The long and painful journey to world disorder

As the era of globalisation ends, will protectionism and conflict define the next phase?      

by: Martin Wolf



It is not true that humanity cannot learn from history. It can and, in the case of the lessons of the dark period between 1914 and 1945, the west did. But it seems to have forgotten those lessons. We are living, once again, in an era of strident nationalism and xenophobia. The hopes of a brave new world of progress, harmony and democracy, raised by the market opening of the 1980s and the collapse of Soviet communism between 1989 and 1991, have turned into ashes.

What lies ahead for the US, creator and guarantor of the postwar liberal order, soon to be governed by a president who repudiates permanent alliances, embraces protectionism and admires despots? What lies ahead for a battered EU, contemplating the rise of “illiberal democracy” in the east, Brexit and the possibility of Marine Le Pen’s election to the French presidency?
 
What lies ahead now that Vladimir Putin’s irredentist Russia exerts increasing influence on the world and China has announced that Xi Jinping is not first among equals but a “core leader”?
The contemporary global economic and political system originated as a reaction against the disasters of the first half of the 20th century. The latter, in turn, were caused by the unprecedented, but highly uneven, economic progress of the 19th century.
 
Cold war realities: Moscow parades its ballistic missiles in 1965 © AP



The transformational forces unleashed by industrialisation stimulated class conflict, nationalism and imperialism. Between 1914 and 1918, industrialised warfare and the Bolshevik revolution ensued. The attempted restoration of the pre-first world war liberal order in the 1920s ended with the Great Depression, the triumph of Adolf Hitler and the Japanese militarism of the 1930s. This then created the conditions for the catastrophic slaughter of the second world war, to be followed by the communist revolution in China.

In the aftermath of the second world war, the world was divided between two camps: liberal democracy and communism. The US, the world’s dominant economic power, led the former and the Soviet Union the latter. With US encouragement, the empires controlled by enfeebled European states disintegrated, creating a host of new countries in what was called the “third world”.
 


Contemplating the ruins of European civilisation and the threat from communist totalitarianism, the US, the world’s most prosperous economy and militarily powerful country, used not only its wealth but also its example of democratic self-government, to create, inspire and underpin a transatlantic west. In so doing, its leaders consciously learnt from the disastrous political and economic mistakes their predecessors made after its entry into the first world war in 1917.

Domestically, the countries of this new west emerged from the second world war with a commitment to full employment and some form of welfare state. Internationally, a new set of institutions — the International Monetary Fund, the World Bank, the General Agreement on Tariffs and Trade (ancestor of today’s World Trade Organisation) and the Organisation for European Economic Co-operation (the instrument of the Marshall Plan, later renamed the Organisation for Economic Co-operation and Development) — oversaw the reconstruction of Europe and promoted global economic development. Nato, the core of the western security system, was founded in 1949. The Treaty of Rome, which established the European Economic Community, forefather of the EU, was signed in 1957.

This creative activity came partly in response to immediate pressures, notably the postwar European economic misery and the threat from Stalin’s Soviet Union. But it also reflected a vision of a more co-operative world.

From euphoria to disappointment
 
Economically, the postwar era can be divided into two periods: the Keynesian period of European and Japanese economic catch-up and the subsequent period of market-oriented globalisation, which began with Deng Xiaoping’s reforms in China from 1978 and the elections in the UK and US of Margaret Thatcher and Ronald Reagan in 1979 and 1980 respectively.
Market proponents: UK Prime Minister Margaret Thatcher and US President Ronald Reagan at a 1982 summit in France © AP


This latter period was characterised by completion of the Uruguay Round of trade negotiations in 1994, establishment of the WTO in 1995, China’s entry into the WTO in 2001 and the enlargement of the EU, to include former members of the Warsaw Pact, in 2004.
The first economic period ended in the great inflation of the 1970s. The second period ended with the western financial crisis of 2007-09. Between these two periods lay a time of economic turmoil and uncertainty, as is true again now. The main economic threat in the first period of transition was inflation. This time, it has been disinflation.



Geopolitically, the postwar era can also be divided into two periods: the cold war, which ended with the Soviet Union’s fall in 1991, and the post-cold war era. The US fought significant wars in both periods: the Korean (1950-53) and Vietnam (1963-1975) wars, during the first, and the two Gulf wars (1990-91 and 2003), during the second. But no war was fought among economically advanced great powers, though that came very close during the Cuban missile crisis of 1962.

The first geopolitical period of the postwar era ended in disappointment for the Soviets and euphoria in the west. Today, it is the west that confronts geopolitical and economic disappointment.
 
The Middle East is in turmoil. Mass migration has become a threat to European stability. Mr Putin’s Russia is on the march. Mr Xi’s China is increasingly assertive. The west seems impotent.
 
These geopolitical shifts are, in part, the result of desirable changes, notably the spread of rapid economic development beyond the west, particularly to the Asian giants, China and India.

Some are also the result of choices made elsewhere, not least Russia’s decision to reject liberal democracy in favour of nationalism and autocracy as the core of its post-communist identity and China’s to combine a market economy with communist control.

