Aurelia Butler

Here is a thought experiment. If Taiwan did not exist, would the US and China still be at loggerheads? My hunch is yes. Antagonism between top dogs and rising powers is part of the human story. The follow-up is whether such tensions would persist if China were a democracy rather than a one-party state. That is harder to say but it is not obvious that an elected Chinese government would feel any less resentful of the US-led global order. It is also hard to imagine the circumstances in which America would willingly share the limelight.All of which suggests that loose talk of a US-China conflict is no longer far-fetched. Countries do not easily change their spots: China is the middle kingdom wanting redress for the age of western humiliation; America is the dangerous nation seeking monsters to destroy. Both are playing to type. The question is whether global stability can survive either of them insisting that they must succeed. The likeliest alternative to today’s US-China stand-off is not a kumbaya meeting-of-minds, but war.This week, Xi Jinping went further than before in naming America as the force behind the “containment”, “encirclement” and “suppression” of China. Though his rhetoric was provocative, it was not technically wrong. President Joe Biden is still officially committed to trying to co-operate with China. But Biden was as easily blown off course last month as a weather balloon. Washington’s panic over what is after all 19th-century technology prompted Antony Blinken, the US secretary of state, to cancel a Beijing trip that was to pave the way for a Biden-Xi summit.Washington groupthink drove Biden’s overreaction. The consensus is now so hawkish that it is liable to see any outreach to China as weakness. As the historian Max Boot points out, bipartisanship is not always a good thing. Some of America’s worst blunders — the 1964 Gulf of Tonkin resolution that led to the Vietnam war, or the 2002 Iraq war resolution — were bipartisan. So is the new House committee on China, which its chair, Mike Gallagher, says will “contrast the Chinese Communist party’s techno-totalitarian state with the Free World”. It is probably safe to say he will not be on the hunt for contradictory evidence.A big difference between today’s cold war and the original one is that China is not exporting revolution. From Cuba to Angola and Korea to Ethiopia, the Soviet Union underwrote leftwing insurgencies worldwide. The original idea of containment, laid out in George Kennan’s 1947 Foreign Affairs essay, The Sources of Soviet Conduct, was more modest than the undeclared containment that is now US policy. Kennan’s advice was twofold: to stop the expansion of the Soviet empire; and to shore up western democracy. He counselled against the use of force. With patience and skill the USSR would fold, which is what eventually happened.Today’s approach is containment-plus. When Xi talks of “suppression”, he means America’s ban on advanced semiconductor exports to China. Since high-end chips are used for both civil and military purposes, the US has grounds for denying China the means to upgrade its military. But the collateral effect is to limit China’s economic development. There is no easy way round this. One possible side-effect will be to accelerate Xi’s drive for “made in China” technology. The Chinese president has also explicitly declared Beijing’s goal of dominating artificial intelligence by 2030, which is another way of saying that China wants to set the rules. The one positive feature of today’s cold war compared with the last one — China and America’s economic interdependence — is thus something Biden wants to undo. Decoupling is taking on an air of inevitability.When Xi refers to “encirclement”, he is thinking about America’s deepening ties to China’s neighbours. Again, Xi mostly has himself to blame. Japan’s shift to a more normal military stance, which includes a doubling of its defence spending, probably worries China the most. But America’s growing closeness to the Philippines and India, and the Aukus nuclear submarine deal with Australia and the UK, are also part of the picture. Add in increased US arms transfers to Taiwan and the ingredients for Chinese paranoia are ripe. How does this end?This is where a study of Kennan would pay dividends. There is no endgame to today’s cold war. Unlike the USSR, which was an empire in disguise, China inhabits historic boundaries and is never likely to dissolve. The US needs a strategy to cope with a China that will always be there.If you took a snap poll in Washington and asked: one, are the US and China in a cold war; and two, how does the US win it, the answer to the first would be an easy “yes”; the second would elicit a long pause. Betting on China’s submission is not a strategy.Here is another way to look at it. The US still holds more of the cards. It has plenty of allies, a global system that it designed, better technology and younger demographics. China’s growth is slowing and its society is ageing faster. The case for US resolve and patience is stronger today than it was when Kennan was around. Self-confident powers should not be afraid to [email protected] More

