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Global Economy May Be in a ‘Lost Decade,’ World Bank Warns

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Adding to crises like the pandemic, recent stress in the banking system is a new threat to world growth, experts at the organization said.WASHINGTON — The World Bank warned on Monday that the coronavirus pandemic and Russia’s war in Ukraine had contributed to a decline in the global economy’s long-term growth potential, leading to what could be a “lost decade” that would mean more poverty and fewer resources to combat the impact of climate change.The warning comes as the world deals with overlapping crises — a pandemic that crippled economies and strained public health systems and Russia’s invasion of Ukraine, which disrupted global supply chains and hurt international trade ties. The threat of a more protracted slump coincides with new signs of stress in the world’s financial system as a series of banking crises threaten to undermine economic growth.The World Bank projected in a new report that average potential global output is poised to fall to a 30-year low of 2.2 percent per year between 2023 and 2030. That would be a sharp decline from 3.5 percent per year during the first decade of this century.The falloff will be even more pronounced for developing economies, which grew at an average annual rate of 6 percent from 2000 to 2010; that rate could decline to 4 percent this decade.“A lost decade could be in the making for the global economy,” said Indermit Gill, the World Bank’s chief economist and senior vice president for development economics. “The ongoing decline in potential growth has serious implications for the world’s ability to tackle the expanding array of challenges unique to our times — stubborn poverty, diverging incomes and climate change.”Officials at the World Bank said the “golden era” of development appeared to be coming to an end. They warned that policymakers would need to get more creative as they tried to address global challenges without being able to rely on the rapid economic expansions of countries such as China, which has long been an engine of worldwide growth.They suggested that international monetary and fiscal policy frameworks should be more closely aligned, and that world leaders needed to find ways to reduce trade costs and increase their labor force participation. A return to faster growth, they said, will not be easy.Kristalina Georgieva, the managing director of the International Monetary Fund, said on Sunday that “risks to financial stability have increased.”Jing Xu/Reuters“It will take a herculean collective policy effort to restore growth in the next decade to the average of the previous one,” the World Bank said in the report.The increasing frequency of global crises continues to weigh on output even as signs of an economic rebound emerge. Efforts by central banks to tame inflation by raising interest rates have fueled turmoil in the banking sector, leading to the failures of Silicon Valley Bank and Signature Bank in the United States this month and the rescue of Credit Suisse by UBS.Top economic officials have been watching to see if the strain on the banking system will become a significant economic headwind that could tip the United States into a recession.“It definitely brings us closer right now,” Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said of a recession on the CBS program “Face the Nation” on Sunday. “What’s unclear for us is how much of these banking stresses are leading to a widespread credit crunch.”Kristalina Georgieva, the managing director of the International Monetary Fund, said on Sunday that “risks to financial stability have increased” and that given high levels of uncertainty, policymakers must remain vigilant. She noted that the recent turmoil could have implications for the I.M.F.’s global economic outlook and financial stability report, which will be released in the next few weeks.“At a time of higher debt levels, the rapid transition from a prolonged period of low interest rates to much higher rates — necessary to fight inflation — inevitably generates stresses and vulnerabilities, as evidenced by recent developments in the banking sector in some advanced economies,” Ms. Georgieva said at the China Development Forum.The I.M.F. said in January that it believed a global recession could be avoided as growth began to rebound later this year. At the time, it projected that output would be more resilient than previously anticipated, and it upgraded its growth projections for 2023 and 2024, but it did warn that “financial stability risks remain elevated.”World Bank officials said that if the current banking turmoil spiraled into a financial crisis and recession, then global growth projections might be even weaker because of the associated losses of jobs and investment.“However you look at it, if the current situation gets worse and turns into a recession, especially a recession at the global level, that could have negative implications for long-term growth prospects,” said Ayhan Kose, director the World Bank’s Prospects Group and the lead author of the report. More

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    Support Grows to Have Russia Pay for Ukraine’s Rebuilding

