International Trade and World Market

More stories

  • 138 Shares119 Views

    in Economy

    U.S. Scales Back Hopes for Ambitious Climate Trade Deal With Europe

    by

    A negotiating deadline is quickly approaching, and the United States has lowered its expectations for a groundbreaking trade deal.For the past two years, the United States and the European Union have been working toward a deal that would encourage trade in steel and aluminum made in more environmentally friendly ways to combat climate change.But longstanding differences on the way governments should treat trade and regulation have cropped up, preventing the allies from coming to a compromise. With an Oct. 31 deadline to reach a deal approaching, the United States has significantly narrowed its ambition for the pact, at least in its initial iteration.The outcome has been deeply disappointing for American negotiators, including Katherine Tai, the United States trade representative in charge of the talks, according to people familiar with the negotiations. In speeches last year, Ms. Tai described the potential deal as “historic” and “a paradigm-shifting model” that would reduce carbon produced by heavy industries, while also limiting unfair trade competition from countries like China, which has been pumping out cheap steel that is not manufactured in an environmentally friendly way.U.S. negotiators had envisioned setting up a club of nations committed to cleaner production, initially with Europe and later with other countries, that together would act to block dirtier steel, aluminum and other products from their markets. Steel and aluminum production is incredibly carbon intensive, with the industries together accounting for about a 10th of global carbon emissions. But Europeans raised a variety of objections to the approach, including arguing that it violated global trade rules for treating countries fairly.Now, the Biden administration is trying to salvage the talks by pushing for a narrower deal in the coming weeks. The more limited U.S. proposal currently includes an immediate agreement for countries to take steps to combat a flood of dirtier steel from countries like China, as well as a commitment to keep negotiating in the coming years for a framework that would discourage trade in products made with more carbon emissions, the people familiar with the negotiations said.Katherine Tai, the U.S. trade representative, has been seeking a far-reaching deal with the Europe Union.Pete Marovich for The New York TimesThe agreement is expected to be a point of discussion at a summit planned for Oct. 20, when President Biden will meet the president of the European Commission, Ursula von der Leyen, at the White House.The stakes are high: The United States is poised to bring back Trump-era tariffs on European steel and aluminum on Jan. 1, unless the sides reach an agreement, or American negotiators issue a special reprieve. Mr. Biden paused those tariffs for two years in 2021, when negotiations began with Europe.Restoring cooperation between the United States and Europe after years of rocky relations during the Trump presidency has been a key objective for Mr. Biden and his deputies.But the talks faced a basic obstacle: the United States and Europe have fundamental differences in how they are addressing climate change, trade and competition from China, and neither side is yet willing to significantly depart from its own policies.The Biden administration has largely dispensed with traditional trade negotiations focused on opening international markets, arguing that past trade deals that lowered global barriers to trade helped multinational corporations, rather than American workers, while supercharging the Chinese economy.Instead, the Biden administration has embraced tariffs, subsidies and trade arrangements that protect industries in the United States and allied countries, while blocking cheaper products made in China. It has done so in lock step with U.S. labor unions, which are opposed to removing tariffs and other policies that protect their industries.The European Union has criticized the American tariffs and subsidy programs as protectionist policies that threaten to undermine international trade rules.“This administration is trying to significantly retool the way we go about global economic engagement,” said Emily Benson, the director of Project on Trade and Technology at the Center for Strategic and International Studies, a think tank. “What’s unclear is the degree to which our allies buy into that agenda.”For their part, European officials are putting their efforts into an ambitious new carbon pricing scheme, that would tax companies across a range of industries in Europe and elsewhere for the greenhouse gases emitted during manufacturing. European officials have urged the United States to adopt a similar approach but American officials argue such a system is not viable in the United States, where Congress would be unlikely to impose new carbon taxes on American companies.The two governments also differ in how to approach China, which makes more than half of the world’s steel, often by burning coal. American steel makers say their Chinese counterparts receive generous government subsidies that allow Chinese steel to be sold at artificially low prices, unfairly undercutting competitors.European officials have been more reluctant to target China specifically. While the E.U. government has begun to take a more skeptical look at Chinese exports, many European nations still regard the country more as a vital business partner than a geopolitical rival.Given the close alignment between the United States and Europe on many issues, the history of trade negotiations between the governments is surprisingly bleak.The Obama administration pursued a trade deal with Europe that ultimately crumbled as a result of irreconcilable differences over regulation and agriculture. After lobbing both criticism and tariffs at Europe, the Trump administration tried for a more limited agreement, with similarly unimpressive results.The Biden administration successfully de-escalated some of those trade fights. But fundamental differences remain in how the United States and Europe view the role of government and regulation.“It’s incredibly complicated, largely because we have markedly different priorities,” said William Alan Reinsch, the Scholl Chair in International Business at the Center for Strategic and International Studies. “I can see a path but the path involves both sides making concessions that they really don’t want to make.”Miriam Garcia Ferrer, a spokeswoman for the European Commission, said the countries were “fully committed to achieving an ambitious outcome” by October.Valdis Dombrovskis, the European commissioner for trade, has warm relations with the American trade representative but that has not yet resulted in an agreement.Andy Wong/Associated PressThe European Union is seeking a permanent solution to U.S. tariffs and “re-establish normal and undistorted trans-Atlantic trade” while also driving decarbonization and addressing the challenge of global steel overproduction, Ms. Garcia Ferrer said.Sam Michel, a spokesperson for the U.S. trade representative, said that the Biden administration had “been fully committed to these negotiations over the last two years and we are hopeful both sides can reach an agreement that demonstrates the close partnership between the United States and the European Union.”People close to the talks say the outcome has been particularly disappointing given the close alignment and warm relations between Mr. Biden and Ms. von der Leyen, and Ms. Tai and her counterpart, Valdis Dombrovskis, the European commissioner for trade.Ms. Tai and Mr. Dombrovskis committed earlier this year to meeting every month. Mr. Dombrovskis, the former prime minister of Latvia, hosted Ms. Tai at a seaside dinner in the Latvian capital in June, and she brought him to the White House on July 4 to watch fireworks from the lawn.U.S. officials initially thought those meetings might mark a turning point for the negotiations. In a trip to Brussels in July, Ms. Tai told her counterparts that time was running out and that they needed to get something done.But that top-level commitment did not fuel momentum at lower levels of the bureaucracy, and progress fizzled as European negotiators left for summer holidays.The pace of talks has accelerated over the past month, but for a much more limited agreement.Jennifer Harris, a former senior director for international economics at the National Security Council who played a key role in starting negotiations, expressed optimism that progress could be made in the final days and weeks of the negotiations, especially given the upcoming meeting between Mr. Biden and Ms. von der Leyen.The talks now need “the kind of swift injection of tailwind that only leaders can provide,” she said. “I don’t think either leader is going to let this thing fail.” More

