The irony is striking. While Donald Trump and Joe Biden have been busy bashing Beijing in the run-up to the presidential election, the Chinese economy has seen a vigorous bounce back. In the midst of the coronavirus pandemic, China is emerging as the engine of global growth.
China is the only big economy expected to show a positive advance this year, with the IMF projecting growth of 1.9 per cent, followed by 8.2 per cent in 2021. Yet continuing trade friction between the world’s two largest economies means that the US will not benefit from this expansion as it did from China’s huge fiscal and monetary pump priming after the great financial crisis of 2007-08.
Chad Bown of the Washington-based Peterson Institute for International Economics points out that China’s imports from the US of goods covered by January’s trade deal have failed to catch up to pre-trade war levels, running 16 per cent lower than at the same point in 2017. In contrast, Chinese imports of similar goods from the rest of the world are 20 per cent higher over the same period.
At the same time, Mr Bown says, China’s commitment to buy an additional $200bn of American-made goods and services under president Trump’s self-proclaimed “historic” deal is falling well short, reaching only 53 per cent of the expected purchase target at the end of September.
Perhaps the most telling verdict on the trade war for this president who regards the stock market as the ultimate judge of his performance comes from a study by economists at the New York Federal Reserve and Columbia University. They estimate that the trade war lowered the market capitalisation of US listed companies by $1.7tn, equivalent to a 6 per cent fall in the value of the S&P 500 constituents. That reflects how new tariff announcements reduced profit expectations at exposed firms. The study found no beneficial effects for firms receiving tariff protection.
The reality is that Chinese retaliation has wreaked havoc with US exports. As Ryan Hass and Abraham Denmark note in a paper for the Brookings Institution, US tariffs forced American companies to accept lower profit margins, cut wages and jobs for US workers and raise prices for American consumers. While the bilateral trade deficit with China has shrunk, they add, the overall trade deficit has not come down because US tariffs on China diverted trade flows, causing US deficits with Europe, Mexico, Japan, South Korea and Taiwan to increase as a result.
If the performance of US equities has been remarkable despite trade wars and the pandemic, it is down to ultra loose policy and high performing Big Tech, not mainstream business. Note, too, that tariffs have not delivered much revenue to the US Treasury because the government has had to distribute most of the money in subsidies to placate angry farmers over lost exports to China.
The paradox in all this is that friction is largely absent in US-China financial relations, the only area in which market access for US business has improved. With the Beijing leadership pursuing incremental liberalisation, US banks are now starting to take controlling stakes in existing partnerships. At the same time China is attracting increasing amounts of developed world portfolio capital. As index providers incorporate more of China’s equities and bonds into their indices, passive funds in the US and elsewhere will expand this flow.
Interesting, here, is that the Chinese government bond market, the second largest in the world, offers positive real interest income after allowing for inflation, which is no longer the case with US Treasuries or big European bond markets. At the same time the Chinese equity market is the only one outside the US to offer serious exposure to Big Tech.
It follows that China offers hard pressed US and other developed world pension funds real incomes from which to pay retirement obligations, subject to currency and regulatory risk. While China outgrows the US, and the US pursues ultra loose monetary and even more expansionary fiscal policy, an enduringly weak renminbi scarcely seems unduly threatening.
As for regulatory risk, there are historic grounds for worrying about arbitrary intervention by the Chinese authorities. The prize of more secure pension incomes for the elderly courtesy of China ought to be an incentive for Western policymakers to foster a stable and peaceful financial interdependence. Under a new Trump administration that will not happen. Whether, against the background of aggressive US-China strategic competition, Joe Biden might choose such an option is moot.
Confused by the economy during the COVID-19 pandemic? Don't worry, so are the economists – CBC.ca
The numbers can be so big, they’re hard to get your head around. The swings are so volatile, you can lose your footing.
And yet, with millions of Canadians struggling through the COVID-19 crisis, many of us want to understand what is going on with the economy.
“My head is spinning, too,” said Benjamin Tal, deputy chief economist at CIBC. “So I don’t blame people, because we’ve never seen anything like this.”
Every week, a flood of new data comes out. This week, we were inundated with the federal government’s fiscal update, GDP figures and job numbers. All trying to shape the story of the economy. Sometimes the numbers contradict each other. Sometimes they give a sort of head-fake and contradict themselves.
The fiscal update that came out on Monday had built all its projections on an average of the forecasts from the big banks. The next morning, Statistics Canada released quarterly GDP numbers that missed the forecast by a staggering seven points. By the end of the week, jobs data came out showing Canadian employers added three times as many jobs as expected.