Rising anger
 
Yet the west also made big mistakes, notably the decision in the aftermath of 9/11 to overthrow Iraqi leader Saddam Hussein and spread democracy in the Middle East at gunpoint. In both the US and UK, the Iraq war is now seen as having illegitimate origins, incompetent management and disastrous outcomes.
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A destroyed Iraqi tank in August 1991: a coalition went to war against Saddam Hussain after Iraq invaded Kuwait © AP


Western economies have also been affected, to varying degrees, by slowing growth, rising inequality, high unemployment (especially in southern Europe), falling labour force participation and deindustrialisation. These shifts have had particularly adverse effects on relatively unskilled men. Anger over mass immigration has grown, particularly in parts of the population also adversely affected by other changes.

Some of these shifts were the result of economic changes that were either inevitable or the downside of desirable developments. The threat to unskilled workers posed by technology could not be plausibly halted, nor could the rising competitiveness of emerging economies. Yet, in economic policy, too, big mistakes were made, notably the failure to ensure the gains from economic growth were more widely shared. The financial crisis of 2007-09 and subsequent eurozone crisis were, however, the decisive events.  

 
These had devastating economic effects: a sudden jump in unemployment followed by relatively weak recoveries. The economies of the advanced countries are roughly a sixth smaller today than they would have been if pre-crisis trends had continued.

The response to the crisis also undermined belief in the system’s fairness. While ordinary people lost their jobs or their houses, the government bailed out the financial system. In the US, where the free market is a secular faith, this looked particularly immoral.
 
Finally, these crises destroyed confidence in the competence and probity of financial, economic and policymaking elites, notably over the management of the financial system and the wisdom of creating the euro.
 
All this together destroyed the bargain on which complex democracies rest, which held that elites could earn vast sums of money or enjoy great influence and power as long as they delivered the goods. Instead, a long period of poor income growth for most of the population, especially in the US, culminated, to almost everyone’s surprise, in the biggest financial and economic crisis since the 1930s. Now, the shock has given way to fear and rage.
 
Hail the 'core leader' - Chinese President Xi Jinping © Bloomberg
 
 
The succession of geopolitical and economic blunders has also undermined western states’ reputation for competence, while raising that of Russia and, still more, China. It has also, with the election of Donald Trump, torn a hole in the threadbare claims of US moral leadership.
 
We are, in short, at the end of both an economic period — that of western-led globalisation — and a geopolitical one — the post-cold-war “unipolar moment” of a US-led global order.

The question is whether what follows will be an unravelling of the post-second world war era into deglobalisation and conflict, as happened in the first half of the 20th century, or a new period in which non-western powers, especially China and India, play a bigger role in sustaining a co-operative global order.
 
Free trade and prosperity
 
A big part of the answer will be provided by western countries. Even now, after a generation of relative economic decline, the US, the EU and Japan produce just over half of world output measured at market prices and 36 per cent of it measured at purchasing power parity.

They also remain homes to the world’s most important and innovative companies, dominant financial markets, leading institutions of higher education and most influential cultures. The US should also remain the world’s most powerful country, particularly militarily, for decades.

But its ability to influence the world is greatly enhanced by its network of alliances, the product of the creative US statecraft during the early postwar era. Yet alliances also need to be maintained.



The essential ingredient in western success must, however, be domestic. Slow growth and ageing populations have put pressure on public spending. With weak growth, particularly of productivity, and structural upheaval in labour markets, politics has taken on zero-sum characteristics: instead of being able to promise more for everybody, it becomes more about taking from some to give to others. The winners in this struggle have been those who are already highly successful. That makes those in the middle and bottom of the income distribution more anxious and so more susceptible to racist and xenophobic demagoguery.

In assessing responses, two factors must be remembered.

First, the post-second world war era of US hegemony has been a huge overall success. Global average real incomes per head rose by 460 per cent between 1950 and 2015. The proportion of the world’s population in extreme poverty has fallen from 72 per cent in 1950 to 10 per cent in 2015.

Globally, life expectancy at birth has risen from 48 years in 1950 to 71 in 2015. The proportion of the world’s people living in democracies has risen from 31 per cent in 1950 to 56 per cent in 2015.



Second, trade has been far from the leading cause of the long-term decline in the proportion of US jobs in manufacturing, though the rise in the trade deficit had a significant effect on employment in manufacturing after 2000. Technologically driven productivity growth has been far more powerful.

Similarly, trade has also not been the main cause of rising inequality: after all, high-income economies have all been buffeted by the big shifts in international competitiveness, but the consequences of those shifts for the distribution of income have varied hugely.



US and western leaders have to find better ways to satisfy their people’s demands. It looks, however, as though the UK still lacks a clear idea of how it is going to function after Brexit, the eurozone remains fragile, and some of the people Mr Trump plans to appoint, as well as Republicans in Congress, seem determined to slash the frayed cords of the US social safety net.

A divided, inward-looking and mismanaged west is likely to become highly destabilising. China might then find greatness thrust upon it. Whether it will be able to rise to a new global role, given its huge domestic challenges, is an open question. It seems quite unlikely.



By succumbing to the lure of false solutions, born of disillusion and rage, the west might even destroy the intellectual and institutional pillars on which the postwar global economic and political order has rested. It is easy to understand those emotions, while rejecting such simplistic responses.

The west will not heal itself by ignoring the lessons of its history. But it could well create havoc in the attempt.


The Internet and the Tragedy of the Commons

The expectation of anonymity online has become extreme.

By George Friedman


The tragedy of the commons is a concept developed by a British economist in the early 19th century and refreshed by ecologist Garrett Hardin in 1968. They were addressing different issues arising out of the commons, an area that is owned by no one but used by everyone. The commons could be a green space at the center of a town, public land used for agriculture or the atmosphere. The tragedy of the commons is that while many benefit from it, no one is responsible for it. Each person’s indifference has little effect. Everyone’s collective indifference will destroy the commons. The tragedy of the commons is that it is vital, vulnerable and destroyed by the very people who need it.

