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Chinese Exports Are Threatening Biden’s Industrial Agenda

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The president is increasingly hitting back with tariffs and other measures meant to restrict imports, raising tensions with Beijing.President Biden’s trillion-dollar effort to invigorate American manufacturing and speed a transition to cleaner energy sources is colliding with a surge of cheap exports from China, threatening to wipe out the investment and jobs that are central to Mr. Biden’s economic agenda.Mr. Biden is weighing new measures to protect nascent industries like electric-vehicle production and solar-panel manufacturing from Chinese competition. On Wednesday in Pittsburgh, the president called for higher tariffs on Chinese steel and aluminum products and announced a new trade investigation into China’s heavily subsidized shipbuilding industry.“I’m not looking for a fight with China,” Mr. Biden said. “I’m looking for competition — and fair competition.”Unions, manufacturing groups and some economists say the administration may need to do much more to restrict Chinese imports if it hopes to ensure that Mr. Biden’s vast industrial initiatives are not swamped by lower-cost Chinese versions of the same emerging technologies.“It is a very clear and present danger, because the industrial policy of the Biden administration is largely focused on not the traditional low-skill, low-wage manufacturing, but new, high-tech manufacturing,” said Eswar Prasad, a Cornell University economist who specializes in trade policies.“Those are precisely the areas where China has upped its own investments,” he said.Both America and China are using large government subsidies to stoke economic growth and try to dominate what they believe will be the most important global markets of this century: the technologies meant to speed a global transition away from fossil fuels in order to avert catastrophic climate change.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    The Global Turn Away From Free-Market Policies Worries Economists

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    More countries are embracing measures meant to encourage their own security and independence, a trend that some say could slow global growth.Meeting outside Paris last week, top officials from France, Germany and Italy pledged to pursue a coordinated economic policy to counter stepped-up efforts by Washington and Beijing to protect their own homegrown businesses.The three European countries have joined the parade of others that are enthusiastically embracing industrial policies — the catchall term for a variety of measures like targeted subsidies, tax incentives, regulations and trade restrictions — meant to steer an economy.More than 2,500 industrial policies were introduced last year, roughly three times the number in 2019, according to a new study. And most were imposed by the richest, most advanced economies — many of which could previously be counted on to criticize such tactics.The measures are generally popular at home, but the trend is worrying some international leaders and economists who warn that such top-down economic interventions could end up slowing worldwide growth.The sharpened debate is sure to be on display at the economic lollapalooza that opens Wednesday in Washington — otherwise known as the annual spring meetings of the International Monetary Fund and the World Bank.From left, Adolfo Urso of Italy, Bruno Le Maire of France and Robert Habeck of Germany vowed to coordinate their economic policies.Yoan Valat/EPA, via ShutterstockWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    U.S. Leading Soft Landing for Global Economy

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    Economies all over the world are lowering inflation while avoiding serious recession — but growth in the United States stands out.The world is starting 2024 on an optimistic economic note, as inflation fades globally and growth remains more resilient than many forecasters had expected. Yet one country stands out for its surprising strength: the United States.After a sharp pop in prices rocked the world in 2021 and 2022 — fueled by supply chain breakdowns tied to the pandemic, then oil and food price spikes related to Russia’s invasion of Ukraine — many nations are now watching inflation recede. And that is happening without the painful recessions that many economists had expected as central banks raised interest rates to bring inflation under control.But the details differ from place to place. Forecasters from the Federal Reserve to the International Monetary Fund have been most surprised at the remarkable strength of the U.S. economy, while growth in places like the United Kingdom and Germany remains more lackluster. The question is why America has pulled out ahead of other developed economies in the pack.The I.M.F. said this week that it expected the United States to grow 2.1 percent, a sharp upgrade from the previous estimate of 1.5 percent. Other major advanced economies are also expected to grow, albeit less quickly. The euro area is expected to notch out 0.9 percent growth, as is Japan, and the United Kingdom is forecast to expand by 0.6 percent. “This is a good situation, let’s be honest, this is a good economy,” Jerome H. Powell, the chair of the U.S. Federal Reserve, said at a news conference this week — two of nearly 20 times that he called the data “good” during his remarks.Evidence of that strength continued on Friday, when a blockbuster jobs report showed that employers had added 353,000 jobs in January and wages grew at a rapid clip.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    War Has Already Hurt the Economies of Israel’s Nearest Neighbors