  • 113 Shares189 Views

    in Economy

    Fragile Global Economy Faces New Crisis in Israel-Gaza War

    by

    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

  • 125 Shares169 Views

    in Economy

    Russia’s Economy Is Increasingly Structured Around Its War in Ukraine

    by

    The nation’s finances have proven resilient, despite punishing sanctions, giving it leeway to pump money into its military machine.“Everything needed for the front,” Russia’s finance minister declared, echoing a Soviet slogan from World War II as he talked about the government’s latest spending plans.The government still calls its invasion of Ukraine a “special military operation,” but the new budget figures make clear that the economy is increasingly being restructured around war.Nearly a third of the country’s spending next year — roughly $109 billion — will be devoted to “national defense,” the government announced late last month, redirecting money that might otherwise have flowed to health care, education, roads and other sectors. More tellingly, 6 percent of the nation’s total output is being funneled toward Russia’s war machine, more than double what it was before the invasion.Since Russia sent soldiers across the border in February 2022, its economy has had to adapt to dramatic changes with astonishing speed. The European Union, its biggest trading partner, quickly broke economic relations, upending well-established supply chains and reliable sources of income from abroad. The United States used its financial might to freeze hundreds of billions of dollars in Russian assets and cut the country off from the global financial system.Nineteen months later, the economic picture is decidedly mixed. The Russian economy has proved to be much more resilient than many Western governments assumed after imposing a punishing string of sanctions.Moscow has found other buyers for its oil. It has pumped money into the economy at a rapid pace to finance its military machine, putting almost every available worker into a job and raising the size of weekly paychecks. Total output, which the Russian Central Bank estimates may rise as much as 2.5 percent this year, could outpace the European Union and possibly even the United States.Yet that is only part of the story. As Laura Solanko, a senior adviser at the Bank of Finland Institute for Economies in Transition, said: “When a country is at war, gross domestic product is a fairly poor measure of welfare.” Producing bullets adds to a country’s growth rate without necessarily improving the quality of life.The insistent demand for foreign currency — to pay for imported goods or provide a safe investment — has also caused the value of the ruble to sink at a precipitous pace. Last week, it fell to a symbolic break point of 100 to the dollar, further fueling inflation and raising anxiety levels among consumers.Shoppers buying meat at the central market in Rostov-on-Don, Russia, in 2021. Inflation in Russia has driven up the price of meat and other products since the start of the war in Ukraine.Sergey Ponomarev for The New York TimesThe spike in government spending and borrowing has seriously stressed an already overheated economy. The central bank rapidly raised interest rates to 13 percent over the summer, as annual inflation continued to climb. Higher rates, which make it more expensive for businesses to expand and consumers to buy on credit, is likely to slow growth.Consumers are also feeling the squeeze for daily purchases. “Dairy products, especially butter, meat and even bread have gone up in price,” said Lidia Adreevna as she shopped and examined prices at an Auchan supermarket in Moscow. She blamed the central bank.“Life changes,” she offered, “nothing stays forever, not love, or happiness.”Other pensioners at the store also spoke about increases in meat and poultry prices, something almost half of Russians have noticed in the past month, according to survey data from the Moscow-based Public Opinion Foundation published Friday. Respondents also noted increases in the price of medicine and construction materials.Moscow imposed a temporary ban on diesel and gasoline exports last month in an effort to ease shortages and slow rising energy prices, but the restrictions further reduced the amount of foreign currency coming into the country.The exodus of funds is so worrying that the government has warned of reinstating controls on money leaving the country.With a presidential election scheduled in March, President Vladimir V. Putin acknowledged last month that accelerating inflation fueled by a weakened ruble was a major cause of concern. Getting a handle on price increases may discourage the government from embarking on its usual pre-election social spending.Lower standards of living can be “uncomfortable even for an authoritarian government,” said Charles Lichfield, deputy director of the Atlantic Council’s Geoeconomics Center.Since Russia imports a wide range of goods — from telephones and washing machines to cars, medicine and coffee — he said a devalued ruble makes “it more difficult for consumers to buy what they’re used to buying.”A Karachi Port Trust security guard keeping watch over the Clyde Noble, a Russian crude oil tanker berthed at the Karachi Port in Pakistan in June. Pakistan received discounted Russian crude oil as part of a new deal between Islamabad and Moscow.Rehan Khan/EPA, via ShutterstockThe United States, the European Union and countries allied with Ukraine have doggedly tried to cripple Russia with sweeping sanctions.The impact was swift and sharp in the spring of 2022. The ruble tumbled, the central bank increased rates to 20 percent to attract investors, and the government imposed strict controls on capital to keep money inside the country.But the ruble has since bounced back and interest rates come down. Russia found eager buyers elsewhere for its oil, which was selling at vastly discounted prices; liquefied natural gas; and other raw materials. More recently, Russia has become adept at evading the $60 per barrel price cap on oil imposed by the Group of 7 nations as global oil prices have once again started to rise.China is among the nations that have stepped up to buy energy and sell goods to Russia that they previously might have exchanged with European nations. Trade with China rose at an annual rate of 32 percent in the first eight months of this year. Trade with India tripled in the first half of the year, and exports from Turkey rose nearly 89 percent over the same period.Meanwhile, the war is gobbling up other parts of Russia’s budget aside from direct military spending. An additional 9.2 percent of the budget is slated for “national security,” which includes law enforcement. There is money for injured soldiers and for families of those killed in battle, and for “integrating new regions,” a reference to occupied territory in Ukraine.Sergei Guriev, a Russian economist who fled the country in 2013 and is now provost at Sciences Po in Paris, said accurately assessing the Russian economy is difficult. The existing economic models were designed before the war and based on different assumptions, and the published budget figures are incomplete.What that means for Russian households on a daily basis is harder to discern.“Overall, it’s very hard to compare quality of life before and after the war,” Mr. Guriev said. “It’s hard to know what Russians think. People are afraid.”Valerie Hopkins More