The internet has become the global commons. This has happened with lightning speed. In this case, the commons is not just one place. It is a collection of places where people meet, discuss the latest news and gossip, play games and perhaps do a little business. The internet, with its complex web of connections and modes of communication, from email to Twitter to Instagram, has had a profound effect on society. There used to be private life and the village green, where public life was lived. There is now private life and the lives we live online. We have lost intimacy but have gained access to a vast world.
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The Russian Embassy in Washington on Dec. 31, 2016. U.S. President-elect Donald Trump praised Russian President Vladimir Putin for refraining from tit-for-tat expulsions of Americans in response to U.S. punitive measures over alleged Russian interference in the November election. CHRIS KLEPONIS/AFP/Getty Images


Good manners and the desire to be well thought of by your neighbors mitigated the tragedy of the physical commons. Even if you were not motivated to care for the commons, you were motivated to behave properly while using the commons. The incentive did not come from law but a sense of community; the community could censure and shun you if you failed to behave appropriately. Embarrassment and shame were compelling forces that shaped your behavior.

What made both possible was that you were known. You would have to live with the consequences of your behavior, while trying to develop that thing which all humans crave – a good reputation and even being admired. The worst thing, the ultimate punishment of the Greeks, was to be exiled. The commons were still exploited tragically but not wantonly savaged.

The problem with the internet is anonymity and the lack of privacy. This seems contradictory, since anonymity is derived from ultimate privacy, but the internet makes it possible. The world is now discussing whether the Russians hacked into the Democratic National Committee and John Podesta’s emails. This has evolved into a matter of geopolitics because the internet has become a battleground in several ways. One way is the constant invasion of privacy by hackers stealing emails and private correspondence. However, there is no way to know for certain who did it. The CIA may know, in rare circumstances, or may claim to know for political reasons. In general, it is difficult to find out who is violating your privacy and stealing your property.

Anonymity has another effect. On the village commons, everyone knows who you are and you are held responsible for what you say. On the global commons, you cannot be held responsible for what you say, because your identity is masked. The internet was created to function that way, less on purpose than by technical default. The consequence is that the most powerful human emotions, shame and the desire to be well thought of, don’t restrain what you say. False news has become a topic of discussion recently. False news has always existed, but it was readily distinguishable from reliable news by where it was published. An article from an unknown source was suspect. An article in the mainstream media was more respected.

Mainstream media outlets used to be the arbiters of the commons and their opinions meant something. They were respected for their banker-like primness. Their right to judge other sources of news was rooted in their meticulous fairness and visible objectivity. It is said that complete objectivity is impossible. That is likely true. But perfect love is also impossible. The lack of perfection does not excuse you from making your best efforts.

In a recent poll by the Pew Research Center, only 5 percent of Americans surveyed said that they had a great deal of confidence in the news media. This is a stunningly low number, but it is not a new phenomenon. What is striking is that this consistent lack of confidence in the media hasn’t created an uproar in newsrooms. I doubt that many reporters at The New York Times or The Washington Post voted for President-elect Donald Trump. That is fine, so long as the newspapers maintain rigorous objectivity. I am sure that the staff of both papers think they do, and it is likely that their friends, who share their views, also feel that way. But the majority of the public has its doubts. Therefore, in the public’s mind, these media outlets have given up their role as overseer of the commons of public discourse.

The anonymity of the web allows people to act without shame and to tell lies without fear. I would urge everyone not to believe that this behavior only comes from people on the right.

During the George W. Bush administration, I read many preposterous claims about him from people who appeared to be liberals. These kind of claims were also made by their right-wing friends. There is no accountability for what people say or do, no shame attached. Therefore, lies flourish, despicable charges are made, and some on each side are free to believe what they want to believe. The promise that the internet would create a democratic commons where all can be heard and the media loses the right to censor has been achieved. Censors and accountability no longer exist. Twitter is the place where malicious people with time on their hands can tell lies.

But in reality, the internet has not become more democratic. More fastidious citizens no longer visit the commons, or if they do, only to speak to those they know. It is increasingly the place of the marginal. It is interesting how the mainstream media has used Twitter to gain a sense of public opinion. I frequently wonder if the person from Twitter being quoted in a news story is a 12-year-old whose medications are no longer effective. The media doesn’t know. There are still worthwhile conversations to be had there, but many people now becoming less engaged.

The internet is a place with two problems, both masked. Some use it to steal private information and correspondence. Some use it to spew venom through the promise of anonymity. They are both destroying the global commons that had so much hope, in the same way that the village commons would be destroyed if it were invaded by people wearing masks, stealing people’s diaries and money and shouting obscene improbabilities. The tragedy of the commons today is not indifferent exploitation. The tragedy of the commons is that it can be dominated by criminals and those harassing others who want a civil conversation. It reminds me of Central Park in New York in the 1970s. Anyone who was there after dark was a mugger or crazy.

The right to privacy is an absolute, and in due course, as thieves keep breaking into people’s property (why thieves sometimes are called hackers is beyond me), we will simply return to older modes of communication. Perhaps phone calls and handwritten letters will be resurrected. Far better than having your secrets arrayed in public. But still, banks and companies like Geopolitical Futures have to do their business online, and the threat from criminals who can’t be identified is great.

