Global Developments and Analysis: Weekly Monitor, 06 July - 12 July 2020

Economic

New North American trade pact puts toll on Asian companies

This month, the United States-Mexico-Canada Agreement, the successor to the North American Free Trade Agreement, took effect. To avoid tariffs, over 40% of a car's parts must be made in areas where workers are paid at least $16 an hour. Clearly, the rules are designed to encourage production in the U.S., where wages are higher. Until now, only 62.5% of the parts had to be made within the region to qualify for tariff exemptions. The deal calls for this figure to be raised to 75%. Automakers are scrambling to choose between moving production to the U.S. or raising wages in Mexico. Toyota Motor, which just began producing pickup trucks at its new plant in Mexico in February, faces a dilemma. Unless it meets the requirements, its popular pickups will be slapped with a 25% levy. But to reap the returns on its investment, it has no choice but to use the Mexico plant. Click here to read.... [2]

Uncertainties mount over implementation of AfCFTA amid COVID-19 crisis

As African countries brace for the upcoming trading regime under the African Continental Free Trade Area (AfCFTA) Agreement, uncertainties are looming as to whether the pact could deliver its expected aspirations amid the unprecedented economic perils exacerbated by the COVID-19 pandemic. Initially scheduled for July, the implementation of the AfCFTA agreement was postponed due to COVID-19, and experts and analysts are expressing their doubts whether the African continent could benefit from its ambitious flagship initiative. Experts stress that countries should brace for the realization of "enabling factors" that are deemed necessary for the effective implementation and success of the free trade deal, such as infrastructure connectivity, lifting of economic barriers on cross-border trade, and adjustments to national economic strategies and policies. Click here to read.... [3]

China quadruples fundraising pace for chip self-sufficiency

Chinese chipmakers have received 144 billion Yuan ($20.5 billion) so far this year, including commitments, according to data through Sunday compiled by Nikkei from private databases, company filings and news reports. This far outpaces the 12-month tallies of recent years, including the roughly 64 billion Yuan total from 2019.While China has emerged as a major player in smart phone production and 5G telecommunications networks, the country produces only around 15% of the chips it uses. China is a cutting-edge player when it comes to designing chips, such as those used to control smart phones. But it lags significantly on mass-producing chips, and on making semiconductor-manufacturing equipment. Some industry insiders say SMIC is two or more generations behind TSMC in technology. Click here to read.... [4]

Shanghai bourse's 29-month high bolstered by government help

The key index for Shanghai stocks touched a 29-month high on July 08, following efforts by the Chinese government to stabilize financial markets and quell smouldering concerns about capital flight after Beijing imposed new security legislation on Hong Kong. But the rise in asset values has all the hallmarks of a bubble. "The market mood has started to resemble that of 2015," said a veteran market player, referring to the year that China saw a stock market bubble collapse. The upswing in the stock market works out well for state-owned enterprises looking to raise funds. On the other hand, there are signs that the bull run has shot past fundamentals. Kweichow Moutai, the maker of baijiu liquor, now has a market value nearly 50% larger than Toyota Motor. When the 2015 bubble burst, the Shanghai Composite crashed 40% from its peak in less than three months. Click here to read.... [5]

U.S. Business Groups Urge China to ‘Redouble Efforts’ to Implement Trade Deal

As senior U.S. and Chinese economic officials plan to discuss China’s compliance with a trade deal signed early this year, more than 40 American business groups called on Beijing to step up purchases of U.S. manufactured goods as well as energy and other products as part of the agreement. In a letter sent on July 06 to Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He, the business associations, led by the U.S. Chamber of Commerce, voiced strong support for the “Phase One” trade pact but pressed both sides—especially China—to “redouble efforts to implement all aspects of the Agreement.” The letter was also signed by the Business Roundtable, the U.S.-China Business Council and other trade groups covering a swath of industries including aerospace, autos, semiconductors, and pharmaceuticals. Click here to read.... [6]