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    Although U.S. officials have cautioned against seizing Russia’s reserves in foreign banks, others say it’s “crazy” not to after Moscow’s war of aggression.When the World Bank released its latest damage assessment of war-torn Ukraine this week, it announced that the price of recovery and rebuilding had grown to $411 billion. What it didn’t say, though, was who would pay for it.To Ukraine, the answer seems obvious: Confiscate the roughly $300 billion in Russian Central Bank assets that Western banks have frozen since the invasion last year. As the war grinds on, the idea has gained supporters.The European Union has already declared its desire to use the Kremlin’s bankroll to pay for reconstruction in Ukraine. At the urging of a handful of Eastern European and Baltic nations, the bloc convened a working group last month to assess the possibility of grabbing that money as well as frozen assets owned by private individuals who have run afoul of European sanctions.“In principle, it is clear-cut: Russia must pay for the reconstruction of Ukraine,” said Sweden’s prime minister, Ulf Kristersson, who holds the presidency of the Council of the European Union.At the same time, he noted, turning that principle into practice is fraught. “This must be done in accordance with E.U. and international law, and there is currently no direct model for this,” Mr. Kristersson said.The working group, which has a two-year mandate, is scheduled to meet in Brussels next week.Other top officials, in the United States and elsewhere, have sounded more skeptical. After visiting Kyiv last month, Treasury Secretary Janet L. Yellen reiterated her warnings of formidable legal obstacles. The Swiss government declared that confiscating private Russian assets from banks would violate Switzerland’s Constitution as well as international agreements.The legal debate is just one skein in the tangle of moral, political and economic concerns that the potential seizure of Russia’s reserves poses.Departing a Mass in Lviv, Ukraine. Some U.S. officials worry about side effects from seizing assets in order to rebuild the country. Maciek Nabrdalik for The New York TimesMs. Yellen and others have argued that seizing Russia’s accounts could undermine faith in the dollar, the most widely used currency for the world’s trade and transactions. Foreign nations might be more reluctant to keep money in U.S. banks or make investments, fearing that it could be seized. At the same time, experts worry that such a move could put American and European assets held in other countries at higher risk of expropriation in the future if there is an international dispute.There are also concerns that seizure would erode faith in the system of international laws and agreements that Western governments have championed most vocally.But Russia’s pummeling of Ukraine’s infrastructure, charges of war crimes against President Vladimir V. Putin, and the difficulty of squeezing Russia economically when demand for its energy and other exports remains high have helped the idea gain ground.Also, there is the uncomfortable realization that the cost of rebuilding Ukraine once the war is over will far outstrip the amount that even wealthy allies like the United States and Europe may be willing to give.The United States, the European Union, Britain and other allies have funneled billions of dollars into Ukraine’s war effort, as well as tanks, missiles, ammunition, drones and other military equipment. And this week the International Monetary Fund approved its biggest loan yet — $15.6 billion — just to keep Ukraine’s battered economy afloat.But public support for continued funding is not inexhaustible.“If it’s difficult to get funding now for maintaining the infrastructure or housing, why is it going to be easier to get funding later?” asked Tymofiy Mylovanov, the president of the Kyiv School of Economics and a former government minister.It’s hard enough for Ukraine to get money and equipment “while we are being killed,” Mr. Mylovanov said. “Once we’re not being killed, we’ll have difficulty getting anything.”Laurence Tribe, a university professor of constitutional law at Harvard, has argued that a 1977 law, the International Emergency Economic Powers Act, gives the U.S. president the authority to confiscate sovereign Russian assets and repurpose them for Ukraine.The U.S. authorities previously seized Iraqi and Iranian assets and redirected them to compensate victims of violence, settle lawsuits or provide financial assistance.Mr. Tribe concedes that calculations about the ripple effect on the dollar or invested assets will ultimately matter more to policymakers than legal ones. But he finds those broader political concerns unpersuasive.“It’s crazy to argue that it’s more destabilizing to have assets seized than to have wars of aggression,” Mr. Tribe said in an interview on Friday. “The survival of the global economy is far more threatened by the way Russia behaved” than by any financial retaliation.And, he added, taking billions of dollars is much more meaningful either as a deterrent or punishment than bringing war crime charges.A destroyed garage in Hostomel, a Kyiv suburb. Prominent Americans like Laurence Tribe and Lawrence Summers argue that seizing Russian assets would be the right thing to do.Emile Ducke for The New York TimesOther prominent voices in the United States have endorsed the notion. Lawrence H. Summers, a former Treasury secretary; Robert B. Zoellick, a former president of the World Bank and U.S. trade representative; and Philip D. Zelikow, a historian at University of Virginia and a former State Department counselor, made their case this week in an opinion piece in The Washington Post.“Transferring frozen Russian reserves would be morally right, strategically wise and politically expedient,” they wrote.A few countries in addition to Ukraine have taken steps to pry loose foreign assets owned by Russian individuals and entities and use the money for reconstruction. In December, the Canadian government began the process of seizing $26 million owned by the Russian oligarch Roman Abramovich after passing a law easing the forfeiture of private Russian assets from individuals who are under sanctions.A federal judge in Manhattan gave the go-ahead last month to confiscate $5.4 million from another Russian businessman facing sanctions, Konstantin Malofeev. And Estonia is also seeking to pass legislation that would give the government there similar powers.But Mr. Tribe, Mr. Summers and others argue that the main focus should be not on seizing private assets, which would be legally much more complicated and time-consuming, but on the hundreds of billions owned by Russia’s central bank.Wherever the money comes from, the bill keeps growing. Over the past year, Ukraine’s economy has shrunk by a third. The war has pushed more than seven million people into poverty, the World Bank reported, and reversed 15 years of development progress. More

