Economy

It is easy to forget that early in Joe Biden’s presidency he made a bridge-building overture to Vladimir Putin. During the 2020 campaign, Biden barely mentioned Russia as a geopolitical rival to the US. China hogged all the attention. At the Geneva summit with his Russian counterpart in June 2021, the US president went to great lengths to massage Putin’s ego, even calling Russia a great power.A few weeks later, Biden withdrew America’s remaining forces from Afghanistan in a debacle that threatened to define his presidency.In retrospect, it is clear that the two seemingly unrelated events — Biden’s positive mood music towards Russia and his Afghanistan pullout — reinforced Putin’s decision to invade Ukraine. The west, in Putin’s view, was unlikely to react any more decisively to his planned annexation of Ukraine than it had to Crimea in 2014.Such misunderstandings have characterised geopolitics through the ages.In this case, the consequences of Russia’s blunder in Ukraine — and the west’s unexpectedly unified response — are likely to reverberate for years, if not decades. Sixteen months into Russia’s “special military operation”, the world is at greater risk of great power conflict than since the most dangerous points of the cold war.

Talk of reviving the liberal international order — a state of global being that was never quite what its nostalgists hold it up to have been — sounds increasingly quixotic. The world is moving into a new type of great power rivalry. But comparisons with its 19th century precursor are at best misleading. That long period of so-called Pax Britannica ended in the tragedy of the first world war. Today’s world cannot afford a direct conflict between the US and China, its two competing giants.The challenge facing the US and its western allies is threefold.The first is in maintaining western unity against Putin. This is brought into sharpest relief by next year’s US election. Rarely has a US presidential election contained such divergent possible outcomes for the state of the world. If Biden were re-elected, the world could expect some continuity in US foreign policy until 2028. If Donald Trump, the likely Republican nominee, were to return to power in 2025 it could destroy western unity.Trump has promised to end the war in Ukraine within 24 hours of resuming office. That prospect, and that alone, is sufficient motivation for Putin to sustain his war on Ukraine for the next 18 months in the hope that Trump will ride to his rescue.It is almost impossible for America’s European allies to hedge against that spectre. Their fate — and Ukraine’s — lies in the hands of US voters.The second challenge for the west is in forging a common front on China without it spilling over into direct confrontation. Unlike the war in Ukraine, which must eventually reach some kind of messy conclusion, the rivalry between the US and China is a project without end. For the purposes of strategic planners, it offers no natural conclusion.This is where history ceases to offer much guidance. Short of Armageddon, there is no scenario in which either the US or China will emerge as the world’s sole hegemon.

This presents a novel challenge to a west that has been schooled in Manichean conflicts that result in one or the other side claiming victory. It will require unusual strategic patience and skill. To paraphrase China’s former paramount leader Deng Xiaoping, the west will have to cross the river by feeling the stones, except that the far bank of the river will never be fully visible.This year, president Xi Jinping accused the US of trying to “suppress, contain and encircle” China. Biden insists that his aim remains to co-operate with Beijing where possible, compete where necessary, and confront if left with no other choice.Managing the China threat is a gargantuan challenge. It is evident that a Trump victory next year could throw Biden’s complicated US-China balancing act into disarray.The west’s third challenge is to find solutions to the existential threats facing humanity, starting with global warming. Even without the revenge of geopolitics, this would be a steep climb. But war in Ukraine and growing tension with China have made it far more complicated.

The global south is a key zone of competition for influence between the US and China. It is also the chief victim of the fallout from Russia’s full-scale invasion of Ukraine. The energy and food price inflation triggered by the war and the west’s subsequent sanctions on Russia have combined with rising US interest rates to bring the global south to the brink of a new debt crisis.Taken together, these challenges might seem insuperable. But the west can do well by doing good. The more relief that it can offer to the global south — in the form of green energy financing, debt relief, and pandemic resistance — the better the west will fare on the geopolitical front.The so-called new great game with China is a zero-sum contest. The best way to limit China’s reach is for the west to offer solutions to the mounting problems facing the rest. On paper, the path of choice seems obvious. In practice, is the west capable of taking it? More

