Saturday, the 15th of June

Talking points

Over 800,000 Hongkongers marched against new extradition laws. PHOTO: Anthony Kwan
  1. Hong Kong saw its largest protest since the Umbrella Revolution
  2. An Australian mass-murderer pled not guilty in New Zealand
  3. The Vatican touted an anachronistic view on gender theory
  4. Botswana decriminalised homosexuality
  5. Asifa Bano received a modicum of (posthumous) justice in India
  6. A Tory 'Stop Boris' alliance took shape
  7. Sajid Javid certified Assange's extradition order
  8. Rising inter-communal violence in Mali left 100 dead
  9. More oil-tankers burned, this time in the Gulf of Oman 
  10. Saudi prince MbS is believed to have decorated his yacht with a da Vinci 

Deep Dive

Will China devalue the Renimbi (RMB) in order to hurt America? PHOTO: AFP

The global market has priced in a grim assumption: the U.S.-China trade war is not going to be resolved in the near future. Tech companies, manufacturers and bankers in the West are all battening down the hatches in the shadow of further tariffs and expanding blacklists. This week we'll touch on the myths and realities of managing conflict with the largest economy in the world – and explore how the trade war is just the beginning of a larger battle over the United States Dollar. 

Paper tigers and nuclear options   

Two of the world's largest economies are slugging it out over a series of real and perceived slights. Much of the attention thus far has converged on U.S. President Donald Trump's knee-jerk policy decisions, rapid policy reversals, and boisterous cant. But let's examine the Chinese side of the negotiating table (hopefully without descending into the oft-impenetrable jargon of economists). America imports $539b of goods from China each year (or at least it did until this stoush began). But it only exports $120b of goods back into China. This means China runs a $420b trade surplus with America, a situation explained by the fact that China has become a country that makes things, and America a country that buys them. 

In order to make cheap Chinese imports less attractive in the US, Trump's administration slapped tariffs – in three tranches – on $250b of Chinese goods, some as high as 25%. In retaliation, China did the same - to $110b worth of American imports. Now a further retaliation from Washington threatens an additional $300b worth of US imports. You don't need to be a mathematician to realise that China will run out of opportunities to impose tariffs long before the US does – and that is where things get interesting.

Realising that a tariff-exchange would disproportionately affect China, Beijing focused its response on goods produced in the counties and states that had voted for Trump in the 2016 election. While their ploy was hardly expected to cleave Republican party support from Trump, it was designed to at least raise a stink in the lead up to Trump's 202 re-election campaign.

But tariffs are just the beginning. China's second tactic is one still being spoken about in relatively hushed tones: an embargo on the sale of rare-earth minerals to US companies. China is by far the world's largest producer of exotic-sounding metals like Europium, Dysprosium, Terbium and Neodymium. All are crucial in their own separate ways for the creation of batteries and components that power modern electronic devices. A trade embargo on these raw materials would be a huge thorn in the side of Silicon Valley – and that would undoubtedly have a transitive impact on political staffers thanks to the numerous well-paid tech lobbyists in DC. However, China does not have a good record of successfully implementing this tactic. When it tried a similar stratagem with Japan in 2012, there was little impact on the Japanese economy.

So what else could China do? As it happens, China also holds over a trillion dollars worth of U.S. government bonds. This is an eye-watering sum of debt for most people but to the U.S. Treasury Department, it represents just 5% of the total outstanding figure. This means that the oft-bandied-about 'nuclear option' of a bond sell-off by China would likely not destabilise the U.S. economy to the extent of causing a major crash.

And hence, for the most part, Beijing has been willing to soft-pedal the tariff issue. It knows that although it may not have recourse, the lion's share of the cost of Trump's tariffs will eventually come home to roost with U.S. consumers. American companies will preserve their profit margins and simply pass on their increasing costs by raising prices. Besides, there is a much larger game at hand - one which concerns the very structure of modern global economic order. 