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    In Budget Talks, Biden Rejects Hard Choices of the Past

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    The president has met Republican demands for debt reduction with a plan to trim deficits by taxing companies and the rich. Months after losing control of the House in 2010, President Barack Obama and his vice president, Joseph R. Biden Jr., released a budget proposal that bowed to Republican warnings about the need to rein in spending by promising a freeze in popular programs like education.Now president, Mr. Biden is confronting the same equation, with an emboldened new Republican majority in the House demanding deep spending cuts. But this time, Mr. Biden has made a sharp break from the past.His proposed budget does contain new steps to reduce deficits, but instead of talking about hard choices and freezing spending, Mr. Biden has pledged to defend popular federal programs from Republican attacks and instead rely almost exclusively on taxing corporations and high earners as the way to reduce the growth in the deficit by nearly $3 trillion over the next decade.The shifting strategy by Mr. Biden is rooted in his determination not to repeat political and economic mistakes from the Obama era, administration officials say privately. Economists now say economic mistakes from the Obama era slowed the recovery from the 2008 financial crisis. And publicly, officials point to polls to contend that voters side with the president on how to reduce deficits.“The American people are absolutely right that having the super-wealthy and special interests pay their fair share is the right way to reduce the deficit,” said Jesse Lee, a senior communications adviser to Mr. Biden’s National Economic Council.The budget fight is expected to drag out for months as both sides attempt to pin the blame on the other. Mr. Biden is attempting a different sort of budget triangulation from Mr. Obama’s plan, as he nods to concerns over the $31.4 trillion national debt but seeks to redefine the issue and turn conservatives’ longstanding antipathy toward tax increases into a negotiating and electoral weapon.“The Republicans have taken off the table making the wealthy and the well connected pay a little more to help reduce the national debt — that means they’re not really serious about the national debt,” Senator Elizabeth Warren, Democrat of Massachusetts, said in an interview.Understand Biden’s Budget ProposalPresident Biden proposed a $6.8 trillion budget that sought to increase spending on the military and social programs while also reducing future budget deficits.Recapturing a Centrist Identity: As he unveiled his proposal, Mr. Biden made curbing the budget gap one of his centerpiece promises. The move is part of a wider shift that sees the president speaking more to the concerns of the political middle.A Missing Plan for Social Security: Like the president’s previous budgets, his new proposal makes no mention of the program, which he promised to shore up during his 2020 campaign.N.Y. Transit Projects: President Biden’s budget plan routes about $1.2 billion to two of the biggest transit projects in New York City: the Second Avenue Subway extension and new train tunnels under the Hudson River.“Higher taxes aimed at billionaires and giant corporations that are hiding their money overseas would have very little effect on our economy, other than the ability to reduce the national debt or to invest more,” she said.House Republicans are refusing to raise a cap on the amount of debt the United States can have outstanding unless Mr. Biden agrees to large federal spending cuts, which could include slashing antipoverty programs and new measures meant to fight climate change. They say the current national debt load and new spending programs approved by the president are weighing on economic growth, partly by driving up borrowing costs for private businesses.They are trying to assemble their own budget proposal that can pass the House, likely centered on cuts to housing assistance, health care programs and other aid to the poor. In a caucus that fractures on key issues like how much to spend on the military and whether to raise retirement ages for Social Security and Medicare, members have found common purpose in skewering Mr. Biden’s fiscal plans.“After two years of economic failures, the American people desperately want results,” Representative Jason Smith of Missouri, the chairman of the Ways and Means Committee, said at the start of a hearing on Mr. Biden’s budget on Friday. “The budget before us today calls for $4.7 trillion in new taxes and sinks $6.9 trillion in new spending during a staggering debt crisis.”Mr. Biden has refused to negotiate directly over raising the debt limit but says he welcomes a conversation on the nation’s finances — on his own, populist terms.