The globalization, and isolation, of the world's economy
Plus, an update on the war in Ukraine and Israel-Palestine tensions continue to grow
You may have seen a surprising headline this week: Despite geopolitical tensions, trade between the US and China reached an all-time high.
Sure, economic nationalism is on the rise, but the death of globalization was greatly exaggerated. Societies writ large may have tried to decouple, but the harsh lessons of rapid inflation proved a strong deterrent.
Proponents of economic isolation may be correct in the long term, and the Russian invasion of Ukraine proved why some economic independence is important. But the past year also confirmed that inflation is politically untenable, and if the problem starts to spiral out of control, it becomes public enemy number one.
This issue is focused on our strange moment in world economics, when countries are simultaneously launching protectionist policies while pursuing globalization. There is also an update on the Ukraine war, which remains the most significant destabilizing force in global economics.
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A6 - Where the world happens
Russia ramps up war efforts in Ukraine
It is important to check in with the war in Ukraine every so often. Currently, Ukrainian fighters are enduring possibly the largest surge of aggression from Russia since the war began. For example, Russia launched 71 cruise missiles into Ukraine in a single attack, but Ukraine was able to intercept 61 of them.
One of the missiles crossed into neighboring Moldova, which appears to be the neutral country most impacted by the war. On Friday, the pressures of the Ukraine war forced the Moldova government to resign. It had struggled to navigate high energy prices, inflation and a major influx of war refugees from Ukraine. The next prime minister, Dorin Recean, is also pro-European, but changing a government amid the regional chaos is obviously not ideal.
US President Joe Biden is expected to visit Poland soon (dates were not announced), and Finland may also vote to join NATO without Sweden. Türkiye has not blocked its membership as it has with the neighboring Nordic country.
Finally, there is a growing movement to block all Russian athletes from competing in the 2024 Olympics.
Philippines set to join world’s largest trade pact
When the Trump administration pulled out of the Trans-Pacific Partnership, the consequence was, somewhat ironically, a push by Asia to create the world’s largest free trade agreement.
Called the Regional Comprehensive Economic Partnership (RCEP), it will include almost all of the APAC region except for Papua New Guinea and Timor-Leste. It consists of all of ASEAN, East Asia, Australia, New Zealand and, yes, China.
Once the member countries make it official, the agreement will include 30 percent of both the world’s population and total GDP.
Philippines leader Ferdinand Marcos Jr said on Friday that congressional ratification will happen soon, paving the way for the country to officially participate in the agreement.
RCEP is notable for the Philippines because in 2022 the country dealt with a few controversies when staple goods (like sugar and eggs) became exorbitantly overpriced. Accusations flew that influential business owners were leveraging the global inflation problem to overprice the food, and investigations confirmed localized examples proving the complaints true.
RCEP would theoretically help lower import prices in the country and drop the prices of daily necessities for regular Filipinos.
Can American economic protectionism save the world?
US President Joe Biden’s Inflation Reduction Act (IRA) has infuriated parts of Europe, who say they cannot compete with American tax credits designed to spur domestic clean energy manufacturing. But the question is, should the US, or the world, care?
The Biden administration has tried to make concessions to European leaders, but also argued that the threat of climate change should trump grumblings that US protectionism is undermining European manufacturing.
On the flip side, America is slow at building things. What if France or Germany could build green energy technology better and faster? We already know China can. Do American jobs suddenly mean more than fighting climate change?
There really is no clear answer to these questions, but, as The Economist points out, the selfishness of the IRA is undeniable; the debate is whether it’s a good thing.
The US is the world’s largest economy, but it lags behind China in green energy development. Suppose the US manages to catch up and China successfully reduces its greenhouse emissions. In that case, we could look up in 2030 and see a world where two massive economies are experiencing a boom in green technology while emitting less pollution.
That would be a fantastic outcome for the world.
Gulf states grapple with bumpy economic opening
Saudi Arabia’s economic opening has been loud and controversial, as it has shown a willingness to throw money around and ignore concerns about who receives it. The strategy is part of a plan to diversify its economy and prepare for a world where oil is no longer king. The United Arab Emirates is following suit.
For the Gulf Region, the process will require a major shift away from state-owned enterprises into the private sector, and countries like Kuwait and Qatar are less enthusiastic about the idea. The transformation will require a cultural shift for many workers, who may become wealthier but will need to tolerate more risk, and fewer social protections, to get there.
One positive impact is that loosening economic controls incentivizes locals to stay home and contribute to the economy. In the UAE, Dubai has become one of the most popular destinations for ex-pats hoping to take advantage of high salaries and warm weather.
However, the economic reforms are not being accompanied by any loosening of the authoritarian reigns that guide the region. Leaders are betting people will care less about individual freedoms if they are rich.
The Economist reported that one concern is that the reopening could trigger a conservative backlash, meaning the region needs to build trust that the current trajectory will continue in the future.
US states flirting with banning Chinese nationals from buying property
Regardless of opinions about China, there is an undeniable fad among US politicians (from both parties) to position themselves as being the “most hawkish” toward Beijing.
The latest step is a movement, driven by Republican governors in states like Florida, Texas and Arkansas, to ban Chinese citizens from buying property in their states.
Here is some context:
The US congress has already introduced a bipartisan bill that would ban “foreign adversaries” from taking controlling stakes in agricultural land. California Governor Gavin Newsom vetoed a bill banning foreign governments from owning state farmland. Iowa has banned all foreigners from buying agricultural property.
However, there is a difference between buying a house and buying farmland. Regarding farms, one could imagine a robust debate between free market believers and opponents arguing that food security is essential if any conflict worsens.
Buying a house is different, and anti-discrimination lawyers will undoubtedly challenge any law banning a specific group of people from home ownership.
Proponents of the plan are using national security as justification to ban some foreigners from purchasing homes. But if we applied that logic to recent 21st-century American history, a whole lot of people would likely have been blacklisted from the housing market.
However, the idea is not without recent precedent in North America. The Canadian city of Vancouver banned all foreign home purchases in an effort to reign in its out-of-control real estate market.
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