  • 150 Shares189 Views

    in Economy

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

    by

    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

  • 125 Shares189 Views

    in Economy

    Can Ghana’s Debt Trap of Crisis and Bailouts Be Stopped?

    by

    Emmanuel Cherry, the chief executive of an association of Ghanaian construction companies, sat in a cafe at the edge of Accra Children’s Park, near the derelict Ferris wheel and kiddie train, as he tallied up how much money government entities owe thousands of contractors.Before interest, he said, the back payments add up to 15 billion cedis, roughly $1.3 billion. “Most of the contractors are home,” Mr. Cherry said. Their workers have been laid off.Like many others in this West African country, the contractors have to wait in line for their money. Teacher trainees complain they are owed two months of back pay. Independent power producers that have warned of major blackouts are owed $1.58 billion.The government is essentially bankrupt. After defaulting on billions of dollars owed to foreign lenders in December, the administration of President Nana Akufo-Addo had no choice but to agree to a $3 billion loan from the lender of last resort, the International Monetary Fund.It was the 17th time Ghana has been compelled to turn to the fund since it gained independence in 1957.This latest crisis was partly prompted by the havoc of the coronavirus pandemic, Russia’s invasion of Ukraine, and higher food and fuel prices. But the tortuous cycle of crisis and bailout has plagued dozens of poor and middle-income countries throughout Africa, Latin America and Asia for decades.Joshua Teye, a teacher in Suhum, Ghana. The government’s fiscal crisis has cut investment in schools dangerously short.Francis Kokoroko for The New York TimesThese pitiless loops will be discussed at the latest United Nations General Assembly, which begins on Tuesday. The debt load for developing countries — now estimated to top $200 billion — threatens to upend economies and unravel painstaking gains in education, health care and incomes. But poor and low-income countries have struggled to gain sustained international attention.In Ghana, the I.M.F. laid out a detailed rescue plan to get the country back on its feet — reining in debt and spending, raising revenue and protecting the poorest — as Accra negotiates with foreign creditors.Still, a nagging question for Ghana and other emerging nations in debt persists: Why will this time be any different?The latest rescue plan outlined for Ghana addresses key problems, said Tsidi M. Tsikata, a senior fellow at the African Center for Economic Transformation in Accra. But so did many of the previous ones, he said, and still crises recurred.The last time Ghana turned to the fund was in 2015. Within three years, the country was on its way to paying back the loan, and was among the world’s fastest-growing economies. Ghana was held up as a model for the rest of Africa.Agricultural production was up, and major exports — cocoa, oil and gold — were rising. The country had invested in infrastructure and education, and had begun a cleanup of the banking industry, which was riddled with distressed lenders.Yet Accra is again desperately in need. The I.M.F. loan agreement, and the delivery of a $600,000 installment in May, have helped stabilize the economy, settle wild fluctuations in currency levels and restore a modicum of confidence. Inflation is still running above 40 percent but is down from its peak of 54 percent in January.Cocoa pods at a cocoa farm. Ghana’s economy is dependent on exports of raw materials like cocoa, oil and gold, which rise and fall wildly in price.Francis Kokoroko for The New York TimesDespite the I.M.F.’s blueprint, though, Mr. Tsikata, previously a division chief at the fund for three decades, said the chance that Ghana wouldn’t be in a similar position a few years down the road “rests on a wing and a prayer.”The effects of devastating climate change loom over the problem. Within the next decade, a United Nations analysis estimates, trillions of dollars in new financing will be needed to mitigate the impact on developing countries.In Ghana, the government owed $63.3 billion at the end of 2022 not just to foreign creditors but also to homegrown lenders — pension funds, insurance companies and local banks that believed the government was a safe investment. The situation was so unusual that the I.M.F. for the first time made settling this domestic debt a prerequisite for a bailout. A partial restructuring, which cut returns and extended the due dates, was completed in February. While the haircut may have been necessary, it undermined confidence in the banks.As for foreign lenders, there are thousands of private, semipublic and governmental creditors, including China, which have different objectives, loan arrangements and regulatory controls.The magnitude and type of debt means “this crisis is much deeper than the type of economic difficulties Ghana has faced in the past,” said Stéphane Roudet, the I.M.F.’s mission chief to Ghana.The dizzying proliferation of lenders now characterizes much of the debt burdening distressed countries around the globe — making it also more complex and difficult to resolve.“You don’t have six people in a room,” said Joseph E. Stiglitz, a Nobel Prize winner and a former chief economist at the World Bank. “You have a thousand people in a room.”Victoria Chrappah, a trader, recounts the unfavorable business climate, as fluctuating exchange rates affect prices of imported goods from China.Francis Kokoroko for The New York Times‘Last Year Was the Worst of All.’Outside Victoria Chrappah’s narrow stall in Makola Market, snaking lines of sellers hawked live chickens, toilet paper packs and electronic chargers from giant baskets balanced on their heads. As restructuring negotiations with foreign lenders continue, households and businesses are doing their best to cope. Ms. Chrappah has been selling imported bathmats, shower curtains and housewares for more than 20 years.