“What are they going to cut?” Mr. Biden mused to an audience in Philadelphia on Thursday, as he formally unveiled his budget and called on Republicans to follow suit..css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.“What about Medicaid? What about the Affordable Care Act? What about veterans’ benefits? What about law enforcement? What about aid to rural communities? What about support for our military?” he asked. “What will they make — how will they make these numbers add up?”This debate is happening in an economic moment that is very different from 2011, when Mr. Obama issued his budget for the 2012 fiscal year.At that time, the gross national debt was about $15.5 trillion, or just under three-quarters of what was the annual output of the American economy. But the economy was nowhere close to recovering from the 2009 recession. The unemployment rate was 9 percent. The economy was running well below what economists call its potential — the amount of goods and services it would be producing at what you might call optimal performance.Then-President Barack Obama speaking about his budget proposal in 2009, with Mr. Biden, his vice president. Mr. Obama bowed to Republican demands to reduce deficits.Doug Mills/The New York TimesProgressive economists pushed Mr. Obama to take advantage of low interest rates to continue running large deficits and pump more money into the economy. After losing the House, though, he bowed to Republican demands to reduce deficits and pivoted the other way. His budget proposed caps on government spending and urged Congress “to act now to secure and strengthen Social Security for future generations” by taking steps to shore up its finances.A bout of brinkmanship later in 2011 between House Republicans and Mr. Obama nearly ended with the United States defaulting on its debt, before Mr. Obama agreed to a set of caps on future spending increases in exchange for lifting the limit. That deal helped cut the deficit by nearly two-thirds before Mr. Obama left office.Many economists have concluded that those measures dragged out the time it took for the economy to finally run hot enough to generate sustained wage gains for workers.Today’s economy has run so hot that the Federal Reserve is trying to cool it down to tame high inflation. Unemployment is 3.6 percent, and companies are having trouble finding workers. Republicans blame Mr. Biden’s spending policies for stoking inflation and say his tax proposals would further burden people and business owners already struggling with high prices.Progressive economists disagree — increasingly saying there is little threat to growth from large tax increases on companies and high earners.Even with his proposed savings, Mr. Biden’s budget still foresees the gross national debt increasing by about $18 trillion through 2033, to just above $50 trillion, or 128 percent of gross domestic product. It projects deficits to average about 1.5 percent more, as a share of the economy, than Mr. Obama projected in his 2012 budget. Yet administration economists say that under their plans, “the economic burden of debt would remain low.”Some progressive groups criticized Mr. Biden last week for focusing at all on deficit reduction in the budget. Others welcomed his emphasis on raising taxes for businesses and people earning more than $400,000.Budget hawks urged Mr. Biden last week to propose more — and more immediate — deficit reduction. Such reductions would pull consumer spending power out of the economy faster by raising taxes or reducing federal expenditures, or both. Advocates of deficit reduction said that could help ease price growth in the economy.Jerome H. Powell, the Fed chairman, told lawmakers in the House and Senate last week that federal tax and spending policy was “not contributing to inflation” today. He was pressed on that view by Senator John Kennedy of Louisiana, a Republican on the Budget Committee.“It’s undeniable that the only way we’re going to get this sticky inflation down is to attack it on the monetary side, which you’re doing, and on the fiscal side, which means Congress has got to reduce the rate of growth of spending and reduce — reduce the rate of growth of debt accumulation,” Mr. Kennedy said.“Now I get that you don’t want to get in the middle of that fight,” he added. “But the more we help on the fiscal side, the fewer people you’re going to have to put out of work. Isn’t that a fact?”“It could work out that way,” Mr. Powell replied. More

