Aurelia Butler

Europe’s green transition will be impossible without China, the Dutch trade minister has warned, as the EU tries to untangle some of its economic dependence on the Asian powerhouse. Western economies face the dilemma of reducing their reliance on Chinese supply chains while overseeing a rise in domestic demand for clean technology such as solar power and car batteries, an industry dominated by companies based in China. While the US is decoupling from China, Europe has so far proceeded with more caution, as its economy is more dependent on Asia and is already reeling from the bloc’s stop on energy and raw materials imports from Russia following Vladimir Putin’s invasion of Ukraine.“They are doing a lot on [research and development] and it would really be a shame if we decoupled fully from China,” Liesje Schreinemacher told the Financial Times. The minister said the Netherlands had a “strong trade relationship with China” and that “we need each other when it comes to making our economies more sustainable and the green transition”.The G7 leaders of the world’s largest economies last week agreed to “de-risk” their relationship with China by seeking to import more critical raw materials from other sources and by building domestic clean tech industries.Schreinemacher, who will visit China before the end of the year with a trade delegation, said that “decreasing our strategic dependencies does not mean we should stop trade fully as long as we are diversifying our sources and diversifying our value chains”.The EU in March set out plans to target more domestic mining and processing of critical materials. Next month European Commission president Ursula von der Leyen will unveil an economic security strategy, despite misgivings in some member states that the bloc is taking a protectionist turn. China controls almost all of the world’s solar power supply chain and much of global processing capacity for minerals crucial to the green transition. Schreinemacher said the EU should think carefully before screening European investment in China’s cutting-edge technologies, an issue that was also discussed by the G7 leaders this month. She described the so-called outbound investment screening as a “very heavy instrument” to use to protect the bloc’s economic interests. “We think it’s very important that we know exactly what the goal of it is and how it can be executed,” she said. She also stressed that economic security powers remained in the hands of national governments, in reference to a push by Washington for Europe to mirror its aggressive stance in limiting trade links with China. US and EU officials including secretary of state Antony Blinken will discuss outbound investment screening and co-ordinated export controls at a meeting on May 31, according to a draft statement seen by the FT. The discussions will seek to increase “our understanding of the policy tools available to address national security risks in a holistic manner”, the text reads.The Hague and Tokyo have joined Washington in banning the most sensitive silicon chipmaking technology from export to China, particularly as Beijing has ramped up pressure on Taiwan, the global hub for manufacturing semiconductors.

The Dutch government has announced that the most advanced chipmaking machines would require an export licence, without specifying which models. Schreinemacher said she would outline more details “by the summer”.The curbs hit Netherlands-based ASML, the only producer of advanced machines in the EU. But Schreinemacher wants Brussels to endorse the measures so that other member states can follow suit and pledge not to re-export Dutch made equipment. “It would be more of a show of support for these measures,” she said.China has hit back at the US by banning the use of chips made by Micron in infrastructure projects. Schreinemacher declined to speculate on whether Dutch companies could face similar action after Beijing threatened retaliation. Additional reporting by Javier Espinosa in Brussels More