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    The impact on global growth of the Middle East violence has so far been contained. That’s not the case for Egypt, Lebanon and Jordan, which were already struggling.In the Red Sea, attacks by Iranian-backed Houthi militants on commercial ships continue to disrupt a crucial trade route and raise shipping costs. The threat of escalation there and around flash points in Lebanon, Iraq, Syria, Yemen and now Iran and Pakistan ratchets up every day.Despite the staggering death toll and wrenching misery of the violence in the Middle East, the broader economic impact so far has been mostly contained. Oil production and prices, a critical driver of worldwide economic activity and inflation, have returned to pre-crisis levels. International tourists are still flying into other countries in the Middle East like Saudi Arabia, the United Arab Emirates and Qatar.Yet for Israel’s next-door neighbors — Egypt, Lebanon and Jordan — the economic damage is already severe.An assessment by the United Nations Development Program estimated that in just three months, the Israel-Gaza war has cost the three countries $10.3 billion, or 2.3 percent of their combined gross domestic product. An additional 230,000 people in these countries are also expected to fall into poverty.Iranian-backed Houthi militants have been attacking commercial ships in the Red Sea.Sayed Hassan/Getty Images“Human development could regress by at least two to three years in Egypt, Jordan, and Lebanon,” the analysis warned, citing refugee flows, soaring public debt and declines in trade and tourism — a vital source of revenue, foreign currency and employment.That conclusion echoed an update last month by the International Monetary Fund, which said that it was certain to lower its forecast for the most exposed countries when it publishes its World Economic Outlook at the end of this month.The latest economic gut punches could not come at a worse time for these countries, said Joshua Landis, director of the Center for Middle East Studies at the University of Oklahoma.Economic activity across the Middle East and North Africa was already on a down slide, slipping to 2 percent growth in 2023 from 5.6 percent the previous year. Lebanon has been enmeshed in what the World Bank calls one of the world’s worst economic and financial crises in more than a century and half. And Egypt has been on the brink of insolvency.Since Hamas fighters attacked Israel from Gaza on Oct. 7, about 25,000 Palestinians have been killed by Israel, according to the Gazan health ministry. The strip has suffered widespread destruction and devastation. In Israel, where the Hamas attacks killed about 1,200 people, according to officials, and resulted in 240 being taken hostage, life has been upended, with hundreds of thousands of citizens called into military service and 200,000 displaced from border areas.In Jordan, Lebanon and Egypt, uncertainty about the war’s course is eating away at consumer and business confidence, which is likely to drive down spending and investment, I.M.F. analysts wrote.Rising prices in Egypt continue to gnaw at households’ buying power.Mauricio Lima for The New York TimesEgypt, the Arab world’s most populous country, has still not recovered from the rise in the cost of essential imports like wheat and fuel, a plunge in tourist revenue, and a drop in foreign investment caused by the coronavirus pandemic and the war in Ukraine.Lavish government spending on showy megaprojects and weapons caused Egypt’s debt to soar. When central banks around the world raised interest rates to curb inflation, those debt payments ballooned. Rising prices within Egypt continue to gnaw away households’ buying power and business’s plans for expansion.“No one wants to invest, but Egypt is too big to fail,” Mr. Landis said, explaining that the United States and I.M.F. are unlikely to let the country default on its $165 billion of foreign loans given its strategic and political importance.The drop in shipping traffic crossing into the Red Sea from the Suez Canal is the latest blow. Between January and August, Egypt brought in an average of $862 million per month in revenue from the canal, which carries 11 percent of global maritime trade.James Swanston, an emerging-markets economist at Capital Economics, said that according to the head of the Suez Canal Authority, traffic is down 30 percent this month from December and revenues are 40 percent weaker compared to 2023 levels.“That’s the biggest spillover effect,” he said.For these three struggling economies, the drop in tourism is particularly alarming. In 2019 tourism in Egypt, Lebanon and Jordan accounted for 35 percent to nearly 50 percent of their combined goods and services exports, according to the I.M.F.Displaced Palestinians on their way from the north of the Gaza Strip to its south last year.Samar Abu Elouf for The New York TimesIn early January, confirmed tickets for international arrivals to the wider Middle East region for the first half of this year were 20 percent higher than they were last year, according to ForwardKeys, a data-analysis firm that tracks global air travel reservations.But the closer the fighting, the bigger the decline in travelers. Tourism to Israel has mostly evaporated, further hammering an economy upended by full-scale war.In Jordan, airline bookings were down 18 percent. In Lebanon, where Israeli troops are fighting Hezbollah militants along the border, bookings were down 25 percent.“Fears of further regional escalation are casting a shadow over travel prospects in the region,” Olivier Ponti, vice president of insights at ForwardKeys.In Lebanon, travel and tourism has previously contributed a fifth of the country’s yearly gross domestic product.“The number one site in Lebanon is Baalbek,” said Hussein Abdallah, general manager of Lebanon Tours and Travels in Beirut. The sprawling 2,000-year-old Roman ruins are so spectacular that visitors have suggested that djinns built a palace there for the Queen of Sheba or that aliens constructed it as an intergalactic landing pad.Now, Mr. Abdallah said, “it is totally empty.” Mr. Abdallah said that since Oct. 7, his bookings have dropped 90 percent from last year. “If the situation continues like that,” he said, “many tour operators in Beirut will go out of business.”Travel to Egypt also dropped in October, November and December. Mr. Landis at the Middle East Center in Oklahoma mentioned that even his brother canceled a planned trip down the Nile, choosing to vacation in India instead.The top tourist site in Lebanon is the 2,000-year-old Roman ruins of Baalbek, said Hussein Abdallah, general manager of Lebanon Tours and Travels in Beirut. Now, he said, “it is totally empty.”Mohamed Azakir/ReutersKhaled Ibrahim, a consultant for Amisol Travel Egypt and a member of the Middle East Travel Alliance, said cancellations started to pour in after the attacks began. Like other tour operators he offered discounts to popular destinations like Sharm el-Sheik at the southern tip of the Sinai Peninsula, and occupancy hit about 80 percent of normal.He is less sanguine about salvaging the rest of what is considered the prime tourist season. “I can say this winter, January to April, will be quite challenging,” Mr. Ibrahim said from Medina in Saudi Arabia, where he was leading a tour. “Maybe business drops down to 50 percent.”Jim Tankersley More

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    The Debt Problem Is Enormous, and the System for Fixing It Is Broken