Brussels has urged EU countries to start phasing out massive energy subsidies as it prepares to reimpose budget rules three years after the coronavirus pandemic broke out.The European Commission on Wednesday set out its plan for the return of the Stability and Growth Pact (SGP), which was suspended at the start of the pandemic in 2020 as EU governments spent huge sums supporting their economies and providing healthcare.Rising energy prices as Russia cut gas supplies after its invasion of Ukraine last year prompted member states to provide support to people and businesses struggling to pay their bills.But the commission said the measures should now be unwound as the cost of energy drops and deficits need to be reduced. Governments spent 1.2 per cent of EU gross domestic product in 2022 on energy subsidies and plan to spend 0.9 per cent in 2023, its figures showed. “As energy prices head lower, we should move to phasing out most of the support measures, starting with the least targeted,” said Valdis Dombrovskis, executive vice-president at the commission. “The time for broad-based fiscal support has passed. It is time to shift gear and look to the future. From a fiscal standpoint, we need to change focus.” Dombrovskis said if support had been given to only the poorest 40 per cent of citizens last year, the cost would have been cut by three-quarters.The subsidies in most countries disproportionately benefited the wealthy, who consume more, a senior commission official said. “The measures were not very well targeted and did little to reduce consumption.”The commission confirmed that the general escape clause, which suspended enforcement of the SGP, would be “deactivated” at the end of this year. Under the pact countries are meant to limit budget deficits to 3 per cent of GDP and bring debt ratios to 60 per cent of GDP or below. That means that from 2024 Brussels is likely once again to open so-called excessive deficit procedures against member states where the gap between public revenue and spending is overshooting the target, said Paolo Gentiloni, economics commissioner. “Given the still high economic uncertainty, we have decided not to open any excessive deficit procedures until spring 2024,” he added. Wednesday’s guidance is meant to help member states prepare their 2024 budgets. Gentiloni said fiscal rebalancing “should not be achieved by cutting investment but by limiting the growth of current spending”, given the need to fund green energy projects. “We do not need austerity,” he added.Governments should provide plans of how they will comply with fiscal tightening by April. These stability and convergence programmes “should set ambitious fiscal targets that respect the 3 per cent GDP deficit reference value and ensure a path for credible, continuous debt reduction, or for keeping it at prudent levels in the medium term”, Dombrovskis said.The commission has forecast the euro area budget deficit will widen from 3.5 per cent of GDP in 2022 to 3.7 per cent this year. The number of member states breaching the 3 per cent figure is expected to increase from 10 to 12 between 2022 and 2023, including Italy and Spain. Public debt in the euro area is expected to fall to 92 per cent of GDP in 2023.The commission set out its guidance for public finances in 2024 amid a planned overhaul of the bloc’s budget rules that will probably involve the introduction of fresh legislation.EU finance ministers are expected to debate the ideas at a meeting in Brussels next week. While there is no consensus, the senior official insisted there was growing convergence on several issues. While the 3 per cent deficit and 60 per cent debt targets should remain, fiscal plans would probably be assessed over several years rather than an annual basis. More

Investing.com — Jerome Powell returns to Capitol Hill for more testimony a day after rattling global markets with warnings that the Federal Reserve may step up the pace of rate hikes again. The comments pushed the dollar to a three-week high, two-year note yields to a 16-year high, and inverted the U.S. yield curve to a degree not seen since 1981. The ADP jobs report and the Labor Department’s monthly survey of job openings are both due. U.S.