WASHINGTON (Reuters) – U.S. President Joe Biden and House Republican Speaker Kevin McCarthy on Saturday reached an agreement in principle to lift the debt ceiling that would trim some U.S. federal spending. While the bill is still being written, the general contours of the deal have been described by Democrat and Republican sources. Here’s what we know so far:A CAP ON DISCRETIONARY SPENDINGThe deal would suspend the $31.4 trillion debt ceiling until January of 2025, allowing the U.S. government to pay its bills. In exchange, non-defense discretionary spending would be capped at current year levels in 2024 and increased by only 1% in 2025.The U.S. government will spend $936 billion on non-defense discretionary spending in 2023, the Office of Management and Budget estimates, money that goes to housing, education, road safety and other federal programs.A BREATHER FOR THE 2024 ELECTIONThe debt limit extension lasts past 2024, which would mean Congress would not need to address the deeply polarizing issue again until after the November 2024 presidential election.This would prevent another political showdown that rattles global investors and markets until either a Republican is elected president or Biden wins a second term.INCREASED DEFENSE SPENDINGThe deal is expected to boost defense spending to around $885 billion, in line with Biden’s 2024 budget spending proposal.That’s an 11% increase from the $800 billion allocated in the current budget.MOVING SPECIAL IRS FUNDINGBiden and Democrats secured $80 billion in new funding for a decade to help the IRS enforce the tax code for wealthy Americans in last year’s Inflation Reduction Act, a move the administration said would yield $200 billion in additional revenue over the next 10 years.Republicans and Democrats had battled over moving that funding, which was allocated under the act as “mandatory spending” to keep it from the political fighting of the annual budgeting process, to “discretionary spending” to be allocated by Congress.The IRS planned to use the money to hire thousands of new agents, and the extra tax revenue they generated was expected to offset a slew of climate-friendly tax credits. Republicans have argued that auditors will eventually come after middle-class Americans, although the Treasury and Biden said they would focus on high-earning households.COVID CLAWBACKBiden and McCarthy are expected to agree to clawback unused COVID relief funds as part of the budget deal, including funding that had been set aside for vaccine research and disaster relief. The estimated amount of unused funds is between $50 billion and $70 billion.WORK REQUIREMENTSBiden and McCarthy battled fiercely over imposing stricter work requirements on low-income Americans for being eligible for food and healthcare programs.No changes were made to Medicaid in the deal, but the agreement would impose new work requirements on low-income people who receive food assistance under the program known as SNAP. They would apply to recipients up to age 54, instead of up to age 56 as had been proposed by Republicans.SNAP, the Supplemental Nutrition Assistance Program, is a federal nutrition assistance program that reaches over 40 million people.ENERGY PERMITTINGBiden and McCarthy agreed to new rules to make it easier for energy projects – including fossil-fuel based ones – to gain permit approval. McCarthy and his Republicans had identified permitting reform as one of the pillars of any deal and the White House threw its support behind the plan earlier this month.Biden protected the signature climate provisions of his Inflation Reduction Act, sources said.A bill that would boost power transmission between U.S. regions was being considered as part of talks, Reuters reported on Thursday. The measure could be paired with slight changes to the bedrock U.S. environmental law, the National Environmental Policy Act, or NEPA, that governs environmental reviews of projects such as roads and pipelines. More

DETROIT (Reuters) – Trade ministers of 14 countries in the U.S.-led Indo-Pacific Economic Framework (IPEF) talks “substantially completed” a deal to make supply chains more resilient and secure, the Commerce Department said on Saturday, marking the first tangible results of the year-long negotiations.U.S. Commerce Secretary Gina Raimondo told a press conference in Detroit that the “first of its kind” agreement calls for countries to form a council to coordinate supply chain activities and a “Crisis Response Network” to give early warnings to IPEF countries of potential supply disruptions.The deal provides an emergency communications channel for IPEF countries to seek support during supply chain disruptions, coordinate more closely during a crisis and recover more quickly.Raimondo cited shortages of semiconductors during the COVID-19 pandemic that shut down American auto production, idling thousands of workers.”I can tell you I would have loved to have had that Crisis Response Network during COVID. It absolutely would have helped us secure American jobs and keep supply chains moving,” she said.The supply chains agreement, also includes a new labor rights advisory board aimed at raising labor standards in supply chains, consisting of government, worker, and employer representatives.Commerce led the supply chains negotiations, one of four “pillars” in the IPEF talks, which represents the Biden administration’s main economic initiative in Asia, aimed in part at providing countries in the region with an alternative to closer ties with China.China is not part of the IPEF discussions, but participated in Asia Pacific Economic Cooperation (APEC) trade talks in Detroit, which wrapped up on Friday with a pledge for more inclusive trade but no joint statement.The other three IPEF pillars — trade, climate transition, and labor and inclusiveness — are more complex and expected to take longer to negotiate but U.S. officials are aiming for more results by the time of the APEC leaders summit in San Francisco in November.TRADE PROGRESS, PUSHBACK U.S. Trade Representative Katherine Tai told reporters that the ministers “checked in on our progress and identified the areas where we need additional attention.”The trade pillar does not include negotiations over tariff reductions or other market-access aspects of traditional free trade deals, but aims for common rules on agriculture, labor, environmental standards and trade facilitation.”We have more work to do but I am confident that we will start seeing results under Pillar 1 in the months ahead,” Tai said.Tai and Raimondo pushed back against complaints from U.S. farm and industry groups that IPEF lacks market access improvements, putting it at a disadvantage to other trade deals in the region, including one led by China.Raimondo said that view reflects a “misunderstanding” of IPEF’s goals. Tai added that IPEF “from the very beginning, is not a traditional trade deal. We’re not just trying to maximize efficiencies and liberalization. We’re trying to promote sustainability, resilience and inclusiveness.” More