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    Economists offer alternatives to financial safeguards created when the U.S. was the pre-eminent superpower and climate change wasn’t on the agenda.Martin Guzman was a college freshman at La Universidad Nacional de La Plata, Argentina, in 2001 when a debt crisis prompted default, riots and a devastating depression. A dazed middle class suffered ruin, as the International Monetary Fund insisted that the government make misery-inducing budget cuts in exchange for a bailout.Watching Argentina unravel inspired Mr. Guzman to switch majors and study economics. Nearly two decades later, when the government was again bankrupt, it was Mr. Guzman as finance minister who negotiated with I.M.F. officials to restructure a $44 billion debt, the result of an earlier ill-conceived bailout.Today he is one of a number of prominent economists and world leaders who argue that the ambitious framework created at the end of World War II to safeguard economic growth and stability, with the I.M.F. and World Bank as its pillars, is failing in its mission.Martin Guzman, a former finance minister in Argentina, is among the economists and world leaders who argue that the framework created at the end of World War II to safeguard economic growth and stability is not working.Nathalia Angarita for The New York TimesJavier Milei, the newly elected president of Argentina, at an election event in Salta, Argentina, in October. He has described himself as an “anarcho-capitalist.”Sarah Pabst for The New York TimesThe current system “contributes to a more inequitable and unstable global economy,” said Mr. Guzman, who resigned last year after a rift within the government.The repayment that Mr. Guzman negotiated was the 22nd arrangement between Argentina and the I.M.F. Even so, the country’s economic tailspin has only increased with an annual inflation rate of more than 140 percent, growing lines at soup kitchens and a new, self-proclaimed “anarcho-capitalist” president, Javier Milei, who this week devalued the currency by 50 percent.The I.M.F. and World Bank have aroused complaints from the left and right ever since they were created. But the latest critiques pose a more profound question: Does the economic framework devised eight decades ago fit the economy that exists today, when new geopolitical conflicts collide with established economic relationships and climate change poses an imminent threat?Volunteers serving free meals in Buenos Aires. Argentina’s economy is in a tailspin, with growing lines at soup kitchens.Rodrigo Abd/Associated PressProtests in Buenos Aires in 2001. A debt crisis in Argentina led to default, riots and a devastating depression.Fabian Gredillas/Agence France-Presse — Getty ImagesThis 21st-century clash of ideas about how to fix a system created for a 20th-century world is one of the most consequential facing the global economy.The I.M.F. was set up in 1944 at a conference in Bretton Woods, N.H., to help rescue countries in financial distress, while the World Bank’s focus was reducing poverty and investing in social development. The United States was the pre-eminent economic superpower, and scores of developing nations in Africa and Asia had not yet gained independence. The foundational ideology — later known as the “Washington Consensus” — held that prosperity depended on unhindered trade, deregulation and the primacy of private investment.“Nearly 80 years later, the global financial architecture is outdated, dysfunctional and unjust,” António Guterres, secretary general of the United Nations, said this summer at a summit in Paris. “Even the most fundamental goals on hunger and poverty have gone into reverse after decades of progress.”The world today is geopolitically fragmented. More than three-quarters of the current I.M.F. and World Bank countries were not at Bretton Woods. China’s economy, in ruins at the end of World War II, is now the world’s second-largest, an engine of global growth and a crucial hub in the world’s industrial machine and supply chain. India, then still a British colony, is one of the top five economies in the world.A session of the United Nations Monetary Conference in Bretton Woods, N.H., on July 4, 1944. Delegates from 44 countries are seated at the long tables.Abe Fox/Associated Press, via Associated PressAntónio Guterres, secretary general of the United Nations, said this summer that “the global financial architecture is outdated, dysfunctional, and unjust.”Martin Divisek/EPA, via ShutterstockThe once vaunted “Washington Consensus” has fallen into disrepute, with a greater recognition of how inequality and bias against women hamper growth, as well as the need for collective action on the climate.The mismatch between institution and mission has sharpened in recent years. Pounded by the Covid-19 pandemic, spiking food and energy prices related to the war in Ukraine, and higher interest rates, low- and middle-income countries are swimming in debt and facing slow growth. The size of the global economy as well as the scope of the problems have grown immensely, but funding of the I.M.F. and World Bank has not kept pace.Resolving debt crises is also vastly more complicated now that China and legions of private creditors are involved, instead of just a handful of Western banks.The World’s Bank’s own analyses outline the extent of the economic problems. “For the poorest countries, debt has become a nearly paralyzing burden,” a report released Wednesday concluded. Countries are forced to spend money on interest payments instead of investing in public health, education and the environment.An assembly line at the electric vehicle manufacturer Nio in Hefei, China. China’s economy was in ruins at the end of World War II but is now the world’s second largest and an engine of global growth.Qilai Shen for The New York TimesGita Gopinath, first deputy managing director of the International Monetary Fund, said of the current financial system, “We have countries strategically competing with amorphous rules and without an effective referee.”Jalal Morchidi/EPA, via ShutterstockAnd that debt doesn’t account for the trillions of dollars that developing countries will need to mitigate the ravages of climate change.Then there are the tensions between the United States and China, and Russia and Europe and its allies. It is harder to resolve debt crises or finance major infrastructure without bumping up against security concerns — like when the World Bank awarded the Chinese telecommunications giant Huawei a contract that turned out to violate U.S. sanctions policy, or when China has resisted debt restructuring agreements.