-China relations continue to deteriorate as House Speaker Kevin McCarthy prepares to meet Taiwanese leader Tsai-Ing Wen. The Senate introduced a bill on Tuesday that could see video app TikTok banned in the U.S. on security concerns. And oil prices stabilize after plunging on Tuesday – with U.S. inventory data due at 10:30 ET. Here’s what you need to know in financial markets on Wednesday, 8th March.1. Brace, brace…The dollar hit a three-month high and yields on short-dated Treasury bonds rose to their highest since 2007 after Federal Reserve chair Jerome Powell opened the door to a 50 basis point hike in the fed funds rate at the central bank’s next meeting in two weeks’ time.Powell continues his Congressional testimony in the House of Representatives at 10:00 AM ET (15:00 GMT) after telling the Senate Banking Committee that rates are likely to peak above the Fed’s last implicit forecast of 5.1%, while also warning that the Fed was willing to raise in larger increments again, after slowing the pace of monetary tightening after its last two meetings.The benchmark 2-year note now yields 5.04%, more than a full percentage point above the 10-year note at 3.97%. That degree of inversion – widely seen as a herald of recession – was last seen in 1981, when a certain Paul Volcker was running the Fed.2. Potential pitfalls from the labor market; Bank of Canada rate decision eyedAhead of Powell’s second day of testimony, U.S. economic data have the potential to either calm nerves or upset the applecart again.ADP publishes its monthly hiring report at 08:15 ET, while the Labor Department publishes its Job Openings and Labor Turnover Survey for January at 10:00 ET. Given the Fed’s focus on the labor market, a big deviation from consensus could cause quite a stir.Also due are weekly mortgage applications numbers, which will cast fresh light on how bad the recession in the U.S. housing market is getting. Applications have fallen for four of the last five weeks and now stand at their lowest in 28 years.Outside the U.S., the Bank of Canada will be hoping it’s second-guessed Powell correctly when it announces its interest rate decision at the same time as the Fed chief starts speaking. The BoC conspicuously paused its tightening cycle last month, leaving its key rate at 4.5%.3. Stocks seen under pressure at opening U.S. stock markets are set to stay under pressure at the open, posting only a modest bounce after heavy losses in response to Powell’s testimony on Tuesday.By 06:30 ET, Dow Jones futures were up 45 points, or 0.1%, while S&P 500 futures were up 0.2% and Nasdaq 100 futures were up 0.3%. The S&P 500 cash index had fallen back below 4,000 on the news, while the Dow had fallen 1.7%.Stocks likely to be in focus later include Crowdstrike (NASDAQ:CRWD), which beat expectations with its quarterly update late on Tuesday, and Stitch Fix (NASDAQ:SFIX), which posted a wider-than-expected loss. The stocks are going in opposite directions in premarket, accordingly.Also in focus are Adidas (OTC:ADDYY), which slashed its dividend as it ponders what to do with over $1 billion unsellable Yeezy inventory, and Rivian (NASDAQ:RIVN), which hit a new all-time low on Tuesday after rival BYD (OTC:BYDDY) announced a big expansion into commercial vans.4. U.S.-China ties fray as Senate introduces TikTok killerRelations between the U.S. and China continue to deteriorate. The Senate introduced a new bill on Monday that would give the administration the power to ban apps that it considers a security threat.That designation would most likely affect the short-form video app TikTok, whose storage of its user data in China exposes it to undue influence from Beijing.Senator John Thune (R., SD) said the bill could lead to the app being banned in the U.S., something that would remove a key source of competition to the likes of Facebook (NASDAQ:META) owner Meta and Snapchat owner Snap (NYSE:SNAP).The European Union separately banned the use of TikTok on official devices earlier this month.5. Oil inventory drop corroborates Powell’s warning on economic resilienceCrude oil prices are stabilizing after taking a battering from Powell’s comments on Tuesday, which boded ill for U.S. and global consumption for the rest of the year.Powell overshadowed a surprising and large drop in U.S. crude inventories of over 3 million barrels last week, as estimated by the American Petroleum Institute. The numbers were a rare flash of resilience in U.S. demand after a string of inventory builds. The government releases its official data for last week at 10:30 ET.By 06:45 ET, U.S. crude futures were down 0.1% at $77.48, having lost over $3 a barrel on Tuesday. Brent was up less than 0.1% at $83.33 a barrel. More

The representative, Vahram Stepanyan, said the IMF team would be led by Gavin Gray, the IMF mission chief for Ukraine.”An IMF mission, led by Gavin Gray, starts policy discussions today with the Ukrainian authorities on a potential Fund-supported program,” Stepanyan said in a brief statement that provided no further details.Ukrainian officials have said they hope to agree a $15-billion multi-year program with the IMF, in what could be the largest loan package for the country since Russia’s full-scale invasion a year ago.Ukraine’s central bank said it hoped for a four-year program that would be structured in two stages – during the war and after the war.”We aim to reach an agreement with the IMF mission on the program for extended financing during March and submit the agreement for the consideration of the IMF’s board of directors,” central bank governor Andriy Pyshnyi said in a statement.”We are determined to have a productive discussion and search for common solutions.” More