“Last year was the worst of all,” she said.Inflation surged, and the cedi lost more than half its value compared with the U.S. dollar — a blow to consumers and businesses when a country imports everything from medicine to cars. The Bank of Ghana jacked up interest rates to cope with inflation, hurting businesses and households that rely on short-term borrowing or want to invest. The benchmark rate is now 30 percent.Because of the rapidly depreciating currency, Ms. Chrappah explained, “you can sell in the morning at one price, and then you have to think of changing the price the following day.”Purchasing power as well as the value of savings has been halved. Doreen Adjetey, product manager for Dalex Swift, a finance company based in Accra, said a bottle of Tylenol to soothe her 19-month-old baby’s teething pain cost 50 cedis last year. Now it’s 110.A month’s worth of groceries cost more than 3,000 cedis compared with 1,000. Before, she and her husband had a comfortable monthly income of 10,000 cedis, worth about $2,000 when the exchange rate was 5 cedis to the dollar. At today’s rate, it’s worth $889.Joe Jackson, the director of business operations at Dalex, said default rates for small and medium-size enterprises “are through the roof,” jumping to 70 percent from 30 percent.The real estate and construction market has also tanked. “There’s been a drastic drop in the number of homes in the first-buyer segment of the market,” said Joseph Aidoo Jr., executive director of Devtraco Limited, a large real estate developer.Construction of an apartment complex in Accra. The real estate and construction market has suffered along with the rise in the cost of borrowing. Francis Kokoroko for The New York TimesWhen the pandemic struck in 2020, paralyzing economies, shrinking revenues and raising health care costs, fear of a global debt crisis mounted. Ghana, like many developing countries, had borrowed heavily, encouraged by years of low commercial rates.As the Federal Reserve and other central banks raised interest rates to combat inflation, developing countries’ external debt payments — priced in dollars or euros — unexpectedly ballooned at the same time that prices of imported food, fuel and fertilizer shot up.As Ghana’s foreign reserves skidded toward zero, the government began paying for refined oil imports directly with gold bought by the central bank.Even so, while the series of unfortunate global events may have supercharged Ghana’s debt crisis, they didn’t create it.The current government, like previous ones, spent much more than it collected in revenues. Taxes as a share of total output are also lower than the average across the rest of Africa.To make up the shortfall, the government kept borrowing, offering higher and higher interest rates to attract foreign lenders. And then it borrowed more to pay back the interest on previous loans. By the end of last year, interest payments on debt were gobbling up more than 70 percent of government revenues.“The government is bloated and inefficient,” said E. Gyimah-Boadi, the board chair of Afrobarometer, a research network. Half-completed schools, hospitals and other projects are abandoned when a new administration comes in. Corruption and mismanagement are also problems, several economists and business leaders in Ghana said.More fundamentally, Ghana’s economy is not set up to generate the kind of jobs and incomes needed for broad development and sustainable growth.“Ghana’s success story is real,” said Aurelien Kruse, the lead country economist in the Accra office of the World Bank. “Where it may have been a bit oversold,” though, is that “the fast growth has not been diversified.” The economy is primarily dependent on exports of raw materials like cocoa, oil and gold, which peak and swoop in price.Manufacturing accounts for a mere 10 percent of the country’s output — a decline from 2013. Without a thriving industrial sector to provide steady employment and produce exportable goods, Ghana has no other streams of revenue from abroad, which can build wealth and pay for needed imports.This model — the import of expensive goods and the export of cheap resources — characterized the colonial system.Senyo Hosi, executive chairman of Kleeve & Tove, an investment company based in Accra, said he had an agribusiness that produced rice in the Volta region and worked with more than 1,000 growers. He can’t do required upgrades to equipment, though, because 30 percent interest rates make borrowing impossible. “I stopped production,” he said.Delivery riders for an online food delivery app. Francis Kokoroko for The New York Times‘For Us It Means Shutdown.’As the global financial system struggles to restructure hundreds of billions of dollars in existing debt, the question of how to avoid the debt trap in the first place remains more urgent than ever. Large chunks of money are required to invest in desperately needed roads, technology, schools, clean energy and more. But dozens of countries lack the domestic savings needed to pay for them, and grants and low-cost loans from international institutions are scarce.Road works continue on sections of the National Route Six, a carriageway connecting Ghana’s capital to its second largest city, Kumasi.Francis Kokoroko for The New York Times“The fundamental issue is the need for financing,” said Brahima S. Coulibaly, a senior fellow at the Brookings Institution.So governments turn to international capital markets, where investors are foraging the world for high returns. Both political leaders and investors often look for short-term wins, whether in the next election or earnings call, said Martin Guzman, a former finance minister of Argentina who handled his country’s debt restructuring in 2020.This free flow of capital around the globe has resulted in a flood of financial crises. “Inequality is embedded in the international financial architecture,” a United Nations Global Crisis Response Group concluded in an analysis.Even worthy investments — and not all of them are — don’t always generate enough revenue to repay the loans. When bad times hit or foreign lenders get spooked, governments are left in the lurch. This process can be accelerated in Africa, where research has found there is an exaggerated perception of risk, which lowers credit ratings and raises financing costs.Without a safety cushion to fall back on, a small government cash crunch can turn into a disaster. Think of a household in a tough stretch that can’t cover next month’s rent and is evicted. Now instead of being a few hundred dollars in debt, the members of the household are homeless.“For us,” said Ken Ofori-Atta, Ghana’s finance minister, a credit downgrade “means shutdown.”Ghana’s finance minister, Ken Ofori-Atta, at his home in Accra: “For us, a credit downgrade means shutdown.”Francis Kokoroko for The New York TimesSeveral organizations have sketched out escape routes from the debt trap, including more low-cost lending from multilateral banks like the World Bank.Debt Justice, which advocates for debt forgiveness, along with many economists, argues that some of the $200 billion in debt must be erased. It has also called for governments and lenders to publicly reveal the amount and terms of loans, and what the money was used for so it can be better tracked and audited.Other research groups have looked at ways to stabilize the evolving African bond market and help governments survive short-term shortfalls as well as boom-and-bust swings in commodity prices.Mr. Ofori-Atta said he had “extreme confidence” that Ghana would have strong growth after it emerged from this debt tunnel.But the problem of finding manageable amounts of low-cost investment capital remains.Where does an African country — or any developing country — get the type of financing it needs to grow? Mr. Ofori-Atta asked.Before the cycle of debt crises is broken, that question will have to be answered. More