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    Debt Default Would Cripple U.S. Economy, New Analysis Warns

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    As President Biden prepares to release his latest budget proposal, a top economist warned lawmakers that Republicans’ refusal to raise the nation’s borrowing cap could put millions out of work.WASHINGTON — The U.S. economy could quickly shed a million jobs and fall into recession if lawmakers fail to raise the nation’s borrowing limit before the federal government exhausts its ability to pay its bills on time, the chief economist of Moody’s Analytics, Mark Zandi, warned a Senate panel on Tuesday.The damage could spiral to seven million jobs lost and a 2008-style financial crisis in the event of a prolonged breach of the debt limit, in which House Republicans refuse for months to join Democrats in voting to raise the cap, Mr. Zandi and his colleagues Cristian deRitis and Bernard Yaros wrote in an analysis prepared for the Senate Banking Committee’s Subcommittee on Economic Policy.Senator Elizabeth Warren, Democrat of Massachusetts, held the subcommittee hearing on the debt limit, and its economic and financial consequences, at a moment of fiscal brinkmanship. House Republicans are demanding deep spending cuts from President Biden in exchange for voting to raise the debt limit, which caps how much money the government can borrow.That debate is likely to escalate when Mr. Biden releases his latest budget proposal on Thursday. The president is expected to propose reducing America’s reliance on borrowed money by raising taxes on high earners and corporations. But he almost certainly will not match the level of spending cuts that will satisfy Republican demands to balance the budget in a decade.The report also warns of stark economic damage if Mr. Biden, in an attempt to avert a default, agrees to those demands. In that scenario, the “dramatic” spending cuts that would be needed to balance the budget would push the economy into recession in 2024, cost the economy 2.6 million jobs and effectively destroy a year’s worth of economic growth over the next decade, Mr. Zandi and his colleagues wrote.The U.S. economy could quickly shed a million jobs and fall into recession if lawmakers fail to raise the nation’s borrowing limit.Michelle V. Agins/The New York Times“The only real option,” Mr. Zandi said in an interview before his testimony, “is for lawmakers to come to terms and increase the debt limit in a timely way. Any other scenario results in significant economic damage.”Understand the U.S. Debt CeilingCard 1 of 5What is the debt ceiling? More

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    Eurozone Inflation Edges Lower, but Pressure on Prices Continues

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    The annual rate of inflation was 8.5 percent in February, down from 8.6 percent a month earlier, among countries using the euro.With the winter drawing to a close, inflation levels eased in Europe last month, the European Commission reported on Thursday, even as concerns grew that stubbornly high prices could put pressure on central bankers to keep raising interest rates.Consumer prices in the 20 countries that use the euro as their currency rose at an annual rate of 8.5 percent in February, down slightly from January’s rate of 8.6 percent. Year-over-year rates have been declining since reaching a peak 10.6 percent in October.But some of the largest economies showed troubling increases, and core inflation — a measure that excludes the most erratic categories like food and energy — rose to a record high of 5.6 percent in February, from 5.3 percent.In France, inflation hit 7.2 percent in February, its highest point in more than two decades while in Spain, inflation grew at an annual rate of 6.1 percent. Germany, Europe’s largest economy, reported that the annual rate crept up to 9.3 percent.The grim economic outlook for Europe that had been predicted last fall has considerably brightened. Fears of a deep recession turned out to be overblown. Vertigo-inducing energy prices have dropped thanks in part to a warm winter and conservation efforts. Still, the road is bumpy.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    War in Ukraine Deepens Divide Among Major Economies at G20 Gathering