Dark clouds ahead for the greenback

On the campaign trail in 2016, Donald Trump sold an easy salve to America's Rust Belt communities (exsanguinated factory towns with fast-fading memories of a time before the flight of capital). Trump's great skill as an orator lay in channelling pain: he synthesised grievances – both large and small – into emotionally resonant symbols. China was chief among them: a godless superpower of unimaginable wealth that had been devouring U.S. jobs by pulling wool over the eyes of an uncaring Washington elite (a.k.a., "the swamp"). He dubbed China a currency manipulator, a duplicitous trade partner, and a problem that must be dealt with. And since taking office he has been trying to do just that, although he did walk back comments about Beijing manipulating the RMB - on advice from his Treasury Department. Again this week the U.S. Treasury declined to label China a manipulator. 

For obvious reasons, no American presidential hopeful would dare tell rural Wisconsinites that the collapse of their industries was the inevitable result of the policies and guiding philosophies of their own country. That America has been the progenitor and a prime benefactor of institutions that have accelerated the causes of globalisation and disruption is undeniable. But even as capital, businesses, hope and then people (in that order) were draining out of the Rust Belt, the burning hot core of American financial power (the U.S. Dollar) has continued to cast a glow over its national economy.

The greenback is arguably even more important for Washington than its planet-ending stockpile of nuclear weapons. 88% of all global currency trades use the USD; it is the de facto reserve currency of the globalised world. Likewise, a majority of international bank transfers also pass through American banks (and thus, are subject to American law). This is the ultimate leverage - America's currency makes the world go round. But this too is under threat.

As the American president makes a mockery of the trade rules that his own country helped author (see: punitive tariffs against Mexico in direct contravention of a trade deal the pair signed late last year) there is a growing push to build parallel currency trading systems.

This, much more than tariffs or embargoes, is the real threat to the US economy. It will take years, perhaps decades, for another currency to supplant the USD. And it may not happen at all. Washington will certainly fight tooth and nail to retain its hegemony over global trade and banking.

However, every skirmish Trump initiates further emboldens its partners like the European Union, Mexico, and Canada, to build new trade mechanisms, to accomodate its opponents like Iran and Russia, and to find common ground with a surging China. The global trade war is just beginning, and it's shaping up to be America vs The World.


Brazilian striker Marta celebrates a goal against Australia. PHOTO: Evening Standard

A game of two halves

The second round of the group stage in the FIFA Women's World Cup is underway, and by the end of the weekend we should have a good idea of who'll make the finals. Host nation France have a healthy buzz around them having won their opening two games in style. After taking home the chocolates in last year's men's tournament, there are high hopes that Les Bleues will follow Les Bleus to glory. And there has already been a taste of history being made - in her fifth World Cup appearance, Brazil's Marta scored her 16th World Cup goal – and drew equal to Miroslav Klose's feted record.

But even in these early skirmishes, the unceremoniously-named United States Women's National Team (USWNT) has shown itself as the team to beat after its 13-0 demolition of Thailand. The shellacking prompted some commentators to protest against presumably unsportswomanlike celebrations – in doing so revealing a sharp disparity in how men's and women's sports are viewed and reported on. We don't recall anyone complaining about the German men's team dancing to every goal when they tore Brazil limb-from-limb (7-1) in the 2014 World Cup.

Which brings us to the gender pay gap. It's astronomical. The team that wins this tournament will take home US$4m, barely a scratch of the US$38m that Les Bleus pocketed in Russia last year. The total amount set aside for winnings in women's and men's competitions is US$30m and US$400m respectively. The vexed question of the gender pay gap touches most sports and all countries; Norwegian champion (and inaugural women's Balloon d'Or winner) Ada Hegerberg has refused to represent her country this year because of a lack of progress on the issue.
An open-cut coal mine in Queensland, Australia. PHOTO: Daryl Wright

Well, may we say, "God save the Queenslanders"...