  • 138 Shares179 Views

    in Economy

    Huawei Phone Is Latest Shot Fired in the U.S.-China Tech War

    by

    The release of a homegrown Chinese smartphone during a visit by the Biden official in charge of regulating such technology shows the U.S.-China tech conflict is alive and well.In the midst of the U.S. commerce secretary’s good will tour to China last week, Huawei, the telecom giant that faces stiff U.S. trade restrictions, unveiled a smartphone that illustrated just how hard it has been for the United States to clamp down on China’s tech prowess.The new phone is powered by a chip that appears to be the most advanced version of China’s homegrown technology to date — a kind of achievement that the United States has been trying to prevent China from reaching.The timing of its release may not have been a coincidence. The Commerce Department has been leading U.S. efforts to curb Beijing’s ability to gain access to advanced chips, and the commerce secretary, Gina M. Raimondo, spent much of her trip defending the U.S. crackdown to Chinese officials, who pressed her to water down some of the rules.Ms. Raimondo’s powerful role — as well as China’s antipathy toward the U.S. curbs — was reflected online, where more than a dozen vendors cropped up on Chinese e-commerce sites to sell phone cases for the new model with Ms. Raimondo’s face imprinted on the back. Doctored images showed Ms. Raimondo holding the new phone, next to phrases like “I am Raimondo, this time I endorse Huawei” and “Huawei mobile phone ambassador Raimondo.”Chinese media have referred to the phone as a sign of the country’s technological independence, but U.S. analysts said the achievement still most likely hinged on the use of American technology and machinery, which would have been in violation of U.S. trade restrictions.Beginning in the Trump administration and continuing under President Biden, the United States has steadily ramped up its restrictions on selling advanced chips and the machinery needed to make them to China, and to Huawei in particular, in an attempt to shut down China’s mastery of technologies that could aid its military.For the past several years, those restrictions have curtailed Huawei’s ability to produce 5G phones. But Huawei appears to have found a way around those restrictions to make an advanced phone, at least in limited quantities. Though detailed information about the phone is limited, Huawei’s jade-green Mate 60 Pro appears to have many of the same basic capabilities as other smartphones on the market.An examination of the phone by TechInsights, a Canadian firm that analyzes the semiconductor industry, concluded that the advanced chip inside was manufactured by Semiconductor Manufacturing International Corporation of China and was operating beyond the technology limits that the United States has been trying to enforce. Douglas Fuller, an associate professor at Copenhagen Business School, said SMIC appeared to have used equipment stockpiled before restrictions went into effect, equipment licensed to it for the purpose of producing chips for companies other than Huawei, and spare parts acquired through third-party vendors to cobble together its production.“The official line in China of a heroic breaking of the technology blockade of the American imperialists is incorrect,” Mr. Fuller said. “Instead, the U.S. has allowed SMIC continued significant access to American technology.”Huawei and SMIC did not respond to a request for comment. The Commerce Department also did not respond to a request for comment.Chinese social media commentators and news sites celebrated the smartphone’s release as evidence that U.S. restrictions could not hold China back from developing its own technology.“Regardless of Huawei’s intentions, the launch of the Mate 60 Pro has been imbued by many Chinese netizens with a deeper meaning of ‘rising up under US pressure,’” the state-run Global Times said in an editorial.The phone was released during a week when both American and Chinese officials had issued numerous statements about renewed cooperation and communication. Chinese officials had asked for the United States to roll back its restrictions on chip exports. But Ms. Raimondo — whose email, along with other U.S. officials, was targeted this year by Chinese hackers — told reporters that she had taken a hard line on the technology controls in her meetings, saying the United States was not willing to remove restrictions or compromise on issues of national security.During the trip, Ms. Raimondo and her advisers set up a dialogue to share information about how the United States was enforcing its technology controls. She said the step would lead to better Chinese compliance but was not an invitation to the Chinese to try to water down export controls.Ms. Raimondo also met directly with the Chinese premier, Li Qiang, during her visit. The week before, Mr. Li had visited Huawei during a visit to southern China, according to the official Xinhua News Agency, and met with the company founder Ren Zhengfei.Phone cases in China displaying doctored photos of the U.S. commerce secretary, Gina Raimondo.MengyanThe release of the Huawei phone raises questions about whether Ms. Raimondo’s department will continue trying to build good will with Chinese officials — or potentially take a more aggressive stance toward cracking down on China’s access to American technology.The Biden administration is preparing to issue a final version of the technology restrictions it first put out last October, and the revised rules could come within weeks.Huawei’s development of the phone does not necessarily demonstrate a huge leap forward for Chinese technological prowess — or the total failure of U.S. export controls, analysts said.Because Chinese firms no longer have access to the most cutting-edge machines for making semiconductors, they have developed novel workarounds that use older machinery to create more powerful chips. But these methods are both relatively time-consuming for manufacturers, and produce a higher proportion of faulty chips, limiting the scale of production.“This does not mean China can manufacture advanced semiconductors at scale,” said Paul Triolo, an associate partner for China and technology policy at Albright Stonebridge Group, a consultancy. “But it shows what incentives U.S. controls have created for Chinese firms to collaborate and attempt new ways to innovate with their existing capabilities.”“It is the first major salvo in what will be a decade or more struggle for China’s semiconductor industry to essentially reinvent parts of the global semiconductor supply chain without U.S. technology included,” he added.Nazak Nikakhtar, a partner at Wiley Rein and a former Commerce Department official, said Huawei’s progress was “a result of longstanding U.S. policy” — specifically U.S. licenses that allow companies to continue selling advanced technologies to firms that the Commerce Department placed on a so-called entity list, like Huawei and SMIC.From Jan. 3 to March 31, 2022, the Commerce Department approved licenses for the sale of $23 billion of tech products to companies on the entity list, according to information released in February by the House Foreign Affairs Committee.“Where gaps exist in licensing policies, exports will get funneled through the gaps,” Ms. Nikakhtar said. “The U.S. government needs to close the gaps if its intention is to limit exports of critical technologies to China.”In a statement on Wednesday, Representative Mike Gallagher, a Wisconsin Republican who heads a congressional committee on China, called for ending all U.S. technology exports to both Huawei and SMIC. U.S. chip makers such as Qualcomm and Intel have received exporting licenses.Claire Fu More