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    Treasury Secretary Janet L. Yellen urged her counterparts at a summit in India to condemn Russia’s actions, and she defended the cost of supplying aid to Kyiv.A year after Russia’s invasion of Ukraine, the war is deepening the division among the world’s major economies, threatening fragile recoveries by disrupting food and energy supply chains and distracting from plans to combat poverty and restructure debt in poor countries.Those fissures were evident this past week as top economic policymakers from the Group of 20 nations gathered for two days at a resort in Bengaluru, a city in southern India, where efforts to demonstrate unity were overshadowed by flaring tensions over Russia. During the summit, Western nations imposed a barrage of new sanctions on Moscow and unveiled more economic support for Ukraine, while developing countries like India, which have been reaping the benefits of cheap Russian oil, resisted expressing criticism.The differing views left officials struggling to cobble together the traditional joint statement, or communiqué, on Saturday, forcing senior representatives from the Group of 7 nations, the world’s most advanced economies, to try to convince reluctant counterparts that defending Ukraine was worth the cost.“Ukraine is fighting not only for their country, but for the preservation of democracy and peaceful conditions in Europe,” Treasury Secretary Janet L. Yellen said on Saturday in an interview, explaining the case that she had made to the more reluctant countries. “It’s an assault on democracy and on territorial integrity that should concern all of us,” she added.The summit took place at a pivotal moment for the global economy. The International Monetary Fund last month upgraded its global output projections but warned that Russia’s war in Ukraine continued to cast a cloud of uncertainty. The fund also noted that increasing “fragmentation” in the world could be a drag on growth in the future.Ms. Yellen was among the most forceful critics of Russia during the two-day meeting. At one point, she directly confronted senior Russian officials in a private session and called them “complicit” in the Kremlin’s atrocities.The grappling over how to characterize Russia’s actions led Bruno Le Maire, the French finance minister, to publicly vent his frustration with some countries that would not assail Russia in writing. He noted that when the leaders of the Group of 20 nations met in November, in Bali, Indonesia, their statement had asserted that most members strongly condemned the war, and he said on Friday that he was opposed to watering down that sentiment.“I want to make it very clear that we will oppose any step back from the statement of the leaders in Bali on this question of the war in Ukraine,” Mr. Le Maire, who declined to name the holdouts, said at a news conference. “We strongly condemn this illegal and brutal attack against Ukraine.”India’s close economic ties with Russia have made its role as the host of the Group of 20 this year especially challenging. Moscow is a major supplier of energy and military equipment to India, while the United States is India’s largest trading partner.To remain neutral, India has tried to avoid describing the conflict as a “war” and instead focused on other issues. In an opening address to the summit, Prime Minister Narendra Modi laid out the threats facing the global economy, but he made no mention of Russia, pointing instead to “rising geopolitical tensions in many parts of the world.”Some of the resistance to condemning Russia is because of concern about the United States’ use of its economic might to isolate a member of the Group of 20.“The fact that the U.S. clearly has so much power to take action against a geopolitical rival is a significant concern,” said Eswar Prasad, a trade policy professor at Cornell University who speaks to both American and Indian officials. “There’s clearly been a splintering of the G20.”Mr. Prasad added that the aggressive use of sanctions by the United States had raised anxiety among other nations — even if they disagreed with Russia’s actions — that they could someday be exposed to Washington’s wrath.That use of economic warfare was on display on Friday, when the United States imposed sanctions on more than 200 individuals and entities in Russia and other countries that are helping to financially support Moscow’s invasion of Ukraine. Sanctions were also placed on Russia’s metals and mining sector and on energy companies.The war in Ukraine was not the only matter this past week that consumed finance ministers in India.The United States and Europe continued to hash out differences over American subsidies for electric vehicles that European countries believe will harm their economies. A global tax agreement that was struck in 2021 continues to flounder, raising the prospect that it could unravel. And talks over restructuring debt burdens facing poor countries to avoid a cascade of defaults failed to bear fruit, largely because of resistance from China.“There hasn’t been a significant change that I see,” said Ms. Yellen, who expressed frustration at China’s role as a roadblock this past week.But it is the war in Ukraine that has left the world’s economic leaders most divided. In many cases, resistance to supporting Ukraine and confronting Russia is the result of complicated domestic politics in many countries, and the United States is no exception.A growing number of Republicans, including former President Donald J. Trump, have been arguing in recent weeks that the United States cannot afford to endlessly support Kyiv. They contend that at a time when the United States is burdened by record levels of debt and a weakening economy, that money would be better spent on domestic problems.In the past year, the United States has directed more than $100 billion dollars of humanitarian, financial and military aid to Ukraine. The Congressional Budget Office projected last week that the United States was on track to add nearly $19 trillion to its national debt over the next decade, $3 trillion more than previously forecast.For the Biden administration, scaling back aid to Ukraine does not appear to be an option.In the interview, Ms. Yellen argued that the United States can afford to bear the costs and that supporting Ukraine was a priority for national security and economic reasons.“The war is having an adverse effect on the entire global economy,” Ms. Yellen said, “and providing the support that’s necessary for Ukraine to win this and bring it to an end is certainly something that we really can’t afford not to do.” More