Trump Dims Hopes for New China Trade Deal

President Trump damped expectations for a promised phase-two trade pact with China on July 09, saying the relationship between the countries has been too badly damaged by the coronavirus pandemic. “I don’t think about it now,” Mr. Trump told reporters aboard Air Force One, where he criticized China’s response to the new coronavirus, which continues to spread rapidly throughout the U.S. “They could have stopped the plague, they could have stopped it, they didn’t stop it.”A spokesman for the Chinese Embassy in Washington didn’t immediately respond to a request for comment. When the U.S. and China inked their trade deal in January, the two sides described the pact as a first-phase agreement, to be followed by new negotiations toward a more expansive deal in a second and possibly third phase. Click here to read.... [7]

Americans are rapidly shrinking their credit card debt during the pandemic

Americans' credit card debt is shrinking rapidly during the coronavirus recession. That's a sharp contrast with the last two economic downturns. The amount of consumer revolving credit, which is mostly credit cards, plunged by another $24 billion in May, the Federal Reserve said on July 08. This costly form of debt is down more than $100 billion since hitting a record high in February and is now below $1 trillion for the first time in nearly three years. The dwindling pile of credit card debt is yet more evidence of how drastically consumer behaviour is changing during the pandemic and this period of financial insecurity. Click here to read.... [8]

BT warns UK that banning Huawei too fast could cause outages

BT CEO Philip Jansen urged the British government on July 13 not to move too fast to ban China’s Huawei from the 5G network, cautioning that there could be outages and even security issues if it did.Prime Minister Boris Johnson is due to decide this week whether to impose tougher restrictions on Huawei, after intense pressure from the United States to ban the Chinese telecoms behemoth from Western 5G networks. Johnson in January defied President Donald Trump and granted Huawei a limited role in the 5G network, but the perception that China did not tell the whole truth over the coronavirus crisis and a row over Hong Kong has changed the mood in London. Click here to read.... [9]

After vigorous monsoon rains, crop planting gathers pace in India

Indian farmers have planted 12 million hectares with summer-sown rice, preliminary farm ministry data for this year showed, up 25% from last year as robust monsoon rains encouraged the expansion of acreage. Buoyed by the plentiful rains, rice farmers are likely to harvest a record crop and step up overseas sales from the world’s biggest exporter of the grain. Farmers start planting rice, corn, cotton, soybeans, sugarcane, and peanuts among other crops from June 1, when monsoon rains reach India. Nearly half of India’s farmland lacks irrigation and planting usually lasts through July. The Ministry of Agriculture & Farmers’ Welfare issued preliminary figures for planting from June 1-July 10, which are subject to revision as it gathers more information from state governments. Click here to read.... [10]

EU Council president proposes €5 billion Brexit buffer fund

The president of the European Council, Charles Michel, on July 10 proposed setting up a €5 billion ($5.7 billion) reserve fund to mitigate any unforeseen economic consequences of Brexit on European Union member states. The EU and the United Kingdom are in the middle of negotiations to hammer out a basis for trade following the end of the post-Brexit transition phase on December 31, 2020. If the deadline passes without a trade deal in place, it could have devastating consequences for businesses in both the EU and the UK. Some experts have called the short timeline for a trade deal unrealistic. Another meeting of EU and UK officials is set to begin on July 20. Click here to read.... [11]

Up to Switzerland to move on EU deal, Juncker says

The former European Commission president says it is up to Switzerland to make the next move to reach a framework deal with the European Union (EU). “Now it’s Switzerland turn,” Jean-Claude Juncker stated in an interview with the weekly NZZ am Sonntag published on July 12. He expressed disappointment that the deal, which would replace a raft of bilateral accords between Switzerland and the EU, was not concluded during his mandate. He noted that three issues remain particularly problematic for the Alpine nation: wage protection, state aid, and the extent to which EU immigrants can benefit from the Swiss social system. The Swiss in September will vote on an initiative to restrict freedom of movement between the 27 EU countries and the Alpine nation. Click here to read.... [12]

Strategic

US Army chief of staff signs ‘strategic vision’ pact with Thailand at Bangkok meeting with PM