MELBOURNE (Reuters) – Rio Tinto (NYSE:RIO) flagged concerns about a global economic slowdown on Wednesday as it logged a raft of production issues across its operations but said its iron ore production should be at the upper end of its expectations for the year. Prices of iron ore, from which Rio Tinto derives around 70% of its profits, eased over the second quarter on concerns over China’s debt-ridden property sector, but could improve after Beijing on Tuesday pledged to roll out policies to boost growth.”China’s economic recovery has fallen short of initial market expectations, as the property market downturn continues to weigh on the economy and consumers remain cautious despite monetary policy easing,” Rio Tinto said in its quarterly report.”Manufacturing data in advanced economies showed a further slowdown and recessionary risks remain.”The Anglo Australian miner recorded a small miss on its second-quarter iron ore shipments on Wednesday, hurt by a train derailment during the quarter, but said it was on track for full-year shipments in the upper half of its forecast range of 320 million to 335 million metric tons.”It’s good to see solid iron ore production expectations for the full year, but on the margin it’s probably slightly disappointing given other production downgrades,” said Glyn Lawcock of Barrenjoey in Sydney, adding that Rio’s $900 million increase in working capital could impact shareholder returns. The world’s biggest iron ore producer shipped 79.1 million metric tons of the steel-making ingredient from its Pilbara operations in the three months ended June 30, down slightly from a year earlier and short of an estimate of 81 million metric tons compiled by Visible Alpha.Rio downgraded its expectations for refined copper production, alumina production, and output at its Canadian iron ore operations and warned of rising costs. “Production downgrades during the quarter highlight that we still have much more to do,” Rio Tinto Chief Executive Jakob Stausholm said in the report. Rio cut its refined copper guidance by about 10% to 160,000 to 190,000 metric tons and raised its cost guidance due to a smelter rebuild at its Kennecott operations in Utah that has also been delayed by a month. Wildfires in Northern Quebec impacted Canadian iron ore production, it said. Meanwhile, Rio is reviewing the $140 million estimate and development timeline for its Rincon lithium project in Argentina due to rising costs. Rio will report its first-half profit on July 26. (Reporting Melanie Burton in Melbourne, and Navya Mittal and Rishav Chatterjee in Bengaluru; Editing by Shounak Dasgupta and Sonali Paul) More

WELLINGTON (Reuters) – New Zealand’s consumer inflation came in slightly above expectations in the second quarter, driving swap rates higher as the market pushed out expectations for when the central bank might start cutting the cash rate.Consumer prices rose 6.0% year-on-year in the second quarter, slower than the 6.7% increase in the first quarter, Statistics New Zealand said in a statement on Wednesday. It is now below the three-decade high of 7.3% inflation seen in the second quarter of 2022.The consumer price index (CPI) rose 1.1% quarter-on-quarter, slower than the 1.2% rise in the first quarter. The data was just above economists’ expectations in a Reuters poll for a 1.0% rise for the quarter and a 5.9% annual rise.Inflation is a significant challenge for the Reserve Bank of New Zealand (RBNZ) and it has responded by raising interest rates to 5.5% from a record low 0.25% in October 2021.While it has said it now believes that the rate increases are having the desired impact on dampening inflation, it expects rates to hold at a “restrictive level” for the foreseeable future.The New Zealand dollar rose 0.4% to US$0.6297, while the two-year swap rates rose 8 basis points to 5.415%, as markets pushed out the timing for their expectations of the first cut.”Data reinforce that the RBNZ can not yet pat itself on the back for a job well done,” said ASB senior economist Kim Mundy. “Moreover, the RBNZ will most likely be concerned to see that price rises became more widespread in Q2.”The main drivers of the annual inflation were food and housing prices, Statistics New Zealand said in a statement.”With food prices up 12.3% annually, consumers may be buying cheaper alternative to keep their food bill lower,” said Nicola Growden, the prices senior manager at Statistics New Zealand.”The price of building a new home has increased by more than a third in the three years from the June 2020 quarter,” she said.Statistics New Zealand added that non-tradeable inflation slowed to 6.6% on year, off a 20-year high of 6.8%. More