“The global rules-based system was not built to resolve national security-based trade conflicts,” Gita Gopinath, first deputy managing director of the I.M.F., said Monday in a speech to the International Economic Association in Colombia. “We have countries strategically competing with amorphous rules and without an effective referee.”The World Bank and I.M.F. have made changes. The fund has moderated its approach to bailouts, replacing austerity with the idea of sustainable debt. The bank this year significantly increased the share of money going to climate-related projects. But critics maintain that the fixes so far are insufficient.“The way in which they have evolved and adapted is much slower than the way the global economy evolved and adapted,” Mr. Guzman said.Argentina’s new president devalued the currency by 50 percent this week.Sarah Pabst for The New York TimesA vegetables shop in Almagro in Buenos Aires. Argentina’s economy is South America’s second largest.Anita Pouchard Serra for The New York Times‘Time to Revisit Bretton Woods’Argentina, South America’s second-largest economy, may be the global economic system’s most notorious repeat failure, but it was Barbados, a tiny island nation in the Caribbean, that can be credited with turbocharging momentum for change.Mia Mottley, the prime minister, spoke out two years ago at the climate change summit in Glasgow and then followed up with the Bridgetown Initiative, a proposal to overhaul the way rich countries help poor countries adapt to climate change and avoid crippling debt.“Yes, it is time for us to revisit Bretton Woods,” she said in a speech at last year’s climate summit in Egypt. Ms. Mottley argues that there has been a “fundamental breakdown” in a longstanding covenant between poor countries and rich ones, many of which built their wealth by exploiting former colonies. The most advanced industrialized countries also produce most of the emissions that are heating the planet and causing extreme floods, wildfires and droughts in poor countries.Mavis Owusu-Gyamfi, the executive vice president of the African Center for Economic Transformation, in Ghana, said that even recent agreements to deal with debt like the 2020 Common Framework were created without input from developing nations.“We are calling for a voice and seat at the table,” Ms. Owusu-Gyamfi said, from her office in Accra, as she discussed a $3 billion I.M.F. bailout of Ghana.Yet if the fund and bank are focused on economic issues, they are essentially political creations that reflect the power of the countries that established, finance and manage them.And those countries are reluctant to cede that power. The United States, the only member with veto power, has the largest share of votes in part because of the size of its economy and financial contributions. It does not want to see its influence shrink and others’ — particularly China’s — grow.The impasse over reapportioning votes has hampered efforts to increase funding levels, which countries across the board agree need to be increased.A vegetable market in Accra, Ghana. “We are calling for a voice and seat at the table,” said Mavis Owusu-Gyamfi, the executive vice president of the African Center for Economic Transformation in Ghana.Natalija Gormalova for The New York TimesCustomers at lunch in Buenos Aires. Mr. Guzman and others pushing for change argue that indebted countries need more grants and low-interest loans with long repayment timelines.Sarah Pabst for The New York Times‘Big Hole’ in How to Deal With DebtStill, as Mr. Guzman said, “even if there are no changes in governance, there could be changes in policies.”Emerging nations need enormous amounts of money to invest in public health, education, transport and climate resilience. But they are saddled with high borrowing costs because of the market’s often exaggerated perception of the risk they pose as borrowers.And because they are usually compelled to borrow in dollars or euros, their payments soar if the Federal Reserve and other central banks raise interest rates to combat inflation as they did in the 1980s and after the Covid pandemic.The proliferation of private lenders and variety of loan agreements have made debt negotiations impossibly complex, yet no international legal arbiter exists.Zambia defaulted on its external debt three years ago, and there is still no agreement because the I.M.F., China and bondholders are at odds.There’s a “big hole” in international governance when it comes to sovereign debt, said Paola Subacchi, an economist at the Global Policy Institute at Queen Mary University in London, because the rules don’t apply to private loans, whether from a hedge fund or China’s central bank. Often these creditors have an interest in drawing out the process to hold out for a better deal.Mr. Guzman and other economists have called for an international legal arbiter to adjudicate disputes related to sovereign debt.“Every country has adopted a bankruptcy law,” said Joseph Stiglitz, a former chief economist at the World Bank, “but internationally we don’t have one.”The United States, though, has repeatedly opposed the idea, saying it is unnecessary.Rescues, too, have proved to be problematic. Last-resort loans from the I.M.F. can end up adding to a country’s budgetary woes and undermining the economic recovery because interest rates are so high now, and borrowers must also pay hefty fees.Those like Mr. Guzman and Ms. Mottley pushing for change argue that indebted countries need significantly more grants and low-interest loans with long repayment timelines, along with a slate of other reforms.“The challenges are different today,” said Mr. Guzman. “Policies need to be better aligned with the mission.”Mia Mottley, the prime minister of Barbados, offered a proposal this year to overhaul the way rich countries help poor countries adapt to climate change and avoid crippling debt.Sean Gallup/Getty ImagesFlash flooding in Bangladesh last year. The global economic framework was devised long before climate change posed an imminent threat to poor nations.Mushfiqul Alam/NurPhoto More

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    Fed Chair Recalls Inflation ‘Head Fakes’ and Pledges to Do More if Needed

