The U.S. Treasury Department announced Friday it had formally established two new working groups to discuss China-U.S. economic and financial issues, a tentative sign that communication is improving between the two countries following a trip to Beijing by Treasury Secretary Janet L. Yellen this summer.
Near the start of the war, as the sanctions piled up, the Russian economy was thought to be doomed, possibly forcing President Vladimir Putin to sue for early peace. Almost three months later, there is no sign that a peace deal is about to be negotiated, nor is there much sign that the Russian economy is collapsing. The two may be related.
Yes, the Russian economy is hurting and no doubt in recession. But the economy is also showing annoying signs of resilience, in good part because oil and natural gas revenues are climbing even as Europe tries to wean itself off Mr. Putin’s hydrocarbons as punishment for having launched an unprovoked war that is killing an alarming number of civilians and triggering war crimes investigations.
Last week, the International Energy Agency said that Russia’s oil revenues are up 50 per cent this year even though some refiners are refusing to take Russian shipments. But other refiners are buying as much as they can – China and India are gobbling up the cargoes no longer wanted in Europe and North America. Moscow has been earning about US$20-billion this year – money that is used to fund the war – from the sale of crude and refined products.
At the same time, the sanctions, coupled with the proposed embargo on Russian oil exports to Europe, are putting the Europeans into a low-grade panic that is intensifying by the day as energy prices soar and across-the-board inflation takes off – always a popularity-shredding recipe for any ruling politician.
This week Italian Prime Minister Mario Draghi, calling for a ceasefire and the start of peace talks, indicated that the country’s support for the war is waning. Italy was one of the European countries most dependent on Russian energy and one of the biggest exporters to Russia – until the war began. Recent polls say nearly half of Italians now oppose sending arms to Ukraine and a similar proportion say that Russia should be handed Crimea and the eastern parts of Ukraine it now occupies, if doing so is what it takes to end the war. The figure is double the level of those who think Ukraine should fight to reclaim the territories lost to the Russians.
Sanctions and embargoes are tricky, often hazardous, pursuits. The working idea is that those on the receiving end should suffer far more than those delivering them. In this case, the pain is shared by both sides, though Russia is suffering more. Still, as energy writer Irina Slav points out, Europe’s assumption – that Russia needs to sell Europe its hydrocarbons more than Europe needs to buy them – may not hold true.
Take Hungary. The European Union is struggling to ban oil imports from Russia because Hungary is completely dependent on Russian oil; its economy would shut down without them, all the more so since most of its refineries are incapable of processing non-Russian oil. About two-thirds of Hungary’s oil, and more than 80 per cent of its gas, come from Russia.
And because much of the rest of Europe is addicted to Russian hydrocarbons too, the sanctions are taking on a two-sided flavour. Finland revealed Friday that Gazprom, the Kremlin-controlled gas giant that holds a monopoly on Russian gas exports, will cease gas supplies to Finland on Saturday (since Russia supplies only 5 per cent of Finnish gas, the move won’t hurt much but will act as a warning to the European heavyweight economies far more reliant on Russian gas, notably Germany and Italy).
The sanctions and embargo wars, like the war in Ukraine itself, are getting ugly, with no obvious winners or losers. The West is still waiting for the Russian economic implosion.
In March, shortly after war started, JPMorgan predicted a 35 per cent fall in second-quarter Russian GDP over the same period in 2021. Earlier this month, the Wall Street bank said the GDP hit would likely be less severe than it had forecast. They wrote that the data “do not point to an abrupt plunge in activity, at least for now.”
One of the reasons for Russia’s relative rude health is the country’s oil and gas export revenues are not only intact – they’re rising – even as the EU tries to curtail, and ultimately stop, imports of those fuels (the United States and Canada have already banned Russian oil and refined oil products).
Russia was making fortunes from oil and gas revenues even before the war started as global demand rose. Oil began to surge about this time last year as pandemic restrictions eased off and economies bounced back to life. Brent crude, the international benchmark, is up 73 per cent in a year; OPEC undershooting its oil production target is certainly adding to the upward price pressure, much to the irritation of the Americans. Mr. Putin is not complaining.