US Army Chief of Staff General James McConville met with Thailand’s PM Prayuth Chan-ocha and its army chief Apirat Kongsompong in Bangkok on July 10. It was the first high-level visit by a foreign delegation to Thailand since the coronavirus pandemic disrupted international travel. A Strategic Vision Statement was signed during the meeting, the US Embassy said in a statement, as Washington looks to reassure allies about its commitment to the region. The embassy said McConville and Apirat “discussed modernization, interoperability, joint training, and doctrine.” The US has sought to counter China’s influence in Southeast Asia, while Thailand is Washington’s oldest ally in the region. However, relations were strained by a 2014 military coup led by then-army chief Prayuth that ousted an elected civilian government. The US scaled back some military exchanges with Thailand, and Bangkok responded by forging closer ties with China. Click here to read.... [13]

‘US continues to pester China’: Beijing rejects Washington’s fresh invite to join arms-control talks with Russia

China on July 10 rejected a new US invitation to join arms control talks with Russia. Washington has demanded that China take part in talks on a successor to the New START treaty, which caps the nuclear warheads the US and Russia possess. Beijing said in response that it would only join the talks if the US reduced its nuclear arsenal to match China’s much smaller deterrent. The US issued a fresh invitation to the talks on July 09. Foreign Ministry spokesman Zhao Lijian said that “China’s opposition of the so-called trilateral arms control negotiations is very clear.” “However, the US continues to pester China, even distorting China’s position,” AFP quoted Zhao as saying. He noted that Washington’s proposal for trilateral negotiations was “neither serious nor sincere,” urging the US to instead respond to Russia’s call for an extension of the treaty and a further reduction of its own nuclear arsenal. Click here to read.... [14]

Iran and China Angle for Broad Partnership to Offset U.S. Pressure

Iran and China are seeking to cement a wide-ranging partnership that would deflect U.S. economic pressure and ease Tehran’s global isolation. An initial draft of the Iran-China deal, which still requires Iranian parliamentary approval, would pave the way for Chinese investments in Iranian free-trade zones and for joint projects in other countries, such as Syria and Iraq. It would expand cooperation between the two countries in defense and counter terrorism. And it says that under a 25-year partnership, China would import “sustainable” levels of Iranian oil but offered no further details. Asked about the 25-year cooperation agreement, China’s foreign ministry spokesman Zhao Lijian last week didn’t confirm the deal but said: “China and Iran enjoy traditional friendship and the two sides have been in communication on the development of bilateral relations. We stand ready to work with Iran to steadily advance practical cooperation.” Click here to read.... [15]

People's Action Party wins Singapore election again

The governing People's Action Party (PAP) won Singapore's general election, retaining its more than 55-year grip on power, according to results reported online on July 11 by Singapore's Election Department. The PAP won 83 of 93 seats on offer, while the opposition Worker's Party (WP) secured 10 seats. Turnout was 95.63 percent among registered voters. There were more than 2.65 million voters eligible to vote. 191 candidates from 11 political parties and an independent candidate contests in all 93 seats.Some analysts believe that this general election is being held during the coronavirus pandemic, and the PAP, which is in good performance in the ruling the country, has a great advantage. However, Singapore voters, especially young voters, showed their desire to change and seek a diversified government, resulting in the governing party's ballot results being not as expected. The governing PAP has led Singapore since its independence in 1965. Click here to read.... [16]

N. Korea again not willing to restart US nuclear talks

The Democratic People's Republic of Korea (DPRK) is unwilling to talk face to face with the US and urged South Korea to stay away from meddling in Pyongyang's affairs, a senior DPRK diplomat reaffirmed on July 07. "Explicitly speaking once again, we have no intention to sit face to face with the US," Kwon Jong Gun, director general of the Department of US Affairs of the Foreign Ministry said in a statement carried by the official Korean Central News Agency. Kwon was reaffirming a statement issued earlier by Choe Son-hui, First Vice-Minister of Foreign Affairs of DPRK, who said last weekend that the DPRK had no interest in holding another DPRK-US summit before the US election in November, which was proposed by South Korean President Moon Jae-in last Wednesday. Click here to read.... [17]