(Reuters) – A deal reached to raise the U.S. federal government’s $31.4 trillion debt ceiling keeps non-defense spending roughly flat for current fiscal year and 2024, a source familiar with the negotiations said on Saturday,There are no budget caps after 2025 in the U.S. debt deal, the source added. More

The New Development Bank, the Shanghai-based lender better known as the “Brics bank”, is in talks with Saudi Arabia on admitting the country as its ninth member, a move that would strengthen its funding options as founding shareholder Russia struggles under the impact of sanctions.The addition of the kingdom would reinforce ties between the bank, which was established by the world’s biggest developing economies as an alternative to western-led Bretton Woods institutions, and the world’s second-largest oil producer.“In the Middle East, we attach great importance to the Kingdom of Saudi Arabia and are currently engaged in a qualified dialogue with them,” the New Development Bank told the Financial Times in a statement. The talks with Saudi Arabia come as the NDB prepares to embark on a formal evaluation of its funding options, which were thrown into question by Russia’s invasion of Ukraine. The bank holds its annual meeting on Tuesday and Wednesday.Membership would strengthen Riyadh’s bonds with the Brics countries at a time when Saudi Arabia, the world’s largest crude oil exporter, is also pursuing closer relations with China. Chinese president Xi Jinping hailed a “new era” in the countries’ ties when he visited the kingdom late last year, and Beijing in March brokered an agreement between Saudi Arabia and Iran to resume diplomatic relations. Saudi Arabian officials were not available for comment.The NDB was set up in 2015 by the so-called Brics countries — Brazil, Russia, India, China and South Africa — to lend to development projects in emerging economies. It has lent $33bn to more than 96 projects in the five founding member nations, and has expanded its membership to include the United Arab Emirates, Egypt and Bangladesh.Saudi Arabia would represent another deep-pocketed shareholder as the NDB assesses its ability to mobilise funds, after the war in Ukraine raised concerns about the bank’s dependence on Russia. As a founding member Russia holds a stake of about 19 per cent stake in the bank.The NDB was forced to put on hold its Russia exposure of $1.7bn, or about 6.7 per cent of its total assets, and cease funding new Russian projects to reassure investors it was complying with western-led sanctions against Moscow.Fundraising options are “the most important thing at the moment”, said Ashwani Muthoo, director-general of the NDB’s independent evaluation office, which was established last year, in an interview. “We are struggling to mobilise resources.”Muthoo, who declined to comment on the Saudi talks, said the board wanted to examine alternative instruments and currencies to bring in resources. The NDB has raised funds in China’s renminbi and was seeking to raise South African rand this year.“We will have to analyse the Russia situation, the war . . . these are the kinds of things we’ll have to look at,” Muthoo said. Moscow has said it views the bank as an instrument to help alleviate the impact of western sanctions and move away from oil sales pegged to the dollar. Russia’s prime minister Mikhail Mishustin said on a visit to China this week that Moscow saw “one of the bank’s main goals” as defending the bloc from “illegitimate sanctions from the collective west”.The Asian Infrastructure Investment Bank, another multilateral lender in which China is the biggest stakeholder, also froze its Russia business last year, though it had much less exposure.

The moves by the NDB and AIIB reveal how even institutions intended as challengers to western multilateral organisations have largely co-operated with financial sector sanctions against Russia because of their dependence on access to dollar financing.Rating agency Fitch downgraded the NDB’s credit rating to double-A from double-A plus last July, warning that “reputational risk” from its Russian stake could potentially limit access to the dollar bond market.This month, the agency revised its outlook for the bank from “negative” to “stable”, noting the steps it had taken to mitigate its exposure to Moscow. Multilateral lenders generally rely on high ratings and low funding costs to lend more cheaply.Additional reporting by Max Seddon in Vilnius More