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    Jerome H. Powell, the Federal Reserve chair, said officials would proceed carefully. But if more policy action is needed, he pledged to take it.Jerome H. Powell, the chair of the Federal Reserve, on Thursday expressed little urgency to make another interest rate increase imminently — but he reiterated that officials would adjust policy further if doing so proved necessary to cool the economy and fully restrain inflation.Mr. Powell and his Fed colleagues left interest rates unchanged in a range of 5.25 to 5.5 percent this month, up from near zero as recently as March 2022. The Fed has raised borrowing costs over the past year and a half to wrangle rapid inflation by slowing demand across the economy.Because inflation has faded notably from its peak in the summer of 2022, and because the Fed has already adjusted policy so much, officials are debating whether they might be done. Once they think rates are at a sufficiently elevated level, they plan to leave them there for a time, essentially putting steady pressure on the economy.Mr. Powell, speaking at a research conference in Washington hosted by the International Monetary Fund, reiterated on Thursday that policymakers wanted to make sure that rates were sufficiently restrictive. He said Fed officials were “not confident that we have achieved such a stance” yet.“We’re trying to make a judgment, at this point, about whether we need to do more,” Mr. Powell said in response to a question at the event. “We don’t want to go too far, but at the same time, we know that the biggest mistake we could make would be, really, to fail to get inflation under control.”He made clear that the Fed did not want to take a continued steady slowdown in inflation for granted. While the Fed’s preferred inflation measure has cooled to 3.4 percent from above 7 percent last year, squeezing price increases back to the central bank’s 2 percent goal could still prove to be a bumpy process. Much of the added inflation that remains is coming from stubborn service prices.“We know that ongoing progress toward our 2 percent goal is not assured: Inflation has given us a few head fakes,” Mr. Powell said. “If it becomes appropriate to tighten policy further, we will not hesitate to do so.”But the Fed does not want to raise interest rates blindly. It takes time for monetary policy changes to have their full effect on the economy, so the Fed could crimp the economy more painfully than it wants to if it raises rates quickly and without trying to calibrate the moves.While central bankers want to cool the economy to bring down inflation, they would like to avoid causing a recession in the process.“We will continue to move carefully,” Mr. Powell said. He said that would allow officials “to address both the risk of being misled by a few good months of data and the risk of over-tightening.”The risk of overdoing it is why central bankers are contemplating whether they need to make another move, or whether inflation is on a steady path back to normal.As of their September economic projections, officials thought that one final rate increase might be necessary, investors doubt that they will raise rates again in the coming months. In fact, market pricing suggests that the Fed could start cutting interest rates as soon as the middle of next year.Markets are betting there is only a sliver of a chance that the Fed will adjust policy at its final meeting of 2023, which will conclude on Dec. 13, and Mr. Powell did little to signal that a rate increase is imminent.Still, his remarks pushed back on the growing conviction among investors that the central bank is decisively finished.“We still believe the Fed is done hiking for this cycle, but today’s speech should serve as notice that their rhetoric must stay hawkish until they’ve seen further improvement in inflation,” Michael Feroli, chief U.S. economist at J.P. Morgan, wrote in a research note.Some economists have been anticipating that a recent jump in longer-term interest rates might persuade the Fed to hold off on raising borrowing costs again. While the Fed sets shorter-term interest rates, longer-term ones are based on market movements and can take time to adjust — but when they do, mortgages, business loans and other types of borrowing become more expensive.Fed officials are watching market moves, including whether they last and what is causing them, Mr. Powell acknowledged. He said officials would watch how the moves shaped up.“We’re moving carefully now, we’ve moved very fast, and rates are now restrictive,” Mr. Powell said. “It’s not something we’re trying to make a decision on right now.”He also used his speech to discuss some longer-term issues in monetary policy, including whether interest rates, which had lingered near rock-bottom levels for much of the decade preceding the pandemic, will eventually return to a much lower setting.Some economists have speculated that borrowing costs might remain permanently higher than they were in the years after the deep 2007-9 recession. But Mr. Powell said that it was too early to know, and that Fed researchers would ponder the question as part of their next long-run policy review.“We will begin our next five-year review in the latter half of 2024 and announce the results about a year later,” Mr. Powell explained.The last review concluded in 2020 and was focused on how to set policy in a low-interest rate world, a backdrop that quickly changed with the advent of rapid inflation in 2021. More

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    Fragile Global Economy Faces New Crisis in Israel-Gaza War

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    A war in the Middle East could complicate efforts to contain inflation at a time when world output is “limping along.”The International Monetary Fund said on Tuesday that the pace of the global economic recovery is slowing, a warning that came as a new war in the Middle East threatened to upend a world economy already reeling from several years of overlapping crises.The eruption of fighting between Israel and Hamas over the weekend, which could sow disruption across the region, reflects how challenging it has become to shield economies from increasingly frequent and unpredictable global shocks. The conflict has cast a cloud over a gathering of top economic policymakers in Morocco for the annual meetings of the I.M.F. and the World Bank.Officials who planned to grapple with the lingering economic effects of the pandemic and Russia’s war in Ukraine now face a new crisis.“Economies are at a delicate state,” Ajay Banga, the World Bank president, said in an interview on the sidelines of the annual meetings. “Having war is really not helpful for central banks who are finally trying to find their way to a soft landing,” he said. Mr. Banga was referring to efforts by policymakers in the West to try and cool rapid inflation without triggering a recession.Mr. Banga said that so far, the impact of the Middle East attacks on the world’s economy is more limited than the war in Ukraine. That conflict initially sent oil and food prices soaring, roiling global markets given Russia’s role as a top energy producer and Ukraine’s status as a major exporter of grain and fertilizer.