‘Very distressed’: Pope Francis laments conversion of Hagia Sophia into mosque

Pope Francis has added his voice to those objecting to the museum status of Istanbul’s famous Hagia Sophia having been revoked. Originally a Byzantine Christian church, the Turkish government has turned it back into a mosque. “My thoughts go to Istanbul. I’m thinking about Hagia Sophia. I am very distressed,” the pontiff said, in the Vatican’s first reaction to the decision taken by the Turkish authorities. The brief remark made during a July 12 prayer marking the International Day of the Sea saw the Pope add his voice to the growing chorus from other Christian churches worldwide that have expressed concern over the move. Earlier, the World Council of Churches, a Geneva-based organization comprising numerous Protestant, Orthodox and Anglican institutions, expressed “grief and dismay” over the development, adding that Hagia Sophia had, until now, been “a place of openness, encounter and inspiration for people from all nations.” Click here to read.... [18]

Germany proposes first-ever use of EU cyber sanctions over Russia hacking

The German government has officially proposed that the European Union impose sanctions on Russian individuals responsible for a large-scale hacking of the Bundestag five years ago, the German Press Agency reported July 12.If agreed, the plan, which was recommended by Berlin last month, would be the first use of an EU cyber sanctions regime adopted in 2017.The details of the proposals were revealed in response to a parliamentary inquiry filed by Germany's socialist Left Party and reviewed by the news agency. The German government believes Russian intelligence was behind a 2015 network hacking in which an estimated 16 gigabytes of data, documents, and emails were siphoned off from the Bundestag's IT network, including thousands of emails from Merkel's Bundestag office. It was the largest cyber hacking ever carried out against the Bundestag. Click here to read.... [19]

Danish nod gives Nord Stream 2 gas pipeline fresh traction

When the Danish Energy Agency (DEA) this week authorized the use of Russian ships able to lay the final part of the Nord Stream 2 gas pipeline, advocates of the delayed project rejoiced. The move paves the way for the pipeline to reach its destination in Lubmin near Greifswald on Germany's Baltic coast before the end of this year. But US sanctions and technical issues could still upset the best laid of plans. Some 1,230 kilometres (775 miles) in length, Nord Stream 2 is set to run from Russia's Ust-Luga, but is now on hold 160 kilometres off the German coast after US sanctions came into force before Christmas seeing Swiss-Dutch company Allseas to withdraw its ships. Meanwhile, the US Congress is discussing a new sanctions bill that would extend the scope of already imposed penalties. The key provision of the newly proposed sanctions is to hit entities (so-called "classification societies”) that provide certification services for Nord Stream 2. Click here to read.... [20]

Syria aid deal: UNSC manages to keep only one crossing open

In a setback for millions of displaced Syrians, several attempts to keep a second border crossing open failed to pass at the Security Council.Millions of displaced Syrians will now have only one Turkish border crossing to receive aid after several attempts to keep a second crossing open failed to pass at the United Nations Security Council. Russia, backed by China, had been pushing to shut down one of the two border crossings that were still open. Click here to read.... [21]

UN: World could hit 1.5-degree warming threshold in 5 years

The world could see average global temperatures 1.5 degrees Celsius (2.7 Fahrenheit) above the pre-industrial average for the first time in the coming five years, the U.N. weather agency said July 09.The 1.5-C mark is the level to which countries have agreed to try to limit global warming. Scientists say average temperatures around the world are already at least 1 C higher now than during the period from 1850-1900 because of man-made greenhouse emissions. The World Meteorological Organization said there is a 20% chance that the 1.5 C level will be reached in at least one year between 2020 and 2024. The period is expected to see annual average temperatures that are 0.91 C to 1.59 C higher than pre-industrial averages. Click here to read.... [22]