(Reuters) – Applications to start new U.S. businesses surged to the highest level in two years in June, despite high interest rates and uncertain economic outlook, according to a Commerce Department report released on Monday.Business applications increased 6.2% in June compared with May with a seasonally adjusted 465,906 new applications.Filings from applicants that have a high likelihood of creating a payroll and adding jobs to the economy, such as those from existing corporate entities or those indicating they are already hiring, rose 6.0% to 149,536 new applications. The data is collected from business applications for tax identification numbers.Start-up activity flourished during the coronavirus pandemic with the help of historic stimulus money from the federal government and ultra-low interest rates, hitting a record high in July 2020 and remaining well above pre-pandemic levels since then. They slowed somewhat last year as the Federal Reserve kicked off aggressive interest rate hikes to lower inflation, but have been climbing again this year.June’s resurgence emphasizes growing optimism among small businesses inspired by the Fed’s recent pause in rate hikes, as well as the growing expectation that the central bank’s aggressive rate hiking strategy is nearing an end. The report’s forward-looking business formation projections also improved after two months of declines. The Census Bureau estimated that 32,148 new business startups with payroll tax liabilities will actually form within four quarters of application, a 4% increase compared to estimates from May. More

BENGALURU (Reuters) – The U.S. Federal Reserve will raise its benchmark overnight interest rate by 25 basis points to the 5.25%-5.50% range on July 26, according to all 106 economists polled by Reuters, with a majority still saying that will be the last increase of the current tightening cycle. A resilient economy and historically low unemployment well over a year since the Fed began one of its most aggressive rate hiking campaigns in history has repeatedly confounded analysts and investors.Inflation is falling, with the headline consumer price index (CPI) measure slowing to 3.0% in June from 4.0% in May. That led many observers on Wall Street to conclude inflation might soon be tamed, prompting some to renew bets that rate cuts could happen by as soon as the end of 2023.The current debate is whether more rate increases might be needed to ensure “disinflation” continues or if doing more could cause unnecessary damage to the economy.But underlying inflation has remained sticky and Fed Chair Jerome Powell and other central bank officials have said more tightening is coming, even though they decided to pause the rate hikes at last month’s policy meeting.The view that rates will stay higher for longer appears to be gaining traction, with the share of respondents polled during the July 13-18 period who predicted at least one rate cut by the end of March next year down sharply to 55% from 78% last month.”For the Fed, despite the soft CPI print, we still anticipate a hike in July … (and) while we hope the softness in inflation persists, it is unwise from a policymaking standpoint to bank on that,” said Jan Nevruzi, U.S. rates strategist at NatWest Markets.”We do not want to rush ahead and say the fight against inflation has been won, as we have seen head-fakes in the past.”Economists and financial market traders appear to still be slightly out of step with the Fed.The latest “dot-plot” projections from members of the central bank’s policy-setting Federal Open Market Committee suggest the benchmark overnight interest rate will peak at 5.50%-5.75%, but only 19 of 106 economists polled by Reuters forecast it will reach that range.Expectations the Fed is nearing the end of its hiking cycle have pushed the dollar to its lowest level in more than a year against major currencies. A weaker greenback is likely to make imports costlier and keep price pressures elevated.Indeed, economists are still concerned that inflation might not come down quickly enough.Core inflation, which strips out food and energy prices, will be only slightly lower or remain around the current level of just under 5% by the end of the year, 20 of 29 respondents to an additional question in the poll said.The Fed targets inflation, as measured by the personal consumption expenditures index (PCE), for its 2% target. Core PCE was last reported at 3.8% for May.But none of the inflation gauges polled by Reuters – CPI, core CPI, PCE and core PCE – were expected to reach 2% until 2025 at the earliest.”While the latest figures are encouraging, the real battle begins now, as the easy base effects are now behind us,” said Doug Porter, chief economist at BMO Capital Markets, referring to the fact inflation plunged so much in June partly because it was so elevated at the same time last year.”As the disinflationary force of lower energy prices fades, that will leave us dealing with the underlying 4% trend in core … (and) to truly crack core will likely require a more significant slowing in the economy.”The strong labor market is only expected to loosen slightly, nudging up the unemployment rate to 4.0% from the current 3.6% by the end of 2023, the poll showed.A slight majority of economists who answered an additional question, 14 of 23, said wage inflation would be the most sticky component of core inflation.Nearly two-thirds of respondents to a separate question, 27 of 41, expected a U.S. recession within the next year, with 85% of them saying it would start at some point in 2023. Still, the economy was expected to grow 1.5% this year, up from the 1.2% predicted a month ago, and then slow to 0.7% next year.(For other stories from the Reuters global economic poll:) More