But a greater problem is the media. The prestige press, as we used to call it, squandered its inheritance from prior generations of journalists and lost its right to pronounce the truth. Social media is now subject to Gresham’s Law: Bad ideas will drive out good ones. This can’t go on.

The first principle has to be to make masks illegal on the internet. Many countries and U.S. states have laws against wearing masks in public. In the United States, many of these laws were passed to stop the terrorism of the Ku Klux Klan, knowing that only anonymity and a large crowd made its members brave. But other countries passed similar laws on the reasonable assumption that someone hiding his face is up to no good. In the end, it came down to this: If you want to be in public, you must show your face. You have a right to privacy in your home and on your property. You don’t have a right to privacy when you choose to go into public spaces.

The problem is technical. Today’s computers descended without dramatic change from those available 20 years ago. The internet got larger with more bandwidth but is still as primitive as when it was first designed for a small group of scientists wanting to share information. The security that exists today consists of complex add-ons that require sophisticated managers, and they still can be broken into. Security can’t be an add-on. It has to be at the heart of the system, and its first requirement should be to eliminate anonymity, so that criminals can be identified and so that the vile will know shame.

The reason I am writing on this topic is that we are facing an international confrontation between Russia and the U.S. over whether Russia stole emails to help Trump become president.

Some also claim that the Russians penetrated the U.S. power grid. The problem with this issue is quite simply that the system is so primitive that proving the Russians are responsible is impossible. An entity can penetrate a critical system like the power grid without anyone knowing who did it.

The situation is getting out of hand. The internet has become not just the commons for private individuals but the business and government center of the world. Therefore, some limits need to be put in place. Hiding your identity already is illegal in certain circumstances. You must provide ID to buy alcohol or get on a plane. I expect privacy in my home, but when I go into the world, I want assurance that the people out there don’t mean me harm. The design of the internet denies me that. The arbiters of propriety have themselves collapsed. Crazy people are making insane charges in public. This has to stop.

It is in the interest of the tech community to do something about this issue because if thieves run lose and social media is dominated by sociopaths, people will treat the internet like they did Central Park. And if the tech community believes that it is so dependent on internet privacy that it can’t budge on this issue, then it is as deluded as the major media has been. Someone broke into the power grid and we don’t know who. Enough is enough. Wars have been started over less.


Will Latin America Regain Prosperity in 2017? 

010317_latamoutlook


Latin America’s major nations are hoping that 2017 will be the year that they finally recover from the lingering impact of weak commodity prices. For the fourth consecutive year, Latin America’s exports contracted in 2016, according to a report by the Inter-American Development Bank (IDB), using detailed data for 24 countries in the region. In 2016 Latin American and Caribbean exports fell by approximately $50 billion, or 6%. The value of exports was expected to reach $850 billion for 2016, a lower rate of contraction than the 15% drop suffered by the region in 2015. This latest annual decline was due primarily to declining sales to the United States (down 5%) and to the region itself (an 11% contraction), and, to a lesser extent, declining exports to China (down 5%), the rest of Asia (a 4% drop), and to the European Union (minus 4%).

Leaders in Latin America are also pondering what impact incoming U.S. President Donald Trump’s policies will have on the region’s economic growth and global trade in 2017. During his campaign, Trump advocated imposing protectionist barriers on U.S. imports of Latin American goods, which could potentially thwart the region’s attempts to boost exports to earlier, healthier levels. Another uncertainty facing Latin America is how Trump’s economic strategy will impact the value of the U.S. dollar.

The U.S. dollar will appreciate for two reasons, predicts Wharton management professor Mauro Guillen, who is also director of The Lauder Institute. “One reason is that interest rates are going to go up. A second reason is that the U.S. economy is probably going to do better than others,” he notes.

The rise of the dollar will be “bad for countries that are commodity exporters, because commodity prices will tend to go down — and short-term capital flows are likely to hurt countries like Brazil or Peru or Chile,” Guillen says. However, “contrary to the conventional wisdom, Mexico will do well because of the stronger dollar, while South America is going to be in a lot of trouble for the same reason.” Unlike the major nations of South America, Mexico is not a commodities exporter, but a major exporter of manufactured goods such as automobiles and electronics. “Mexico competes against China, but South America supplies China.”

But while “an acceleration of demand, particularly in the United States and in China, could sustain exports” from Latin America to the U.S. and China, “the resurgence of trade protectionism” in the United States “could bias the forecast,” according to Paolo Giordano, coordinator of the IDB report, and the principal economist of its integration and trade sector.

Another major issue is the ultimate impact of any changes in U.S. policy toward China, which is now the most important trading partner for several countries in Latin America. “That is a huge issue for some countries in South America,” notes Guillen. If China starts growing a bit faster, despite changes in U.S. trade policy, the results will be positive for South American commodity exporters, such as Argentina, Brazil, Chile and Colombia. “But if it does not, then South America is going to have continuing problems…. If China doesn’t grow as much, as has been the case for the last three or four years, those countries will suffer because China has become their most important customer.”

According to the IDB report, “The prospects for a reversal of the downward trend in 2017 are associated with a scenario in which commodity prices continue to improve, and intraregional trade recovers. Those countries whose real exchange rates have depreciated could also harness greater price competitiveness to stimulate [manufactured goods] sales and diversify their export baskets.”

A New Path for Brazil?