Every economist is trying to figure out what those numbers are telling us. And they’re not always getting it right.
“Economists have never been more wrong about where the data would come through,” said Frances Donald, chief economist and head of macro strategy at Manulife Investment Management in Toronto.
Most of the time, she said, economists rely on data such as job growth and retail sales numbers to make sense of the situation. The problem is those statistics tell us what was happening months ago.
“This is a daily crisis that requires daily data points,” she said.
To combat that, economists have turned to higher frequency data such as google mobility trends, restaurant reservation tallies and public transit numbers.
But Donald said the bigger issue is the unique, unprecedented nature of this crisis.
“We don’t have a functional precedent for what is happening,” she said.
There may be other moments in the past that share some similarities, but nothing experts can use to model probable outcomes.
Change of perspective
Tal said he understands why more Canadians than usual seem to be following economic updates with bated breath. But he said the best option is to focus less on the details and think of the broader economic themes.
So, while the short term is bad, he said, the medium term looks better.
“We are buying time at this point,” he said, until the virus comes under control.
Yes, the world is headed into a long and dark winter, he said. Yes, COVID-19 cases are rising and government-imposed restrictions could spread. And, yes, households and businesses will need government support and record-low interest rates to provide them a bridge to the second half of next year, he said.
But if you zoom out and look at the longer-term forecasts, the second half of next year shows a lot of promise. Tal said the economic crisis is largely due to the fact that people aren’t spending as much as they normally would.
Some of that is because of government-mandated closures.
But some of it is also a question of confidence.
Even if the movie theatres were open, how many people would pay to sit in close contact with strangers for a two-hour film?
That spending issue is a large source of the hope for 2021. Tal calculates that Canadian households and businesses are sitting on $170 billion in savings. And once the virus comes under control, he predicts that money will spill back into the economy.
“I see this unleashing of potential demand in the economy,” he said. “Most of it will be in the services sector. And that will benefit employment for people that are struggling. It’s just a question of time.”
So, in the interim, he recommends not getting too caught up in the minutiae of the daily economic data.
That’s advice financial markets seem to be following. As COVID-19 case counts soar and government-imposed restrictions spread, the major stock market indexes are all climbing. Donald said markets seem to be looking past the short- and medium-term unknowns and banking on a solid return next year.
WATCH | The National’s report on the fall economic update:
She said the markets don’t seem to be too caught up in the daily barrage of economic information.
“The markets are thinking ahead to where we are going to be in 6, 12, 48 months,” she said. “Not where we are at this very moment.”
Besides, she said, one of the best indicators available is to just look around and see how people around you are acting. Are people nervous and scared? Are they staying home or are they out shopping? The data will catch up to our behaviour eventually.
“You don’t need a PhD in economics to look around at your friends and family and get a sense of what their behaviour is,” she said. “We don’t need numbers and releases, we just need to look out our front doors.”
Kuwaitis go to polls as economy poses challenge for new emir – The Guardian
By Ahmed Hagagy
KUWAIT (Reuters) – Kuwaitis vote in legislative polls on Saturday as the Gulf state faces its worst economic crisis in decades, posing a challenge for the government’s often stormy relationship with parliament, that has hampered fiscal reform.
Turnout is expected to be lower than in past elections due to concern over COVID-19, which along with low crude prices, has battered state finances in the wealthy oil-producing nation. Low turnout could strengthen the showing of tribal, Islamist and other candidates who can rally supporters to head to polling centres, analysts said.
“Kuwaiti opposition who boycotted (previous) polls are moving to run and vote, and this could strengthen their presence,” said Kuwaiti political analyst Mohamad al-Dosayri.
More than 300 candidates, including 29 women, are vying for 50 seats in the Gulf’s oldest and most outspoken assembly with legislative powers. Critics say parliament has long stalled investment and economic and fiscal reform in the cradle-to-grave welfare state.
Frequent clashes between the cabinet and assembly have led to successive government reshuffles and dissolutions of parliament. The emir, who has final say, picks a prime minister who selects a cabinet. The current government is due to resign after the elections.
Sheikh Nawaf al-Ahmad al-Sabah took the reins as emir in September following the death of his brother.
Campaigning, which took place mostly on social media and local TV channels due to COVID-19 measures against gatherings, has focused on the economy, corruption and demographics in a country where foreigners make up the bulk of the workforce.
“The issues are the same – health, education, housing – as none of these have been resolved yet,” government employee Hamad al-Otaibi, 43, told Reuters ahead of the elections.
