Americans celebrate Thanks-giving Day (on the last Thursday of November) for many reasons but personally, I look forward to this holiday for the opportunity to reflect on the happenings of the past year, and to plan for the next one. It’s always exciting to be stepping into December, and regardless of the losses and gains of this year, the incoming year holds out promises of new possibilities, the potential for unexplored opportunities, and inevitably unexpected and interesting happenings.
Like most people, I spend this long weekend to look back and take an inventory of stuff that happened and search for hopes that did not materialise. This year is no exception. I have already made a list of the successes and failures of 2019. Trade war, Brexit, climate change, “endless wars in the Middle East”, impeachment inquiry in the USA, etc. But then soon, I turn around and gaze into my crystal ball to see what awaits us next year. Economic growth, resolution of the trade war, peace in Hong Kong, Rohingya repatriation, US presidential elections, and a denuclearised North Korea.
My biggest disappointments have been the slow progress and the resulting chaos due to Brexit, trade wars, and the Rohingya impasse. Admittedly, there has been little movement on each of these fronts. Progress can be characterised as slight in the case of Rohingya to modest in the crazy world of Brexit. I have written in detail on the Rohingya issue in my op-ed last month (“The mounting pressure on Myanmar and its sum total effect,” November 22) and will wait until the December 12 general elections in the UK to give a more definitive verdict on the Brexit scenario.
The US-China trade talks
Fortunately, the US-China trade deal is inching forward, even if at a glacial pace. It might become unglued again if tensions between the US and China flare up over the Hong Kong Human Rights and Democracy Act recently passed in the US. On November 26, the top negotiators for each country had a very productive discussion on the phone which increased the chance for a limited deal between these countries. China’s chief trade negotiator Liu He and his US counterparts, Trade Representative Robert Lighthizer and Treasury Secretary Mnuchin talked about getting the “Phase I” done before the end of the year. China’s Commerce Ministry said the two sides had “reached a consensus on properly resolving related issues”.
But it is already December, which only means that most people are chasing a bargain in shopping malls and getting ready for the holiday season, and even those in power forget about the need for lower tariffs and increased commerce to keep consumers happy. One should not be surprised if completion of the Phase I US-China trade deal rolls into next year, as Beijing presses for more extensive tariff rollbacks and the Trump administration counters with heightened demands of its own.
Let’s look at the brighter side. Chinese Communist Party’s top policy-making body and the cabinet issued guidelines for stronger protection of intellectual property rights which has been a major US demand and a sticking point in the year-long negotiations. “I think China is eager to get a deal done,” said Jingzhou Tao, a Beijing-based lawyer for Dechert LLP and reported to be a major advisor to multinationals doing business in China. “They cannot afford to have this uncertainty overshadow their economy.”
Beijing has promised to make stricter intellectual property regulations and set benchmarks for improvement by 2022 and 2025. “But some experts said the wording was vague and offered few details on how leaders would achieve these goals.”
The US is also eager for a trade deal for two reasons: to give the markets, particularly the share market, a boost and to enhance the chance for a Trump re-election. While the US has loosened restrictions on China’s Huawei, it simultaneously outlined a plan to bolster telecom security. While neither China nor Huawei was mentioned, observers are aware that Huawei and its 5G have been under scrutiny in the US and UK.
A report earlier this year from a British government oversight group found that Chinese telecom-equipment maker Huawei has basic but deeply problematic flaws in its product code that create security risks. It also raised concerns that “Huawei devices are controlled by the Chinese government or that Huawei would take orders from Beijing to undermine its security protections if asked.”
There is an additional uncertainty now hanging there. A political action that could derail the economic imperative. Beijing is wary of the Hong Kong bill, which stipulates annual reviews of whether China is respecting HK’s autonomy. This condition is viewed by China as a hostile act and infringes on China’s sovereignty and an indirect interference in its internal affairs signalling support for the pro-democracy movement.
The next date to watch is December 15, when US tariffs on some USD 156 billion in Chinese goods are scheduled to take effect.
Brexit and EU
The world will be watching the next British general elections with great anticipation. While polls show that the Conservative Party is ahead of its opponents, numbers are tight, and there could be a hung parliament which will bring more misery for Britain and its trading partners. If the Conservatives get an outright majority, we expect the parliament to ratify Prime Minister Boris Johnson’s Brexit withdrawal deal. The deal would see the UK leave the EU, but stay in a transition period until the end of 2020, or until the end of 2022, if mutually agreed by the UK and EU by next summer.
Regardless of the outcome, considerable uncertainty about the precise future trading arrangement between the EU and UK will remain, and this might negatively impact business investment. More importantly, UK growth will continue to be shaped by global developments, especially as the country’s two largest export markets, the US and Germany, will themselves witness some turmoil. Germany is in the midst of a mild recession and the US Fed is struggling to come to terms with any possible downturn during an election year.
Recent surveys of purchasing power managers published by research firm IHS Markit on November 22 show that the Eurozone economy, with the exception of France, continues to slow. It has been reported that European Central Bank President Christine Lagarde is likely to pressure governments for fiscal support as she has limited room to manipulate the monetary levers.
A survey of Europe’s top 50 CEOs and chairmen shows that while the outlook for business is slightly positive, only 25 percent of them expect increase in investment. Germany, Italy and the United Kingdom could be in for major economic problems.
The rest of the world
Turning to other countries, “China’s economic growth is poised to slow over the secular horizon given its adverse demographics, a likely continued focus on containing the build-up of further leverage and sustained trade frictions”.
In addition, among the emerging powers facing economic problems are Mexico, Turkey and Brazil, although they are not in serious danger of an immediate recession.
Turkey’s government predicted the recession-hit economy would rebound sharply with growth of 5 percent next year, a bright outlook many economists deemed unrealistic.
In Latin America, Venezuela faces the worst economic situation with a 35 percent drop in GDP, while Argentina had a 3.1 percent drop. Ecuador, on the other hand, dropped just 0.5 percent in the third quarter, according to IMF data.
The US retains the brightest outlook among OECD countries. On November 27, just before Thanksgiving Day, a series of US government reports indicate that the US economy is steaming ahead at a very healthy pace, regardless of the uncertainties looming ahead. Consumer spending is robust and is likely to receive a boost as the year-end holiday season gets underway. Even the usually sceptical New York Times is full of predictions that point towards the failure of the impeachment proceedings which can only lead to the enhanced chance of Trump’s re-election.
Dr Abdullah Shibli is an economist and works in information technology. He is Senior Research Fellow, International Sustainable Development Institute (ISDI), a think-tank in Boston, USA.