  • 163 Shares199 Views

    in Economy

    The U.S. and China Are Talking Again. Where It Will Lead Is Unclear.

    by

    Gina Raimondo, the U.S. commerce secretary, and her Chinese counterparts agreed to continue economic talks, but such dialogues have a disheartening record.Gina Raimondo, the commerce secretary, expressed hopes that American and Chinese officials would work on improving the countries’ business relationship.Pool photo by Andy WongWhen Gina Raimondo, the commerce secretary, visited China this week, she joined a long line of U.S. politicians who have come to the country to try to sway Chinese officials to open their market to foreign businesses and buy more American exports, in addition to other goals.Ms. Raimondo left Shanghai on Wednesday night with no concrete commitments from China to treat foreign businesses more equitably or step up purchases of Boeing jets, Iowa corn or other products. In a farewell news conference, she said that hoping for such an outcome would have been unrealistic.Instead, Ms. Raimondo said her biggest accomplishment was restoring lines of communication with China that would reduce the chance of miscalculation between the world’s two largest economies. She and Chinese officials agreed during the trip to create new dialogues between the countries, including a working group for commercial issues that American businesses had urged her to set up.“The greatest thing accomplished on both sides is a commitment to communicate more,” Ms. Raimondo said on Wednesday.She had also delivered what she described as a tough message. The Biden administration was willing to work to promote trade with China for many categories of goods. But the administration was not going to heed China’s biggest request: that the United States reduce stringent controls on exports of the most advanced semiconductors and the equipment to make them.“We don’t negotiate on matters of national security,” Ms. Raimondo told reporters during her visit.While she called the trip “an excellent start,” the big question is where it will lead. There is a long history of frustrating and unproductive economic dialogues between the United States and China, and there are not many reasons to believe this time will prove different.Forums for discussion may have helped resolve some individual business complaints, but they did not reverse a broad, yearslong slide toward more conflict in the bilateral relationship. Now, the U.S.-China relationship faces a variety of significant security and economic issues, including China’s more aggressive posture abroad, its use of U.S. technology to advance its military and its recent raids on foreign-owned businesses.Ms. Raimondo says she has the backing of the president and U.S. officials. And Biden administration officials argue that even the shift to begin talking has been significant, after a particularly tense period. Relations between the United States and China became frosty last August when Representative Nancy Pelosi, the House speaker at the time, visited Taiwan, and they froze entirely after a Chinese surveillance balloon flew across the United States in February.Ms. Raimondo’s trip capped a summer of outreach by four senior Biden officials. R. Nicholas Burns, the U.S. ambassador to China, who took office in January 2022 and accompanied Ms. Raimondo on the trip, said on Tuesday that American officials “literally were not talking to the Chinese leadership at a senior level, my first 15 months here.”“In a very, very challenging relationship, intensive diplomacy is critical,” he added.Not everyone views re-engagement as a good thing. Republican lawmakers, in particular, increasingly see the conflict between the United States and China as a fundamental clash of national interests. Critics view the outreach as an invitation for China to drag out reforms, or a signal to Beijing that the United States is willing to make concessions.“Of the more than two dozen great-power rivalries over the past 200 years, none ended with the sides talking their way out of trouble,” Michael Beckley, an associate professor of political science at Tufts University, wrote in Foreign Affairs this month. He added, “The bottom line is that great-power rivalries cannot be papered over with memorandums of understanding.”The space for compromise also seems narrow. Both governments have little desire to be seen by domestic audiences as making concessions. And in both countries, the share of trade that is considered off limits or a matter of national security concerns is growing.Ms. Raimondo at Shanghai Disneyland on Wednesday. She said her biggest accomplishment in her trip to China was restoring communication to reduce the chance of miscalculation.Pool photo by Andy WongMs. Raimondo expressed wariness at being drawn into unproductive talks with China — a persistent issue over the last several decades. But she also described herself as a pragmatist, who would push to accomplish what she could and not waste time on the rest.“I don’t want to return to the days of dialogue for dialogue’s sake,” she said. “That being said, nothing good comes from shutting down communication. What comes from lack of communication is mis-assessment, miscalculation and increased risk.”