Brazil, the largest economy in the region, has sunk into the worst recession in its modern history amid low prices for key exports, high inflation, relentless political turmoil and depressed confidence levels.

In annual terms, industrial production fell 7.3% in October, a larger drop than the 4.7% decrease recorded in September, and a five-month low. According to Barcelona-based LatinFocus Economics, Brazil’s economy should exit recession in 2017 after falling 3.4% in 2016. “However, the pace of recovery is likely to be meager amid austerity measures and modest external conditions.” The consensus of economists polled by LatinFocus projected Brazil’s GDP growth at 0.8% in 2017.

Widespread declines were recorded nearly across the board in fall 2016 in 22 of the 26 categories surveyed by the Brazilian Institute of Geography and Statistics (IBGE). The categories that declined the most were the production of mining and quarrying, coke, oil products and biofuels as well as food products. Annual average growth in industrial production improved from minus 8.7% in September, but only to minus 8.4% in October.

Felipe Monteiro, a professor of strategy at INSEAD and a senior fellow at Wharton’s Mack Institute for Innovation Management, notes that Brazilian analysts were aware that 2016 would be a year of “a lot of uncertainties,” because of the “big issue of impeachment” of President Dilma Rousseff, which ultimately occurred in August. “We were hoping that we would see the light at the end of the tunnel, and we got some sense of resolution — that things would move forward after the impeachment [of Rousseff],” Monteiro says.

But a second period of crisis followed later in 2016, culminating in a scandal involving construction giant Odebrecht, S.A., which now “puts Brazil again into another tunnel with a lot of uncertainty about how long it will take to resolve, and how many people will be implicated,” Monteiro adds. As of mid-December, more than 70 of Odebrecht’s executives, including family patriarch and Chairman Emilio Odebrecht, his jailed son and former CEO Marcelo Odebrecht, had agreed to make plea statements that have been received by the Supreme Court to validate them as evidence.

The good news for Brazil in 2017, says Monteiro, comes from two considerations: First, Brazil’s current economic team is more pro-business than Rousseff’s populist aides, and “it is doing the difficult things that have to be done to put the economy back on track.” Brazil’s economic austerity plan was approved in December, outlining measures to freeze expenses for the next 10 years. “It is painful but necessary,” Monteiro notes. “Despite all the weaknesses of the current government, they managed to approve it. This plan gives more hope that the economy will go back on track, [although] we are far from a resolution of the political fight.” Moreover, as it moves forward after Rousseff’s impeachment, Brazil has remained on a democratic path, “with no rupture — and no censorship. So, for a young democracy like Brazil, as painful as it is, this should give us some encouragement.”

Although the future of U.S.-Mexico relations came into question following Trump’s surprising election victory, his win did not create the same level of uncertainty in Brazil, given the different nature of its ties to the U.S. Not only does Brazil not export a high level of manufactured goods to the U.S., the U.S. enjoys a trade surplus with Brazil, unlike the case with U.S.-Mexico trade. In 2015, the U.S. surplus with Brazil was $4.3 billion, down 64.2% ($7.6 billion) compared with 2014. Total U.S. exports to Brazil in 2015 amounted to $32 billion, down 25% ($11 billion) from 2014, but up 106% from 2005. The top U.S. imports from Brazil in 2015 were mineral fuels, aircraft, iron and steel, and machinery. With no equivalent of NAFTA to renegotiate, U.S.-Brazilian trade discussions in the Trump era will likely boil down to building “a very pragmatic, bilateral commercial relationship,” based on a “more deal-by-deal approach” to problem-solving in specific sectors, Monteiro says.

Despite such pragmatism, in the age of Trump there is a risk that “if the relationship between Latin America and the U.S. becomes less important because the U.S. shifts more of its internal political relationships toward Russia, that will open space for China to play a more important role in Latin America,” Monteiro notes. China is already making a number of efforts in that regard, he adds.

Another risk, according to Guillen, is that if the Trump administration increases tariffs on imported goods from Latin America, “that is going to increase consumer prices in the U.S.” and “inflation is also going to accelerate.” Guillen cautions that U.S. policy makers need to consider not just the immediate impact of their measures, but their “second order effect,” which could turn out to be very different from what they expect.

The Case of Colombia and Argentina

Elsewhere, two other major countries face somewhat different challenges in 2017.

In 2016, the economy of Colombia grew by just 1.2% in the third quarter, according to production-based GDP data, the slowest quarterly growth since the global financial crisis hit in 2009. The country’s results were affected by a prolonged truckers’ strike and subdued global trade. More positively, the country’s Senate approved a revised peace agreement with the FARC rebels in November, a month after the original proposal was rejected in a controversial plebiscite.

The new deal establishes a stronger government presence in rural areas dominated by the FARC, and it obliges FARC rebels to divulge their assets while providing judges with more authority if insurgents are found guilty of drug trafficking. Nevertheless, public opposition to the pact remains strong, led by former president Alvaro Uribe. Moreover, the weakness of the global economy “is weighing heavily on the country’s economic outlook,” notes a LatinFocus Consensus Forecast. For all that, the peace agreement could boost growth in tourism, oil exploration and foreign direct investment in Colombia’s conflict-ridden areas, adds that report.

The consensus of analysts was that Colombia’s economy will grow by 2.5%, up from 2.0% in 2016.