“But if this were to spread in any way then it becomes dangerous,” Mr. Banga added, saying such a development would result in “a crisis of unimaginable proportion.”Oil markets are already jittery. Lucrezia Reichlin, a professor at the London Business School and a former director general of research at the European Central Bank, said, “the main question is what’s going to happen to energy prices.”Ms. Reichlin is concerned that another spike in oil prices would pressure the Federal Reserve and other central banks to further push up interest rates, which she said have risen too far too fast.As far as energy prices, Ms. Reichlin said, “we have two fronts, Russia and now the Middle East.”Smoke rising from bombings of Gaza City and its northern borders by Israeli planes.Samar Abu Elouf for The New York Times Pierre-Olivier Gourinchas, the I.M.F.’s chief economist, said it’s too early to assess whether the recent jump in oil prices would be sustained. If they were, he said, research shows that a 10 percent increase in oil prices would weigh down the global economy, reducing output by 0.15 percent and increasing inflation by 0.4 percent next year. In its latest World Economic Outlook, the I.M.F. underscored the fragility of the recovery. It maintained its global growth outlook for this year at 3 percent and slightly lowered its forecast for 2024 to 2.9 percent. Although the I.M.F. upgraded its projection for output in the United States for this year, it downgraded the euro area and China while warning that distress in that nation’s real estate sector is worsening.“We see a global economy that is limping along, and it’s not quite sprinting yet,” Mr. Gourinchas said. In the medium term, “the picture is darker,” he added, citing a series of risks including the likelihood of more large natural disasters caused by climate change.Europe’s economy, in particular, is caught in the middle of growing global tensions. Since Russia invaded Ukraine in February 2022, European governments have frantically scrambled to free themselves from an over-dependence on Russian natural gas.They have largely succeeded by turning, in part, to suppliers in the Middle East.Over the weekend, the European Union swiftly expressed solidarity with Israel and condemned the surprise attack from Hamas, which controls Gaza.Some oil suppliers may take a different view. Algeria, for example, which has increased its exports of natural gas to Italy, criticized Israel for responding with airstrikes on Gaza.Even before the weekend’s events, the energy transition had taken a toll on European economies. In the 20 countries that use the euro, the Fund predicts that growth will slow to just 0.7 percent this year from 3.3 percent in 2022. Germany, Europe’s largest economy, is expected to contract by 0.5 percent.High interest rates, persistent inflation and the aftershocks of spiraling energy prices are also expected to slow growth in Britain to 0.5 percent this year from 4.1 percent in 2022.Sub-Saharan Africa is also caught in the slowdown. Growth is projected to shrink this year by 3.3 percent, although next year’s outlook is brighter, when growth is forecast to be 4 percent.Staggering debt looms over many of these nations. The average debt now amounts to 60 percent of the region’s total output — double what it was a decade ago. Higher interest rates have contributed to soaring repayment costs.This next-generation of sovereign debt crises is playing out in a world that is coming to terms with a reappraisal of global supply chains in addition to growing geopolitical rivalries. Added to the complexities are estimates that within the next decade, trillions of dollars in new financing will be needed to mitigate devastating climate change in developing countries.One of the biggest questions facing policymakers is what impact China’s sluggish economy will have on the rest of the world. The I.M.F. has lowered its growth outlook for China twice this year and said on Tuesday that consumer confidence there is “subdued” and that industrial production is weakening. It warned that countries that are part of the Asian industrial supply chain could be exposed to this loss of momentum.In an interview on her flight to the meetings, Treasury Secretary Janet L. Yellen said that she believes China has the tools to address a “complex set of economic challenges” and that she does not expect its slowdown to weigh on the U.S. economy.“I think they face significant challenges that they have to address,” Ms. Yellen said. “I haven’t seen and don’t expect a spillover onto us.” More

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    Yellen May Face Questions in Morocco Over U.S. Dysfunction

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    Treasury Secretary Janet Yellen calls on Congress to authorize more economic support for Ukraine.As Treasury Secretary Janet L. Yellen arrives in Morocco this week to meet with her international counterparts, she will be representing a nation that has led the world’s post-pandemic economic recovery but is now struggling with potentially destabilizing political dysfunction.America came perilously close to defaulting on its debt over the summer and tiptoed toward a government shutdown last month as Republicans fought over the proper levels of federal spending and whether to bankroll more aid to Ukraine. Those events culminated in last week’s ouster of Representative Kevin McCarthy as House speaker, a development that is raising questions about whether the United States can actually govern itself, let alone lead the world.The political dynamic is expected to strain the credibility of the United States at the annual meetings of the International Monetary Fund and the World Bank, which begin on Monday in Marrakesh. Ms. Yellen is expected to press European governments to provide more funding for Ukraine and push creditors like China to relieve the debts of poor countries, including many African nations.The meetings are taking place amid heightened global uncertainty because of the weekend attacks that Hamas waged upon Israel, which threaten to spiral into a regional conflict. The possibility of a wider war could pose new economic challenges for policymakers by pushing oil prices higher, disrupting trade flows and inflaming tensions between other nations. As she traveled to Morocco, Ms. Yellen affirmed America’s support for Israel.