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    U.S. Could Default on Its Debt Between July and September, C.B.O. Says

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    The nonpartisan budget office also said that if tax receipts fall short of projections, and Congress fails to act on the debt limit, the U.S. could run out of cash before July.WASHINGTON — The Treasury Department’s ability to continue paying its bills and prevent the United States from defaulting on its debt could be exhausted sometime between July and September if Congress does not raise or suspend the cap on how much the nation can borrow, the nonpartisan Congressional Budget Office said on Wednesday.The estimate suggests that lawmakers could have slightly more leeway than Treasury Secretary Janet L. Yellen estimated last month, when she told Congress that her department’s ability to keep financing America’s obligations could be exhausted in June.The United States borrows huge sums of money by selling Treasury securities to investors across the globe. That funding helps pay for military salaries, retiree benefits and interest payments to bondholders who own U.S. debt. The nation hit its statutory $31.4 trillion borrowing cap last month, forcing the Treasury Department to employ a series of accounting maneuvers to help ensure the government can continue paying its bills without breaching the debt limit.“If the debt limit is not raised or suspended before the extraordinary measures are exhausted, the government would be unable to pay its obligations,” the C.B.O. said in the report on Wednesday. “As a result, the government would have to delay making payments for some activities, default on its debt obligations or both.”However, the budget office noted that the timing of the so-called X-date is uncertain because it depends on how much tax revenue comes into the federal government over the coming months. The office said that if receipts fall short of its estimates, the Treasury could run out of funds before July.Ms. Yellen has been employing extraordinary measures since January to keep the government running. Those have included redeeming some existing investments and suspending new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund.In a speech on Tuesday, Ms. Yellen warned that a default would be catastrophic.“In my assessment — and that of economists across the board — a default on our debt would produce an economic and financial catastrophe,” Ms. Yellen said at the National Association of Counties Legislative Conference. “Household payments on mortgages, auto loans and credit cards would rise, and American businesses would see credit markets deteriorate.”Calling on Congress to act, she added: “This economic catastrophe is preventable.”It remains unclear how quick or easy it will be to raise or suspend the debt cap. Republican lawmakers have insisted that President Biden agree to undefined spending cuts in order to win their vote to raise the cap. Mr. Biden has insisted he will not negotiate spending cuts as part of any debt limit legislation, arguing that the cap has to be raised to fund obligations that Congress — including Republicans — already approved.A separate C.B.O. report out on Wednesday showing the federal government will add $19 trillion in debt over the next decade and run $2 trillion annual deficits is likely to inflame those tensions.In a tweet on Wednesday, Speaker Kevin McCarthy once again called for pairing discussions about spending cuts to raising the borrowing cap. More

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    U.S. Trade Deficit Surged in 2022

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    The gap between what the United States imports and what it exports hit a record as more foreign goods came into the country.WASHINGTON — The overall U.S. trade deficit rose 12.2 percent last year, nearing $1 trillion as Americans purchased large volumes of foreign machinery, medicines, industrial supplies and car parts, according to data released Tuesday by the Commerce Department.The goods and services deficit reached $948.1 billion, its largest total on record, after rising $103 billion from the previous year.The data showed evidence of the U.S. economy’s continuing recovery from the pandemic, which had held down spending on services like travel and entertainment and pushed up purchases of imported goods. Rapid inflation and higher energy prices were responsible for some of the growth, because the trade data is not adjusted for inflation.The numbers also showed signs that global supply chains appear to be reshuffling somewhat, as the U.S. government erects more barriers to trade with China and businesses seek to diversify where they get materials and goods. The Biden administration has identified the nation’s reliance on China for materials like solar panels and electric vehicle batteries as a security risk, and introduced incentives and penalties to try to persuade companies to change supply chains that proved vulnerable to pandemic disruptions.The U.S. trade deficit in goods with Mexico, Canada, India, South Korea, Vietnam and Taiwan all grew strongly last year as manufacturers sought new sources of foreign products.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Air Force Says Proposed Chinese-Owned Mill in North Dakota Is ‘Significant Threat’