Medical

Japan to pool $20bn with Europe, Canada for vaccine-buying fund

Japan is in talks with the U.K., France, and other potential partners to set up a $20 billion fund to jointly buy coronavirus vaccine, Nikkei has learned. The nations aim to establish the purchasing program as soon as this summer, with Japan expected to contribute as much as $800 million or so, according to people familiar with the matter.As the U.S. and China race to secure stable vaccine supplies for their own populations, Japan and European countries see an advantage in combining their lesser financial resources.Around 30 nations have said they intend to join the joint purchases, including Italy, Spain, Norway, and Canada. The European Union is also involved in the talks. Participating countries would agree to take no more than enough coronavirus vaccine for 20% of their population. Click here to read.... [23]

Is compulsory licensing of remdesivir a feasible option?

Bottlenecks in the production of antiviral drug remdesivir have led to policymakers threatening compulsory licensing and economic sanctions. It's a foretaste of what may come when a coronavirus vaccine becomes available. Since Washington said it had secured all remesdevir supplies from Gilead until September, some European nations have also been pulling out the big guns. Compulsory licensing is possible under World Trade Organization rules, should prior negotiations with the patent holder fail to achieve a compromise. And compulsory licensing is possible in the case of national emergencies and situations of extreme urgency as laid down in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Click here to read.... [24]

WHO experts to visit China as part of COVID-19 investigation

Two World Health Organization experts will spend the next two days in the Chinese capital to lay the groundwork for a larger mission to investigate the origins of the COVID-19 pandemic.One animal health expert and one epidemiologist during their visit will work to fix the "scope and terms of reference" for the future mission aimed at learning how the virus jumped from animals to humans, the statement from the United Nations body said. Scientists believe the virus may have originated in bats, then was transmitted through another mammal such as a civet cat or an armadillo-like pangolin before being passed on to people at a fresh food market in the central Chinese city of Wuhan late last year. The WHO mission is politically sensitive, with the U.S. -- the organization's top funder -- moving to cut ties with it over allegations it mishandled the outbreak and is biased toward China. Click here to read.... [25]

High-tech housekeeping

Short-wave ultraviolet light has long been used to help sterilise hospital operating theatres. The problem is that exposure to the light, usually UV-C, can be carcinogenic, hence the need for robots to deliver it safely. Ozone treatment has been used to disinfect water for more than a century but the drawback is that, according to the US Environmental Protection Agency, at the concentrations required to kill viruses and bacteria in the air, ozone can be harmful to humans. Using a similar technique to that employed to coat new cars in paint; an electrostatic sprayer gives a negative charge to the molecules of the cleaning spray as they leave the nozzle. This means they repel each other, creating a fine mist, and are attracted to surfaces being cleaned, thus enveloping them rather than simply falling with gravity. Click here to read.... [26]

Journal Papers

Maintaining the Competitive Advantage in Artificial Intelligence and Machine Learning- RAND

Artificial intelligence (AI) technologies hold the potential to become critical force multipliers in future armed conflicts. The People's Republic of China has identified AI as key to its goal of enhancing its national competitiveness and protecting its national security. If its current AI plan is successful, China will achieve a substantial military advantage over the United States and its allies. That has significant negative strategic implications for the United States. How much of a lead does the United States have, and what do the United States and the U.S. Air Force (USAF) need to do to maintain that lead? To address this question, the authors conducted a comparative analysis of U.S. and Chinese AI strategies, cultural and structural factors, and military capability development, examining the relevant literature in both English and Chinese. Click here to read.... [27]

Is Taiwan the Next Hong Kong? -Foreign Affairs

Pro-democracy protests have rocked Hong Kong for more than a year. Now, China has imposed a draconian national security law that will undermine the territory’s autonomy and, by extension, its identity. The new law is a profound tragedy for the people of Hong Kong, but unfortunately, there is little the international community can do to halt its implementation. The administration of U.S. President Donald Trump has suggested that it will dial up pressure on Hong Kong’s government. But doing so risks hurting Hong Kong’s economy more than Beijing’s and accelerating the territory’s absorption into southern China. Click here to read.... [28]