In Argentina, which is transitioning from the populism of two Kirchner presidencies (Nestor Kirchner from 2003-2007 and Cristina Fernandez de Kirchner from 2007-2015) to the business-oriented administration of current President Mauricio Macri, the economy is expected to return to growth in 2017, reflecting the impact of Macri’s market-focused economic reforms, and the improved business sentiment, according to a LatinFocus Consensus Forecast. After dropping by 1.1% in 2016, industrial production in Argentina is expected to expand by 2.5% in 2017.

For the populism-prone nations of South America, there is an irony in the timing of the victory of Trump in the United States, says Monteiro. “2016 was a very important year for countries like Argentina and Brazil to move away from very populist governments. Anti-business nationalist regimes – such as Fernandez de Kirchner in Argentina and Rousseff in Brazil — were replaced by governments that are much more pro-business — with Macri in Argentina and Michel Temer in Brazil,” he says. “Ironically, now when those two countries, which have a very important influence on the rest of the region, are moving towards more good relationships in global trade, the United States, which has always been pushing for that kind of [free-trade] agenda, is [moving] towards more isolationism. It is almost a paradox.”


Trump’s Challenge to the WTO

The tariffs he promised and the retaliations that would ensue could unravel the global trading system.

By James Bacchus
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From left, Donald Trump’s picks for U.S. trade representative, Robert Lighthizer, commerce secretary, Wilbur Ross, and the head of the National Trade Council, Peter Navarro. Photo: Skadden/AP/Bloomberg


Donald Trump’s picks for commerce secretary, U.S. trade representative and head of a new National Trade Council suggest that he is serious about his campaign promise to raise tariffs.

His transition team says these could be as high as 10% on all imports. So how might this play out, at home and abroad?

The U.S. president is surprisingly free under U.S. law to take trade actions without Congressional approval. There may be challenges in domestic courts, but the new administration would likely win them.

The real battle would come in Geneva, in international lawsuits before the judges of the World Trade Organization. Under the WTO treaty, the U.S. is legally bound by the tariff commitments it made on thousands of traded products. These commitments can be renegotiated. But they can’t legally be ignored.

An across-the-board 10% tariff would violate America’s WTO tariff commitments on many, if not most, of these traded goods. So too would the 45% duty on all Chinese imports and the 30% duty on all Mexican imports that have been threatened if those two countries persist in their alleged “unfair” trade practices.

Unknown now, of course, is the extent to which the next administration would feel bound by its WTO obligations, much less any WTO verdicts against it. Spurred by what he sees as “unfair” trade agreements, President-elect Trump has said he might go so far as to pull the U.S. out of the WTO.

This would unleash weapons of mass economic destruction world-wide. Even if the U.S. doesn’t withdraw, a rash of unilateral and other provocative trade actions by the U.S. could trigger tit-for-tat trade responses that cause the global trading system to unravel. The WTO could collapse beneath the burden of the ensuing disputes.

Inevitably, WTO cases would be brought against the across-the-board tariffs by the affected countries. These cases could take up to three years to resolve. The U.S. would be hard-pressed to mount any effective defenses.

If the U.S. chose not to comply with rulings against it in these cases, the countries that brought the cases could be authorized by the WTO to withdraw previously granted trade concessions to the U.S. on a whole host of products. The U.S. could lose billions of dollars in trade annually.

Instead of, or in addition to, imposing sweeping additional tariffs on all imports, or on all imports from a few targeted countries, the U.S. could bring a string of new trade-remedy cases against supposed trade offenders. Some will have merit. Others may not. There are many issues that need to be addressed with China, for instance, including its share of the global overcapacity in steel.

But will these new trade cases and other trade actions be pursued within the legal framework of the WTO? Or will they be pursued unilaterally, arguably within the bounds of U.S. law but outside the bounds of WTO law? Pursuing trade actions outside the WTO would invite a winning case against the U.S. at the WTO.

Domestically, the U.S. could impose antidumping duties. To be lawful internationally, such actions must be consistent with the WTO rules to which the U.S. agreed when it joined the organization.

To counter governmental subsidies of imported products, the U.S. could either seek the withdrawal of those subsidies through a WTO case or take domestic action by applying “countervailing” duties on the subsidized products. Such domestic actions, too, must be consistent with WTO rules.

One early U.S. action may be a tightening of the domestic rules on antidumping and countervailing duties to justify restricting more imports. The first use of these tightened rules may be in steel. No doubt these revised rules would also be challenged in the WTO and could be found in violation of its rules.

However they may be pursued, the main target of any U.S. trade actions would surely be China. In 2015, the U.S. recorded a deficit of $366 billion in its trade with China. An onslaught of trade actions by the U.S. could well tempt China to retaliate.

The U.S. might target steel, aluminum, mobile phones, computers and toys. In turn, China might target autos, airplanes, soybeans and poultry. China might also employ its antitrust laws and ignore its intellectual-property laws to punish American companies.

Whether the U.S. acts inside or outside the WTO, all of its trade actions, as well as any unilateral actions taken in retaliation by other countries, will likely lead to highly contentious WTO disputes. Designed to depoliticize trade disputes, can WTO dispute settlement continue to function when disputes are manufactured in large numbers mainly for domestic political reasons?

The WTO is already overloaded with cases. Now my successors on the WTO Appellate Body—the WTO court of final appeal—will be confronted with a slew of new and politically explosive trade disputes. Their independent and impartial judicial role will be more crucial than ever in upholding the international rule of law in trade so carefully crafted over the past seven decades.