OTTAWA (Reuters) -Canada on Tuesday defended its decision to push ahead with its implementation of digital services taxes starting next year, citing national interest even as Finance Minister Chrystia Freeland expressed hope in reaching an international consensus.More than 140 countries were planning to implement a 2021 deal that would overhaul decades-old rules on how governments tax multinational companies that were widely considered to be outdated as digital giants like Apple (NASDAQ:AAPL) or Amazon.com (NASDAQ:AMZN) can book their profits in low-tax countries.Last week, however, most countries set to apply the first part of the deal in 2024 agreed to hold off by at least another year to reach a consensus on tax details. Ottawa refused, saying an extension of the freeze would disadvantage Canada relative to governments that have been collecting revenue under their pre-existing tax regimes.”At this point, it is really important for us to defend our national interest and what we agreed to was a two-year pause,” Freeland told reporters in a call from New Delhi after attending G7 and G20 meetings in India.Ottawa’s new levy would see a 3% tax on revenue earned by large technology companies in Canada.”We support reaching an international consensus and we did have some good conversations within the G7 and bilaterally on finding a path forward where an international agreement can be reached and the Canadian interest can be protected,” Freeland said.The process of launching such taxes has dragged on, and the governments planning national digital services taxes had agreed to put them on ice until the end of this year or drop them altogether once the first pillar of the deal takes effect in 2025 or later.The first part of the two-pillar deal would reallocate rights of taxation on about $200 billion in profits from the biggest and most profitable multinationals to the countries where their sales occur.Freeland said Canada was already in the process of implementing the second pillar, which calls on governments to set a global minimum corporate tax rate of 15% in 2024. More

The minimum hourly wage will be raised to 9,860 won ($7.80) next year, up from 9,620 won this year, the commission said. The figure was reached after 110 days of discussion, the most number of days it has ever taken reach an agreement. It will be the smallest increase since 2021, when the wage was raised by a record low of 1.5% amid the COVID-19 pandemic. ($1 = 1,263.9500 won) More

TOKYO (Reuters) – Confidence at big Japanese manufacturers fell in July for the first time in six months, the Reuters Tankan survey showed on Wednesday, in a sign of growing exporter concern about weakening overseas demand.Their index fell to plus 3 in July, from plus 8 in the previous month. Industries like steel, oil refining and food processing saw particularly large slumps in sentiment.Last month saw Asian factory activity drop, hurt by sluggish demand from China in particular. “The global economy is grappling with things like U.S.-China trade tension and the prolonged war in Ukraine, making for an uncertain outlook. At the same time, competition is intensifying both in domestic and overseas markets,” a machinery maker manager wrote in the comment section of the survey.The Reuters poll of 504 large companies, of which 255 responded, also saw many firms cite chip shortages and the elevated costs of raw materials as negative factors.The service-sector index fared much better, with the non-manufacturers index slipping just one point to +23, though it was a second straight month of decline.Retailers and real estate firms logged big jumps in confidence but sentiment at information and communications companies – while still robust – dropped somewhat.”Business is good because sales remain solid with restaurants, many of whom are our main customers, thanks to a rise in inbound tourism,” wrote a manager at a wholesale firm.The Reuters poll, conducted July 5-14, found corporate confidence was expected to rebound over the coming three months, with manufacturers’ sentiment seen at +7 and service sector sentiment seen at +25.The Reuters Tankan indexes, which can serve as leading indicators for the Bank of Japan tankan surveys, are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A positive figure means optimists outnumber pessimists. Respondents reply on condition of anonymity. More