As Russia’s hydrocarbon revenues rise, its current-account surplus, which includes trade and some financial flows, is hitting record levels. The Institute of International Finance recently estimated that Russia’s surplus could hit US$250-billion this year, about double the figure recorded in 2021. Meanwhile the Russian ruble, which got slaughtered in the early days of the war, has rallied and is one of the top performing currencies in the world, in part due to capital controls and Moscow’s insistence that Gazprom be paid in rubles, not dollars or euros.
To be sure, Russia is suffering. Various Russian and international forecasts predict Russian GDP will shrink by 10 per cent this year. Russia’s central bank is hobbled by the sanctions on its foreign exchange reserves and Western companies are leaving in droves (though Russian companies are picking up some of those discarded assets at fire sale prices). But the country is not suffering enough to be motivated to end the war to save its economy. That may change, but probably not anytime soon.
US-China Relations Thaw With Groups to Discuss Economic, Financial Issues – Bloomberg
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U.S., China agree to forge new economic, financial dialogues
The working groups will hold regular direct meetings for “frank and substantive discussions on economic and financial policy matters,” the Treasury statement said. It added that the dialogues would also include and “exchange of information on macroeconomic and financial developments.”
The high-level meetings will be led by Yellen on the U.S. side. China’s economic czar, Vice Premier He Lifeng, will oversee the work led by different agencies in Beijing. U.S. Treasury officials will hold dialogues for the economic working group with Beijing’s Finance Ministry, while the financial talks will take place with representatives from China’s Central Bank.
The new dialogues are part of broader efforts by the White House to reestablish communication channels between Washington and Beijing on a range of geopolitical, security and economic matters following talks between President Biden and Chinese President Xi Jinping in Bali last year. Those efforts have been hampered by hot-button issues, including the discovery of a Chinese spy balloon over the continental United States in February and rolling U.S. trade restrictions aimed at limiting Beijing’s access to U.S. technology.
Nonetheless, the two sides have made strides this year. After abruptly canceling a visit over the spy balloon furor, Secretary of State Antony Blinken traveled to Beijing in June. Yellen’s visit in July was followed by Commerce Secretary Gina Raimondo’s in August, where she announced that the two sides had agreed to hold an official ongoing dialogue on commercial issues, beginning in early 2024, drawing in individuals from the private sector with the aim of resolving issues over U.S. commercial access to the Chinese market.
The new dialogues agreed to by Yellen and He appear to have a broader scope, but it is unclear how often the meetings will take place. In Friday’s statement, the Treasury Department said they would happen at a “regular cadence.” Chinese official media released a brief statement confirming the establishment of the working groups that was sparse on detail, but said the group plans to hold “regular and irregular” meetings.
“These Working Groups will serve as important forums to communicate America’s interests and concerns, promote a healthy economic competition between our two countries with a level playing field for American workers and businesses, and advance cooperation on global challenges,” said Yellen in a statement posted on X, the site formerly known as Twitter, on Friday following the Treasury Department announcement.
Regular high-level economic dialogues between Treasury officials and Beijing were mostly dismantled in 2017, when the Trump administration began implementing sweeping tariffs, trade restrictions and sanctions against Beijing — many of which have remained in place or been extended under the current administration.
Before Yellen’s visit in July, no U.S. treasury secretary had visited Beijing since 2019, when then-Secretary Steven Mnuchin and a team of negotiators conducted limited talks following a total breakdown in discussions months before.
While the new working groups signal a thawing in the economic relationship, communication between the two sides remains fragile. Beijing routinely expresses skepticism of U.S. commitments and has accused officials in Washington of failing to follow through on high-level discussions. Officials in Beijing maintain that the United States has arbitrarily broadened trade and economic restrictions to contain China’s economic growth under the guise of national and economic security.
Most recently, Beijing accused the United States of ongoing economic “bullying” after Biden in August signed an executive order to establish a screening mechanism for outbound investments and to restrict U.S. investment in advanced Chinese technologies, including semiconductors.
“President Biden committed to not seeking to ‘decouple’ from China or halt China’s economic development. We urge the U.S. to follow through on that commitment, stop politicizing, instrumentalizing and weaponizing tech and trade issues,” said Chinese Foreign Ministry spokesman Wang Wenbin following the August announcement.