An Australian state government has signed off on the last approvals for a huge (and hugely controversial) new coal mine. The approval caps nearly a decade of resistance in Australia's courtrooms, parliament, and on the streets. The Indian mining giant Adani is set to start digging one of the largest coal mines in Australia, and shipping its produce to be burned in India. When the project is in full-swing it is expected to produce 60 million tonnes of the stuff every year, for the next six decades.

Despite the questionable science informing ground-water plan approvals, the alarmingly hasty government approvals in the weeks before Australia's recently-concluded election, the fabricated estimates of permanent jobs (maybe 100 ongoing full-time positions, down from 15,000), and the efforts of environmental movements, the project will now go ahead. Or at least, it might. There is still fierce debate over whether the mine can actually cross the threshold of viability in a world of declining thermal coal prices. 30 major international lenders have declined to finance the project.

The mine has become a proxy for any number of issues – both local and global, with people's income and postcode largely shaping how it is viewed. As a sharp reminder of rural/urban divides. As a rare opportunity in a two-speed (and slowing) economy. As a totem of unrestrained capital in a burning world. As a poignant reminder of political grievances. And as a burden, job, blight, or future. 

EDITOR'S NOTE: In two not-entirely unrelated stories, it is 50°C in India this week, and Australia has cut next year's wheat crop forecast (the country's third most valuable export) by 11% because of unrelenting drought conditions.

The Best of Times

Leonard was nothing short of magnificent in this series. PHOTO: Nathaniel S. Butler

The King of Oakland

The irrepressible Kawhi Leonard has been named MVP of the NBA Finals after leading the Toronto Raptors to their first title. Rightfully so, as he played absolute blinders at the away games in Oakland. In a scintillating series, the Raptors won 4-2 against the valiant but undermanned Golden State Warriors. Franchises north of the U.S. border have always struggled in the NBA; the Vancouver Grizzlies folded after just six disappointing years in 2001. Not anymore.

The Queen of France 

Ash Barty won the women's trophy at Roland Garros last weekend, an event that marked her coming of age as a top-tier athlete. Barty (who cuts a diminutive figure when compared to her Eastern European competitors) has been lauded at home and abroad for her tenacity. It's not a bad result for someone who took a break from tennis and started playing professional cricket just three years ago. 

The Worst of Times

How to spot a fake: this man is not the current U.S. president. PHOTO: AP

A flood of deep fakes

Do you think you have a good handle on the veracity of the political speeches you see televised (or more likely, interspersed through your social media feeds)? You shouldn't. The development of technology to product fake audio and video is moving at a breakneck pace; so much so that AI researchers are saying we are completely unprepared to deal with what will no doubt be a flood of it during the 2020 election. In this burgeoning era of deep fakes, consider reducing all of your assumptions down to the smallest and most provable positions, and then working your way back up. It worked for the philosophers of ancient Greece, and it just might work for you. Also, get off social media - it's antisocial anyway.

A shine with your soft coup?

Have you ever taken your car to the car wash and had it come out dirtier than when it went in? Well, the years-long Brazilian anti-corruption investigation known as Lava Jato ('Car Wash') appears to have done just this; hoovering up evidence of the ludicrous amounts graft going on at the nexus of politics and  big business. With the aid of hindsight the car wash is starting to look more like  a wreckers yard that was used to crack down on crooked leftist politicians, while giving the old guard a pass. It's certainly cast President Bolsonaro's rise in a whole new light.

Weekend Reading

Quote of the week

"I am famous but empty."

– Leonard Cohen basically sums it all up in a love letter that sold at auction this week.

 Headline of the week

Britain failed Hong Kong 
Foreign Policy

Special mention

The scientist who let us know that we are eating a credit card's weight in microplastics every week. Would you like Visa, or Mastercard?

Some choice long-reads

EDITOR'S NOTE: Get outdoors this weekend.

Tom Wharton