funds into dollar-denominated assets. The $57 billion outflow is the largest since 2008.
8. Kosovo-Serbia border: “Kosovo closed its biggest border crossing with Serbia on Wednesday [Dec. 28] after protesters blocked it on the Serbian side to support their ethnic kin in Kosovo in refusing to recognize the country's independence”, reported Reuters.