Yellen and other U.S. officials have sought to push ahead with efforts to reopen channels of communication, while warning that the Biden administration will continue to take targeted actions to protect U.S. national security.
“It is vital that we talk, particularly when we disagree,” said Yellen in her statement on X on Friday.
Net zero: Will Rishi Sunak’s changes to climate policies save money?
LONDON — Amid growing international criticism, British Prime Minister Rishi Sunak has defended watering down key U.K. climate policies.
In a press conference Wednesday, Sunak announced a series of major U-turns on climate policies, including delaying by five years the target to ban sales of new gas and diesel cars — which will now come into force in 2035 rather than 2030 — and a nine-year delay on phasing out gas boilers, which will now come into force in 2035.
Sunak insisted he was not slowing down efforts to combat climate change. But his government’s own climate adviser called the prime minister’s assertion that the U.K. would still succeed in meeting its 2050 net-zero target “wishful thinking.”
Sunak said the changes were about being “pragmatic” and sparing the British public the “unacceptable cost” of net-zero commitments.
His home secretary, Suella Braverman, told the BBC that the Conservative government was “not going to save the planet by bankrupting British people.”
The government’s Climate Change Committee — independent advisers on cutting carbon emissions — estimates that meeting Britain’s legally binding goal of reaching net zero by 2050 will require an extra $61 billion of investment every year by 2030.
But the committee has said that once the savings from reduced use of fossil fuels are factored in, the overall resource cost of the transition to net zero will be less than 1% of GDP over the next 30 years. By 2044, the committee has said, breaching net zero should become cost-saving, as newer clean technologies are more efficient than those they are replacing.
Criticism at home and abroad
Sunak’s overhaul of his green targets has been met with criticism at home and internationally.
Former U.S. Vice President Al Gore described the changes as “shocking and disappointing” and “not what the world needs from the United Kingdom.”
Some in the prime minister’s own Conservative Party warned that the changes risk damaging Britain’s reputation as a global leader on the climate.
Sunak decided not to attend the United Nations Climate Summit in New York this week, making him the first British prime minister to miss a U.N. General Assembly in a decade.
Former Conservative minister Alok Sharma, who chaired the 2021 COP26 U.N. Climate Change Conference in Glasgow, told the BBC Wednesday’s announcement had been met with “consternation” from international colleagues.
“My concern is whether people now look to us and say, ‘Well, if the U.K. is starting to row back on some of these policies, maybe we should do the same,'” he said.
In the U.K., Sunak’s announcement prompted a backlash from climate activists, car manufacturers and the energy industry.
In a statement, U.K. Ford chair Lisa Brankin said, “Our business needs three things from the U.K. government: ambition, commitment and consistency. A relaxation of 2030 would undermine all three.”
And the chief executive of one of Britain’s largest energy suppliers, Eon UK, said the move was a “misstep on many levels.”
Sunak’s pivot occurs as extreme weather due to climate change is growing more frequent
Sunak said the announcement was part of his desire for a more “honest debate” about what reaching net zero will actually mean for the British public.
But he has come under criticism from the British media for claiming to scrap measures that some have pointed out never existed as formal government policy in the first place, such as taxing meat and requiring households to have seven different waste and recycling bins. (The government had previously said it wanted to standardize waste collection in England, although the plan was subsequently delayed and never became policy).
Political analysts say Sunak’s gamble marks a shift for the prime minister, who has spent his first year in office largely steadying the ship after the tumultuous governments of his predecessors Liz Truss and Boris Johnson. With a general election coming up next year, they say, Sunak has chosen net zero as a dividing line.
Sunak’s pivot away from more aggressive action on global warming occurs as extreme weather is becoming more frequent and more intense around the world, including the U.K., because of the effects of climate change. Scientists say this will continue as long as humans continue to emit planet-warming greenhouse gases.
In the U.K., temperatures hit 40 degrees Celsius (104 degrees Fahrenheit) for the first time on record in July 2022. The World Weather Attribution network says this would have been “basically impossible” without climate change.
During this week’s climate summit in New York, London Mayor Sadiq Khan said the capital faced what he called the “incredibly worrying” prospect of seeing 45-degree Celsius (113 degrees Fahrenheit) days in the “forseeable future.”
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