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    A proposal for a corn mill, which had been welcomed as an economic development success, reflects just how much things have changed with Chinese investment proposals in the U.S.After more than a year of debate about whether a Chinese company’s plan to build a corn mill in North Dakota was an economic boon or a geopolitical risk, an assistant secretary of the Air Force has weighed in with a warning that the “project presents a significant threat to national security.”The letter from Assistant Secretary Andrew P. Hunter, released publicly on Tuesday by North Dakota’s senators, noted the proximity of Grand Forks Air Force Base to the proposed mill and said the project raised “near- and long-term risks of significant impacts to our operations in the area.”The debate over Fufeng USA’s plan to build a giant milling facility on the edge of Grand Forks, less than 15 miles from the Air Force base, divided the Republican power structure in North Dakota and showed just how swiftly the economic relationship between the United States and China had changed.Though the Air Force letter did not name specific threats, residents had voiced numerous concerns. Some in town said it was unwise to deepen economic ties with China, while others speculated that the mill could be used for spying on the Air Force, which the company denied.The city’s Republican mayor, Brandon Bochenski, a former supporter of the project, said on Tuesday that because of the federal guidance, he would move to block construction by trying to deny building permits and by refusing to connect city infrastructure to the building site.More on U.S. Armed ForcesKorean War Wall of Remembrance: Many names of American service members who died in the conflict are misspelled or missing from the new memorial wall in Washington, relatives and researchers say.Parental Leave: The Pentagon announced a new policy that would double the amount of leave that is available to military service members.Defense Bill: Congress passed a $858 billion defense bill that would rescind the coronavirus vaccine mandate for troops and increase the defense budget $45 billion over President Biden’s request.A Boost for the N.R.A.: Instructors in military-sponsored J.R.O.T.C. classes have offered to promote the gun rights organization in high schools in exchange for money for their marksmanship programs.“The Air Force left ambiguity off the table,” the state’s two senators, John Hoeven and Kevin Cramer, both Republicans, said in a joint statement that called for Grand Forks officials to work with them “to find an American company to develop the agriculture project.”The corn mill was the sort of job-creating opportunity that cities have long fought over, and one that just a few years ago would have been seen by most as an unambiguous win. Both Mr. Bochenski and North Dakota’s Republican governor, Doug Burgum, celebrated in late 2021 when Grand Forks landed the project, which would have been the city’s largest economic development project in recent history.But within months after Fufeng chose Grand Forks, a college and military city with 59,000 residents, many in town began speaking out against the project. While some of the opposition focused on property rights and water use, the company’s ties to China and the perceived national security risks became the focus of pushback. Still, the city moved forward, annexing the field where the mill would be built and entering into a development agreement with the company.Mr. Bochenski, a first-term mayor and a former professional hockey player, said in an interview last year that the shifting geopolitical winds had been a challenge for the city. “Are we going to be the first one to basically say no to globalism?” he asked at the time.But on Tuesday, in light of the Air Force’s letter, Mr. Bochenski said he would seek the City Council’s help to block construction, though he noted that Fufeng USA, the American subsidiary of a Chinese company, would still own the land where it had hoped to build.Work on the project had been paused in recent months while the federal government’s Committee on Foreign Investment in the United States reviewed the company’s plans. That committee ultimately decided that it did not have jurisdiction.“The response from the federal government during this process can only be viewed as slow and contradictory,” Mr. Bochenski said. “This directive leaves open the question of other entities with Chinese connections across the nation,” he added, including a Chinese-owned aviation company in Grand Forks “and Chinese students and professors at the University of North Dakota.”Mr. Burgum, who once called the Fufeng mill a “huge opportunity” for his state, said in a statement that he supported the mayor’s decision to stop cooperating with the company given the concerns voiced by the Air Force.The turnabout in North Dakota comes as the United States rethinks its longstanding trade relationship with China, and as politicians in both parties have come to view the country more as a threat than as an attractive economic partner. Several states are considering bills this year that would limit or ban Chinese land ownership.Eric Chutorash, Fufeng USA’s chief operating officer, has repeatedly denied that the mill would be used to spy on or harm the United States. He did not immediately respond to requests for comment about the Air Force’s letter. China’s embassy in Washington declined to comment. More