“We have to make it different,” Ms. Raimondo said of her new dialogue, adding that the U.S.-China relationship was too consequential. “We have to commit ourselves to take some action. And we can’t allow ourselves to devolve into a cynical place.”Kurt Tong, a former U.S. consul general in Hong Kong who is now a managing partner at the Asia Group, a Washington consulting firm, said Ms. Raimondo had offered China half of what it wanted. She sent a clear message that many American companies should feel free to do business in China, after years of receiving criticism for doing so during the Trump administration and still from many Republicans in Congress. But she did not agree to relax American export controls.“China is essentially forced by circumstances to accept that half a loaf,” Mr. Tong said, adding, “I do sense there is a real desire in Beijing to stabilize the relationship, both because of the geopolitical relationship but also, perhaps more important, the doldrums on the economic side.”The recent weakness in the Chinese economy may create some opening for compromise. The Chinese economy has only limped back from its pandemic lockdowns. China’s youth unemployment rate has risen, its debt is piling up, and foreign investment in the country has fallen, as multinational companies look for other places to set up their factories.In a meeting with Ms. Raimondo on Wednesday, the Shanghai party secretary, Chen Jining, admitted that the sluggish economy made business ties more crucial.“The business and trade ties serve the role as stabilizing ballast for the bilateral ties,” Mr. Chen said. “However, the world today is quite complicated. The economic rebound is a bit lackluster. So stable bilateral ties in terms of trade and business is in the interest of two countries and is also called for by the world community.”Ms. Raimondo met with Chen Jining, the Shanghai party secretary, on Wednesday.Pool photo by Andy WongMs. Raimondo responded that she was looking forward to discussing “concrete” ways they might be able to work together to accomplish business goals and “to bring about a more predictable business environment, a predictable regulatory environment and a level playing field for American businesses here in Shanghai.”Some of the issues that Ms. Raimondo raised during her visit — including intellectual property theft, patent protection and the inability of Visa and Mastercard to receive final approval for access to the Chinese market — are the very same ones that were discussed in economic dialogues with China more than a decade ago, including under Presidents George W. Bush and Barack Obama.For instance, China promised in 2001 as part of its entry into the World Trade Organization that it would quickly allow American credit card companies into its market, and it lost a W.T.O. case on the issue in 2012. But 22 years later, Visa and Mastercard still do not have equal access to the Chinese market.For more than three decades, commerce secretary visits to China followed a familiar script. The visiting American official would call on China to open its markets to more American investment, and to allow more equal competition among foreign and local companies. Then the commerce secretary would attend the signing of contracts for exports to China.That included Barbara H. Franklin, who in 1992, at the end of the George H.W. Bush administration, oversaw the signing of $1 billion in contracts and the re-establishment of commercial relations with China after the deadly Tiananmen Square crackdown in 1989.Gary Locke of the Obama administration oversaw the signing of a broad contract in 2009 for the provision of American construction services. And Wilbur Ross, who went to China on behalf of President Donald J. Trump in 2017, came back with $250 billion in deals for everything from smartphone components to helicopters to Boeing jets.These deals did little to erase China’s enormous trade imbalance with the United States. China has fairly consistently sold $3 to $4 a year worth of goods to the United States for each dollar of goods that it purchased.In a sign of how much the focus of the relationship has shifted, Ms. Raimondo’s trip contained more discussion of national security than of new contracts. She gave her final news conference in a hangar at Shanghai Pudong Airport near two Boeing 737-800s, but did not mention the contract for several Boeings that China has yet to accept, much less any new sales.China, the world’s largest single market for new jetliners in recent years, essentially stopped buying Boeing jets during the Biden administration and switched to Airbus planes from Europe to show its unhappiness with American policies. Ms. Raimondo said on Tuesday that she had raised the lapse of Boeing purchases with Chinese leaders during her two days in Beijing.“I brought up all those companies,” Ms. Raimondo said. “I didn’t receive any commitments. I was very firm in our expectations. I think I was heard. And as I said, we’ll have to see if they take any action.” More