The nearly $140 billion economy is facing a deficit of $46 billion this year. A priority will be overcoming legislative gridlock on a bill that would allow Kuwait to tap international debt markets.
Sheikh Nawaf has called for unity to face challenges at home and in a region experiencing heightened tension between Kuwait’s larger neighbours Saudi Arabia and Iran.
Late ruler Sheikh Sabah al-Ahmad in 2012 broke the hold of opposition groups on parliament by using executive powers to amend the voting system, sparking large protests.
Under the old electoral system, voters were allowed to cast ballots for up to four candidates, which the opposition says allowed alliances that partly made up for the absence of political parties, which are officially barred.
The system introduced in 2012 allows votes for only a single candidate, which the opposition says makes alliances difficult.
Kuwaiti opposition figures have proposed electoral reforms and a pardon for dissidents, many in self-exile, to the new emir.
“There have been some reforms in the judiciary and the Emiri Diwan,” or court, said a Kuwaiti politician who asked not to be named. “We heard echoes of more reforms after elections.”
(Reporting by Ahmed Hagagy in Kuwait; Additional reporting by Aziz El Yaakoubi in Dubai; Editing by William Mallard)
New Businesses Starting At Record Rates Despite The Pandemic's Effect On Economy – NPR
LULU GARCIA-NAVARRO, HOST:
OK. You may be surprised to hear there’s currently a startup boom in the United States. Despite the pandemic – or maybe because of it – new businesses are starting at record rates. Here’s Greg Rosalsky of NPR’s Planet Money.
GREG ROSALSKY, BYLINE: In 2019, Roberto Ortiz, a veteran software designer, was working hard on a new app with a couple of friends. They designed it. They developed it. They pitched the idea to investors and began raising money. Ortiz even moved his wife, his dog and his 3-month-old baby from Denver to San Francisco so they could launch it. By then, it was early 2020. But there was a problem.
ROBERTO ORTIZ: We were building a platform that connects wholesale food providers to restaurants.
ROSALSKY: (Laughter) Oh, no.
Oh, no because the pandemic was about to destroy the restaurant industry.
ORTIZ: So picture me and my co-founders trying to sell technology to restaurant owners when COVID just shut down their business.
ROSALSKY: The business was ruined. On Zoom call after Zoom call, they debated what to do next. And then it hit them. What if they made a better version of Zoom, one that would be a stronger replacement for high-powered business meetings, product launches or conferences at fancy hotels.
So Zoom is sort of like the Holiday Inn or something. And then like…
ORTIZ: It’s the Motel 6, yeah.
ROSALSKY: Ortiz and his co-founders decided they could build something prettier and fancier than Zoom, like the Ritz-Carlton for virtual events. And with months of hard work, they built it. It’s called Welcome. They officially launched a couple weeks ago. They’ve got numerous clients and over 30 employees. They’ve already raised $12 million. They’ve come a long way since March.
ORTIZ: It’s one of those things where we have to pinch ourselves often.
ROSALSKY: There are a lot of entrepreneurs pinching themselves these days. Welcome is just one of 4 million new businesses registered in 2020. Welcome to the startup boom. Economist John Haltiwanger has been helping the Census Bureau track all this. When it comes to new business applications, he says, they’ve never seen anything like this before.
JOHN HALTIWANGER: It’s the highest level on record.
ROSALSKY: The biggest areas of growth are in e-commerce, online retail and online services, which makes sense. The pandemic has devastated activities that require being face-to-face. Most of us don’t want to shop at stores, travel on planes or do meetings in person. It’s like these new online businesses are growing out of the ashes of old brick-and-mortar businesses. Economists have a term for this. It’s called creative destruction. Nobody likes the destruction part. It means jobs lost and dreams dashed.
HALTIWANGER: What you don’t want to have happen is destruction and then no creation.
ROSALSKY: There weren’t a lot of businesses created during the Great Recession around 2008, and it slowed down the recovery. But the pandemic recession looks like it might be different. We don’t know if all these startups will fill the hole of all the jobs lost and destroyed businesses or if they’ll even survive after the pandemic ends. But Roberto Ortiz is banking on a new era for virtual interaction in the business world.
ORTIZ: And so is travel really necessary to close a deal? Is it really necessary to gather 5,000 people in one place, or are there alternate ways of getting the same outcomes using and leveraging technology?
ROSALSKY: There’s definitely been a lot of destruction in 2020. Hopefully we’ll look back and also see it as a year of creation.
Greg Rosalsky, NPR News.
(SOUNDBITE OF DYE O’S “ARISING”)
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