“The United States stands with the people of Israel and condemns yesterday’s horrific attack against Israel by Hamas terrorists from Gaza,” Ms. Yellen said in a post on X, formerly Twitter, on Sunday. “Terrorism can never be justified and we support Israel’s right to defend itself and protect its citizens.”In an interview on Sunday during her flight to Marrakesh, Ms. Yellen acknowledged that other nations feel concerned and anxious about the political gridlock that has gripped the United States. However, she pointed out that other democracies face similar obstacles and that she believed America’s allies would continue to be supportive of the Biden administration’s efforts on issues such as protecting Ukraine and addressing climate change.“I think they have been delighted over the last two years to see the United States resume a very strong global leadership role and they want to work with us and they want us to be successful,” Ms. Yellen said.Yet America’s role as an economic bulwark against Russia’s war in Ukraine has been undercut by its own domestic politics, including Republican opposition to providing more economic support to Ukraine. The United States’s huge debt load and its inability to find a more sustainable fiscal path has also hurt its economic credibility.“The rest of the world can only look aghast with trepidation at our dysfunction — lurching from threats of default, to shutdowns, the adjournment of the House because there is no speaker,” said Mark Sobel, a former longtime Treasury Department official who is now the U.S. chairman of the Official Monetary and Financial Institutions Forum, a think tank. “While foreign governments have always expected a degree of hurly-burly U.S. behavior, the current level of dysfunction will surely erode trust in U.S. leadership, stability and reliance on the dollar’s global role.”Eswar Prasad, the former head of the I.M.F.’s China division, added that instability in the U.S. economy could be problematic for some of the world’s most vulnerable economies that rely on America to be a source of stability.“For countries that are already struggling to prop up their economies and financial markets, the added uncertainty from the political drama in Washington is most unwelcome,” Mr. Prasad said.The gathering comes at a delicate moment for the global economy. While the world appears poised to avoid a recession and achieve a so-called soft landing, the fight against inflation remains a challenge and output remains tepid. Economic weakness in China and Russia’s ongoing war in Ukraine continue to be headwinds.The higher borrowing costs that central banks have deployed to tame inflation have also made it more difficult for countries to manage their debt loads.That is a problem across the globe, including in the United States, where the gross national debt stands just above $33 trillion. Foreign appetite for government bonds has been weak in recent months and concerns about the sustainability of America’s debt have become more prevalent. That is making it somewhat more challenging for the United States to counsel other nations on how they should manage their finances.The most challenging task for Ms. Yellen will be persuading other nations to continue to provide robust economic aid to Ukraine as its war with Russia drags on. European nations are coping with economic stagnation, and with Congress in disarray, it is unclear how the U.S. will continue to help Ukraine prop up its economy.Ms. Yellen said she would tell her counterparts that supporting Ukraine remains a top priority. Explaining that the Biden administration lacks good options for providing assistance on its own, she called on Congress to authorize additional funding.“Fundamentally we have to get Congress to approve this,” Ms. Yellen said. “There’s no gigantic set of resources that we don’t need Congress for.”Dismissing concerns that the U.S. cannot afford to support Ukraine, Ms. Yellen argued that the cost of letting the country fall to Russia would ultimately be higher.“If you think about what the national security implications are for us if we allow a democratic country in Europe to be overrun by Russia and what that’s going to mean in the future for our own national defense needs and those of our neighbors, we can’t not afford it,” Ms. Yellen said. More

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    How West Africa Can Reap More Profit From the Global Chocolate Market

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    Resource-rich countries like Ghana are often cut out of lucrative parts of the business like manufacturing. The “fairchain movement” wants to change that.The first leg of the 35-mile journey from Ghana’s capital city, Accra, to the Fairafric chocolate factory in Amanase on the N6 highway is a quick ride. But after about 30 minutes, the smoothly paved road devolves into a dirt expanse without lanes. Lumbering trucks, packed commuter minivans, cars and motorcycles crawl along craggy, rutted stretches bordered by concrete dividers, muddy patches and heaps of rock.The stopgap roadway infrastructure is one of the challenges Fairafric has had to navigate to build a factory in this West African country. The area had no fiber-optic connection to Ghana’s telecommunications network. No local banks were interested in lending the company money. And it required the personal intervention of Ghana’s president before construction could even begin in 2020.The global chocolate industry is a multibillion-dollar confection, and Africa grows 70 percent of the world’s raw cocoa beans. But it produces only 1 percent of the chocolate — missing out on a part of the business that generates the biggest returns and is dominated by American and European multinationals.The Fairafric chocolate factory powered by solar energy in Amanase, Ghana. The company aims to create stable, well-paying jobs.Francis Kokoroko for The New York TimesCapturing a bigger share of the profits generated by chocolate sales and keeping them in Ghana — the second-largest cocoa exporter behind Ivory Coast — is the animating vision behind Fairafric. The aim is to manufacture the chocolate and create stable, well-paying jobs in the place where farmers grow the cocoa.Many developing countries are lucky to have large reserves of natural resources. In Ghana, it’s cocoa. In Botswana, it’s diamonds. In Nigeria and Azerbaijan, it’s oil. But the commodity blessing can become a curse when the sector sucks up an outsize share of labor and capital, which in turn hampers the economy from diversifying and stunts long-term growth.“Look at the structure of the economy,” Aurelien Kruse, the lead country economist in the Accra office of the World Bank, said of Ghana. “It’s not an economy that has diversified fully.”The dependency on commodities can lead to boom-and-bust cycles because their prices swing with changes in supply and demand. And without other sectors to rely on during a downturn — like manufacturing or tech services — these economies can crash.