  • 125 Shares189 Views

    in Economy

    U.S. Does Not Want to ‘Decouple’ From China, Raimondo Says

    by

    Gina Raimondo, the commerce secretary, emphasized U.S. concerns over harsh treatment of foreign companies and national security issues in a meeting with top officials in Beijing.Gina Raimondo, the U.S. secretary of commerce, told Chinese officials on Tuesday that the United States was not seeking to sever economic ties with China, but she expressed a litany of concerns that were prompting the business community to describe China as “uninvestable.”Ms. Raimondo, who oversees both trade promotion and U.S. limits on China’s access to advanced technology, spoke with several of China’s top officials on Tuesday. That included meeting with Premier Li Qiang, China’s second-highest official, and Vice Premier He Lifeng, who oversees many economic issues, at the Great Hall of the People, next to Tiananmen Square in the heart of Beijing.Ms. Raimondo said she had pressed Chinese officials on a variety of challenges facing American businesses operating in China. Companies have expressed concerns about long-running issues like intellectual property theft as well as a raft of newer developments, like raids on businesses, a new counterespionage law and exorbitant fines that come without explanations, she said during an extended interview with reporters on a high-speed train from Beijing to Shanghai on Tuesday evening.“Increasingly, I hear from businesses China is uninvestable because it has become too risky,” she said.Ms. Raimondo said after the meetings that she had raised the various concerns of U.S. companies like Intel, Micron and Boeing, but that she “didn’t receive any commitments.” Beijing scuttled Intel’s acquisition of another semiconductor company this month by not giving the deal antitrust approval. It has also severely restricted some of Micron’s semiconductor sales in China since May and has halted almost all purchases of Boeing jets over the last several years, mainly choosing Airbus aircraft from Europe instead.“I was very firm in our expectations. I think I was heard,” she added. “We’ll have to see if they take any action.”Ms. Raimondo also asked for China’s cooperation on broader threats like climate change, fentanyl and artificial intelligence. The Chinese in turn asked for the United States to reduce export controls on advanced technology and retract a recent executive order that bans new investments in certain advanced technologies, Ms. Raimondo said.The commerce secretary said she had refused those requests. “We don’t negotiate on matters of national security,” she said.Still, Ms. Raimondo tried to assure the Chinese that export controls applied only to a small proportion of U.S.-China trade, and that other economic opportunities between the countries should be embraced.“This isn’t about decoupling,” she said. “This is about maintaining our very consequential trade relationship, which is good for America, good for China and good for the world. An unstable economic relationship between China and the United States is bad for the world.”The official Xinhua news agency said late Tuesday that Premier Li had told Ms. Raimondo that economic relations between China and the United States were “mutually beneficial.” But he also warned that “politicizing economic and trade issues and overstretching the concept of security will not only seriously affect bilateral relations and mutual trust, but also undermine the interests of enterprises and people of the two countries, and will have a disastrous impact on the global economy.”Ms. Raimondo’s visit is part of an effort by the Biden administration to stop a long deterioration in the U.S. relationship with China and restore communications. She is the fourth senior Biden administration official to travel to China in three months. Her conversations with Chinese officials — which ranged from issues of national security to commercial opportunities for tourism — attested to both the economic potential of the trading relationship and its immense challenges.Chinese officials have welcomed her visit as an opportunity to reduce tensions and air their concerns. Seated in a red-carpeted reception room on the second floor of the Great Hall, Mr. He said at the start of their meeting that he was ready to work with Ms. Raimondo, and hoped the United States would adopt rational and practical policies. She responded by laying out what the Biden administration sees as its priorities.“The U.S.-China commercial relationship is one of the most globally consequential, and managing that relationship responsibly is critical to both our nations and indeed to the whole world,” Ms. Raimondo said. “And while we will never of course compromise in protecting our national security, I want to be clear that we do not seek to decouple or to hold China’s economy back.”On Monday, Ms. Raimondo and China’s commerce minister, Wang Wentao, met and agreed to hold regular discussions between the two countries on commercial issues. Those talks are set to include business leaders as well as government officials. The two governments also agreed to exchange information, starting with a meeting by their senior aides on Tuesday morning in Beijing, about how the United States enforces its export controls.Earlier on Tuesday, Ms. Raimondo met with China’s minister of culture and tourism, Hu Heping. That meeting came less than three weeks after Beijing lifted a ban on group tours to the United States that it had imposed during the pandemic, when China closed its borders almost completely for nearly three years.The two ministers agreed at the meeting that the United States and China would host a gathering in China early next year to promote the travel industry, the latest in a series of business promotion activities that Ms. Raimondo has been organizing.Travel from China to the United States remains at less than a third of prepandemic levels, the United States Travel Association, an industry group, said on Saturday.The number of nonstop flights between the two countries is still less than a tenth of its level before the pandemic. Chinese airlines carried most of the passengers between the two countries before the pandemic. But after Beijing frequently blocked American carriers’ flights to China during the pandemic because of Covid cases aboard — while allowing Chinese carriers’ flights to continue — the Biden administration began insisting on strict reciprocity.After the retirement of many pilots and flight attendants during the pandemic, American carriers have struggled to meet travel demand within the United States. They have been slow to restore long-haul services to China, which require many crews to operate, although United Airlines announced recently that this autumn it would increase the frequency of flights from San Francisco to Shanghai, and would resume flights from San Francisco to Beijing.Senior American officials previously tended to fly between Beijing and Shanghai during visits to China, but the Commerce Department decided to move its sizable delegation by train on this trip. Huge Chevrolet Suburban sport utility vehicles carrying Ms. Raimondo and her aides pulled straight up onto the train platform to unload them into one of China’s high-speed electric trains, which travel for long stretches at 217 miles per hour, or 350 kilometers an hour.The trains travel from Beijing to Shanghai, a distance comparable to the journey from New York to Atlanta or Chicago, in as little as four and a half hours, depending on how many stops they make. The trains, usually with 16 or more passenger cars, depart several times an hour in each direction. More