Mr. Bacchus is a former chairman of the Appellate Body of the World Trade Organization, a former member of Congress and a former U.S. trade negotiator. He chairs the global practice of the Greenberg Traurig law firm.

viernes, enero 13, 2017

POLITICAL CONSPIRACIES IN CHINA / GEOPOLITICAL FUTURES

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Political Conspiracies in China

The Chinese president is becoming more direct in his accusations against his opponents.

By Jacob L. Shapiro


On New Year’s Eve, a translation of a speech President Xi Jinping gave to the sixth plenum of the Chinese Communist Party (CPC) on Oct. 27, 2016 appeared in the Qiushi Journal and was picked up by news agency Xinhua and various other news sources in China. Qiushi describes itself as both an “organ of the Central Committee” of the CPC and “the most influential and authoritative magazine devoted to policy-making” in China. The speech was notable because Xi accused some Chinese officials who have been felled by his anti-corruption campaign of engaging in political conspiracies.

These officials, according to Xi, were “not only greedy financially and corrupt in their lifestyles, but were also politically ambitious, often agreeing in public but opposing in secret, and forming cliques for personal interests and engaging in conspiracy activities.”

Those familiar with our writing know that we believe China is fundamentally unstable. The CPC has to walk a tightrope between authoritarian dictatorship and regionalization that is far more tenuous than is generally appreciated, or than the Chinese government wants to admit. Our forecast for China in 2017 is that Xi will solidify his dictatorship and win another term as president at the 19th Party Congress in late 2017. The publication of his speech on New Year’s Eve is powerful evidence indicating that this forecast is on track. It is also a subtler confirmation of our take on China’s underlying political challenges. Xi is not behaving like a dictator just because he wants to; he is doing it because he believes he must.



Chinese President Xi Jinping toasts the present and past leaders, together with other guests at the National Day reception in the Great Hall of the People in Beijing on Sept. 30, 2014. STR/AFP/Getty Images


Among those singled out in Xi’s speech were four figures who Xi said were guilty of engaging in these so-called political conspiracies: Zhou Yongkang, Bo Xilai, Guo Boxiong and Xu Caihou.

We have written about most of these characters previously, but it is helpful to rehash some of the details to understand Xi’s intentions. All four except Guo served as members of the CPC’s central Politburo at one point, with Zhou making it as high as the 17th Politburo’s Standing Committee. Zhou was arguably the most powerful of the four, a former secretary of the Central Political and Legal Affairs Commission and, before that, minister of public security. The others were also powerful men in their own right. Guo and Xu were important military figures, serving as vice chairmen of the Central Military Commission. Bo was a princeling, the son of one of the “Eight Elders” who dominated Chinese politics in the 1980s and ’90s, and served as a secretary of the CPC in Chongqing, an important city of almost 10 million people in southwest China.

Xi felt he needed to eliminate these men before he could take the next step in solidifying his power, and each in his own way presented a unique challenge to Xi’s rule. Zhou’s power at one point extended into many aspects of internal security in China, including the police forces and the courts, which would be powerful allies for any group that could make a move against the president. Guo and Xu were representatives of the People’s Liberation Army (PLA), the guarantor of the CPC’s rule. Xi pushed through a series of reforms to the PLA last year, reordering the command structure and pledging to cut the number of soldiers by 300,000. Xi also had himself designated commander-in-chief of the PLA last year and set up an internal disciplinary commission for military-related corruption offenses. These would all be dangerous moves if there was potential for discontent in the lower ranks and pushback against Xi’s directives at the upper level of leadership. Bo was a significant player in the political structure, but his real crime was that he was charismatic and expressed his opinions. He was an advocate of focusing economic development on China’s interior, in contrast to China’s traditional model focused on the export-oriented coastal regions.

Notably, none of this new “Gang of Four” were originally convicted of engaging in political conspiracies. Zhou was given a life sentence for bribery, abuse of power and intentional disclosure of state secrets. The lurid circumstances around Bo’s case made his conviction particularly memorable; he was convicted of bribery, abuse of power and corruption. Guo was given a life sentence after being found guilty of bribery, specifically of taking money in return for helping his associates secure promotions. Xu was accused of the same, though he died from terminal cancer before the legal proceedings against him were completed. All four were convicted in the last three years. But in many instances the crackdowns focused not just on specific individuals but also their families and associates.

What is especially notable is that Xi now feels powerful enough to accuse these potential rivals of being involved in political conspiracies. The anti-corruption campaign, which is overseen by the Central Commission for Discipline Inspection, has always maintained that it is focused on eliminating corruption from the CPC’s ranks. Many knew that “corruption” was a euphemism for potential or actual resistance to Xi’s power, but Chinese sources would not say this openly, as there was value in keeping up appearances. Xi evidently feels this is no longer necessary. He is now not only willing to use phrases like “political conspiracies” in a speech to influential party cadres, but he is also willing to have those two-month-old remarks highlighted in an influential CPC publication.

What makes this different than past episodes in Chinese history, such as the 1957-1959 Anti-Rightist Movement or the 1966-1976 Cultural Revolution, is that Xi has moved against his political rivals first. He is not relying on the masses for his legitimacy or targeting intellectual or ideological countercurrents. Comparing Xi to Mao Zedong is inaccurate for many reasons, and this one can be added to the list: Whereas Mao depended on the masses to rise to the top, Xi fears being overrun by them. Xi has maintained his power by carrying out an anti-corruption campaign and having his opponents prosecuted. But though Xi is more methodical and technical with his moves, he has the same goals as Mao: to maintain power over China and to keep the country together. He has gone down the path of authoritarianism to accomplish these goals and he can’t turn back now, especially since he has signaled that he is doubling-down by identifying those who oppose him as political conspirators. Xi believes he is now powerful enough to do this, though ironically that also means China is weak.