“Prices are very volatile,” said Joseph E. Stiglitz, a former chief economist at the World Bank. In developing nations dependent on commodities, economic instability is built into the system.Workers making the chocolate products. By keeping manufacturing in Ghana, Fairafric supports other local businesses.Francis Kokoroko for The New York TimesA batch of chocolate bars being inspected . . .Francis Kokoroko for The New York Times. . . and packaged at the Fairafric chocolate factory.Francis Kokoroko for The New York TimesBut creating industrial capacity is exceedingly difficult in a place like Ghana. Outside large cities, reliable electricity, water and sanitation systems may need to be set up. The suppliers, skilled workers, and necessary technology and equipment may not be readily available. And start-ups may not initially produce enough volume for export to pay for expensive shipping costs.Fairafric might not have succeeded if its founder and chief executive — a German social-minded entrepreneur named Hendrik Reimers — had not upended the status quo.The pattern of exporting cheap raw materials to richer countries that use them to manufacture valuable finished goods is a hangover from colonial days. Growing and harvesting cocoa is the lowest-paid link in the chocolate value chain. The result is that farmers receive a mere 5 or 6 percent of what a chocolate bar sells for in Paris, Chicago or Tokyo.Mr. Reimers’s goal is aligned with the “fairchain movement,” which argues that the entire production process should be in the country that produces the raw materials.The idea is to create a profitable company and distribute the gains more equitably — among farmers, factory workers and small investors in Ghana. By keeping manufacturing at home, Fairafric supports other local businesses, like the paper company that supplies the chocolate wrappers. It also helps to build infrastructure. Now that Fairafric has installed the fiber optic connections in this rural area, other start-up businesses can plug in.Cocoa pods harvested in a cocoa farm in Ghana.Francis Kokoroko/ReutersA worker from Fairafric chocolate factory visiting a cocoa farm in the Budu community.Francis Kokoroko for The New York TimesThe last few years have severely tested the strategy. Ghana’s economy was punched by the coronavirus pandemic. Russia’s invasion of Ukraine fueled a rapid increase in food, energy and fertilizer prices. Rising inflation prompted the Federal Reserve and other central banks to raise interest rates.In Ghana, the global headwinds exacerbated problems that stemmed from years of excessive government spending and borrowing.As inflation climbed, reaching a peak of 54 percent, Ghana’s central bank raised interest rates. They are now at 30 percent. Meanwhile, the value of the currency, the cedi, tumbled against the dollar, more than halving the purchasing power of consumers and businesses.At the end of last year, Ghana defaulted on its foreign loans and turned to the International Monetary Fund for emergency relief.“The economic situation of the country has not made it easy,” said Frederick Affum, Fairafric’s accounting manager. “Every kind of funding that we have had has been outside the country.”Even before the national default, Ghana’s local banks were drawn to the high interest rates the government was offering to attract investors wary of its outsize debt. As a result, the banks were reluctant to invest in local businesses. They “didn’t take the risk of investing in the real economy,” said Mavis Owusu-Gyamfi, the executive vice president of the African Center for Economic Transformation in Accra.“The economic situation of the country has not made it easy,” said Frederick Affum, accounting manager at Fairafric.Francis Kokoroko for The New York TimesFairafric started with a crowdsourced fund-raising campaign in 2015. A family-owned chocolate company in Germany bought a stake in 2019 and turned Fairafric into a subsidiary.In 2020, a low-interest loan of 2 million euros from a German development bank that supports investments in Africa by European companies was crucial to getting the venture off the ground.Then the pandemic hit, and President Nana Akufo-Addo closed Ghana’s borders and suspended international commercial flights. The shutdown meant that a team of German and Swiss engineers who had been overseeing construction of a solar-powered Fairafric factory in Amanase could not enter the country.So Michael Marmon-Halm, Fairafric’s managing director, wrote a letter to the president appealing for help.“He opened the airport,” Mr. Marmon-Halm said. “This company received the most critical assistance at the most critical moment.”Both Ghana and Ivory Coast, which account for 60 percent of the world cocoa market, have moved to raise the minimum price of cocoa and expand processing inside their borders.In Ghana, the government created a free zone that gives factories a tax break if they export most of their product. And this month, Mr. Akufo-Addo announced an increase in the minimum price that buyers must pay farmers next season.Cocoa pods at a cocoa farm in the Budu community . . .Francis Kokoroko for The New York Times. . . which reveal a pulpy white bean when cracked open.Francis Kokoroko for The New York TimesFairafric, which buys beans from roughly 70 small farmers in the eastern region of Ghana, goes further, paying a premium for its organically grown beans — an additional $600 per ton above the global market price.Farmers harvest the ripe yellow pods by hand, and then crack them open with a cutlass, or thick stick. The pulpy white beans are stacked under plantain leaves to ferment for a week before they are dried in the sun.On the edge of a cocoa farm in Budu, a few minutes from the factory, a bare-bones, open-sided concrete shed with wooden benches and rectangular blackboards houses the school. Attendance is down, the principal said, because the school has not been included in the government’s free school feeding program.The factory employs 95 people. They have health insurance and are paid above the minimum wage. Salaries are pegged to the dollar to protect against currency fluctuations. Because of spotty transportation networks, the company set up a free commuter van for workers. Fairafric also installed a free canteen so all the factory shifts can eat breakfast, lunch or dinner on site.Mr. Marmon-Halm said the company was looking to raise an additional $1 million to expand. He noted that the chocolate industry generated an enormous amount of wealth.But “if you want to get the full benefit,” he said, “you have to go beyond just selling beans.”Students by a stream in the Budu community, a cocoa farming village.Francis Kokoroko for The New York Times More