RRelations between the US and China were bad even before the visit of the Speaker of the House of Representatives to Taiwan. They now have the potential to turn very nasty, with significant consequences for the global economy.
For the moment, things seem contained. Financial markets have responded relatively calmly to Nancy Pelosi’s visit and the military exercises that Beijing ordered in response. The assumption is that China will put on a show of force and leave it at that.
However, its president, Xi Jinping, also has economic and financial weapons at his disposal and can choose to use them. On the softer end of the spectrum, Porcelain could make it difficult for US companies to access their market. It will be in no rush, for example, to allow Boeing to resume sales of its 737 Max planes.
This would accelerate the decoupling of the world’s two largest economies, a trend that began when Donald Trump was in the White House and has continued under Joe Biden. Hostility toward Beijing is one of the few things that Republicans and Democrats agree on.
However, there is a risk that China will go further and exploit Taiwan’s dependence on imported fuel by imposing a blockade on the island. Like Mark Williams, chief analyst for Asia at Capital Economic Sciencespoints out, this would soon cripple Taiwan’s industry and cause “major global economic disruption.”
That’s because the island makes about half of the world’s semiconductors, which are used in everything from mobile phones to cars and it’s already falling short. Restricting the export of chips would lead to supply bottlenecks, higher inflation and weaker growth. Inevitably, there would also be pressure on the US not only to impose economic sanctions and asset freezes, but also to intervene militarily.
Financial markets are probably underestimating the risks Taiwan poses. At the very least, business confidence is going to take a further hit. The chances of tit-for-tat trade restrictions have increased. There will be more pressure for national self-sufficiency to reduce dependency on global supply chains.
And that is a relatively optimistic reading of events. Clearly there is a low but not insignificant risk that this increasingly tense cold war will turn hot.
Oil prices look like they have more to fall
There was a time when OPEC oil cartel meetings were front page news. When Sheikh Ahmed Yamani died last year, obituaries he made much of how, as Saudi Arabia’s oil minister, he was a pivotal figure in determining the world price of crude oil.
But that was all a long time ago. OPEC is now OPEC+ thanks to the addition of some new members, including Russia, but it no longer wields the influence over global energy markets that it did in the 1970s and 1980s.
Oil prices are now well below the levels they reached in the immediate aftermath of the Russian invasion of Ukraine, and are likely to fall further in the coming months. That has nothing to do with Wednesday’s senseless decision by OPEC+ to increase crude supply by 100,000 barrels a day and everything to do with global demand.
As the International Monetary Fund noted last week, the world’s three largest economies (the United States, the eurozone, and China) are stalling. Oil is trading at around $100 a barrel, a price consistent with strong global growth rather than the recession looming this winter.
Whether or not Opec+ increases downward pressure by increasing production, oil prices look set to fall further. That will be good news for UK motorists, provided of course costs are lower. they are transmitted by gasoline retailers.
Why the regional salary for public sector workers is a dumb idea
configuring regional pay boards Matching the pay of public sector workers to local labor market conditions is the kind of proposal Liz Truss might have dreamed up when she was sculpting herself politically as deputy director of the center-right think tank Reform.
There is nothing wrong with that. The think tanks are there to present radical new proposals. Politicians, however, have to separate the good ideas from the bad, and the regional salary of public sector workers falls squarely into the latter category.
There are reasons for it. One is that cutting public sector wages would reduce purchasing power in parts of the country that suffer from low levels of demand. Another is the need to provide incentives for the best and brightest to take jobs outside London and the South East. The proposal is bad economics and bad politics, which clashes with the government’s leveling agenda. no wonder truss abandoned the idea within 24 hours of announcing it.