Xi will not stop these purges. This is likely just the beginning of a campaign that is about to get significantly wider. Xi has eliminated what he saw as his key sources of opposition by weakening the internal security apparatus and the PLA and ousting a populist leader. In other ways, such as by attacking the Communist Youth League and seizing control of much of the economic and financial machinery of the state, he has also added to his power. Xi will continue to eliminate his rivals while branching out into new areas where his writ must be imposed as the year progresses. Mao directed his Cultural Revolution against the bourgeoisie, which he defined as those who “hang up a sheep’s head but sell dog meat, wave the red flag to oppose the red flag.” At a meeting last week where Politburo members pledged fealty to Xi, Xinhua noted that the meeting stressed the necessity of “passing on the red regime generation by generation.” China’s politics have matured, but their essence hasn’t changed.


The Next Migrant Wave

Stephen Groff
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Homeless child rain Dhaka

MANILA – Imagine that you are a farmer. Your crops are withering as weather patterns become more volatile, your well water is too salty to drink, and rice is too expensive to buy at the market. So, you leave home in search of a better life.
 
Millions of people in vulnerable communities around the world do not have to imagine such a scenario. They are living it now, as an increasingly unpredictable climate takes its toll; and their numbers are likely to soar as the effects of climate change intensify.
 
But the world is even less prepared for these future climate migrants than Europe is for the current wave of people fleeing from the Middle East and North Africa. Most climate migrants will relocate within their own borders, but others will have no choice but to seek refuge abroad.
 
If sea levels rise by more than one meter, entire populations of Pacific-atoll and reef-island countries might have to relocate.
 
If it is well planned and managed, migration can help people adapt to such threats. But if it is not, it can lead to humanitarian crises. Overall, today’s policies are inadequate. Source and destination countries urgently need to make it easier and safer for people to move, or to remain where they are if they cannot afford or choose not to leave.
 
Climate change will be one of many factors fueling future migration waves. Although it will become increasingly difficult to distinguish between people fleeing from environmental factors and those who have left for other reasons, we know that climate will play a larger role in migration, as slow-onset threats such as erosion and acute hazards such as cyclones threaten more people’s livelihoods.
 
Most of the people at risk live in Asia, which is uniquely exposed to the effects of climate change. Nine of the ten countries with the most people living in low-lying areas (who are therefore threatened by flooding, storm surges, salinity, and erosion) are in Asia, owing to mass migration to megacities in recent decades.
 
A recent study forecasts that Asia’s low-elevation population could double by 2060, to 983 million, from its level in 2000, thus accounting for 70% of the world’s total. Elsewhere in the region, water stress from reduced rainfall, salinity, glacial retreat, and desertification will hit water stocks, threaten livelihoods, and drive up food and water prices.
 
These drastic scenarios might not materialize if the world succeeds in mitigating climate change. But no country should be complacent. Asian countries, especially, should prepare for worst-case scenarios, and implement far-sighted national policies, such as Kiribati’s “migration with dignity” program, which provides education and vocational training to citizens of the low-lying Pacific island state to improve their chances of finding decent work abroad.
 
Preparations for any future scenario in Asia will require more complete data to judge the potential impact and timing of climate-related events, and to assess their effect on migration patterns. Country-specific data would allow individual governments to hone their policies. This includes more thorough national censuses, which too often disregard marginalized communities like slum-dwellers. Censuses should be conducted inclusively, fed into national databases to monitor progress and identify vulnerable populations, and shared across the region.
 
Governments should educate their citizens about the effects of climate change, in order to prepare those who want to stay or cannot afford to leave. Migrant source countries should have national disaster risk assessments (so that they can plan for potential losses), comprehensive hazard maps, and disaster early-warning systems to reassure their citizens. And new houses, roads, bridges, and other infrastructure, such as water systems, should be built to withstand extreme weather.
 
At the same time, governments should provide access to portable benefits for those people who do leave, so that they can support themselves abroad. And destination countries should consider providing emergency employment for displaced workers, using Australia and New Zealand’s seasonal worker programs as a model. Destination countries could also establish urban work and training centers for incoming migrants, many of whom will lack the skills required to land city jobs; and they should recognize the qualifications of those who do have expertise, and help them to find work.
 
It will be essential for destination countries to invest in sustainable infrastructure and basic services for new arrivals. Some cities are hesitant to provide services, because they fear it will attract new migrants. But this attitude only forces migrants into slums, which creates even bigger problems. A better approach is to steer migrants from vulnerable rural areas to nearby medium-size cities equipped with the necessary services to absorb them; this, in turn, will prevent megacities from growing unsustainably.
 
A comprehensive approach along these lines would help to make migration part of the solution to climate change, not just another of its harmful effects. Many countries will need funding to implement such plans, and, encouragingly, the 2015 Paris climate agreement established a taskforce to address climate-related displacement. One of its main goals should be to ensure that funding mechanisms for climate-change adaptation encompass migration issues.
 
For now, we need a more energetic global discussion on this pressing issue. Whether climate-induced migration brings relief or chaos will depend on the policies and investments we agree to today. We should act now to give vulnerable communities a say in their future.