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The Weekly Rundown: Carrots and Sticks on Trade, and the U.S. Gives Taiwan a Boost

7 MINS READFeb 25, 2018 | 20:20 GMT
A port employee in Camden, New Jersey, checks the shipping labels on coils of steel imported from France in this 2002 photo.

A port employee in Camden, New Jersey, checks the shipping labels on coils of steel imported from France in this 2002 photo. U.S. President Donald Trump is considering imposing heavy tariffs on steel imports.

(TOM MIHALEK/AFP/Getty Images)

On the Record

Put on your pants and go vote!

                                                                       Slogan from a promotional video for Russia's March 18 presidential election


On Our Radar

Pre-empting a Big Move on Trade. Hoping to negotiate an exemption with the White House on looming steel tariffs, a Brazilian trade delegation will be in Washington Feb. 26-28 to meet with U.S. Commerce Secretary Wilbur Ross. Brazil will argue that 80 percent of its steel exports to the United States are semifinished products consumed by U.S. industries. Brazil is also bringing a stick: At a meeting with U.S. coal producers, the Brazilian delegation will raise a threat to retaliate against coal imports should the White House follow through with heavy steel tariffs. We'll see whether Brazil's negotiating tactics pay off and whether other countries attempt a similar strategy. But any exemptions the United States negotiates would still risk a heavy legal challenge in the World Trade Organization over preferential treatment.

China, the main trade target of the United States, is sending Liu He, its top economic policymaker, to Washington in a bid to defuse U.S. pressure. Beijing has been trying to work various back channels to the White House to get a feel for where concessions could gain traction. China has been holding out on promises to increase U.S. imports and expand market access to U.S. investors in the agricultural, energy and financial industries. Beijing has also signaled it could ease up on forced tech transfers on foreign companies. If the U.S. strategy is to first slap heavy trade restrictions on China and then negotiate, Beijing will likely reserve big concessions for when it needs them most. The rumor is that U.S. President Donald Trump will make his announcement on steel and aluminum tariffs ahead of a March 13 special congressional election in Pennsylvania.

Turning Up the Taiwan Threat. Trade isn't the only big pressure point on China. We are seeing more signs confirming our forecast that the United States will dial up cooperation with Taiwan as frictions escalate with China. For the first time, Taiwan will host an annual defense meeting with the United States in May, when high-level U.S. defense officials and contractors will travel to Taiwan to discuss defense deals and technology cooperation. This is a sign that the Taiwan Travel Act, which will allow for regular visits by U.S. officials to Taiwan, is likely to clear Congress soon. China typically shows its ire at U.S.-Taiwanese relations by pressuring companies that have big stakes in China and are trying to work with Taiwan.

Turkey's Game of Chicken with Eni. When Eni, the Italian oil company, tried to move a drill ship to an eastern Mediterranean site in the exclusive economic zone claimed by Cyprus, five Turkish naval vessels blocked its way. Thus far, Italy has largely stayed out of the dispute involving its oil company because it needs Turkey for more strategic reasons: namely, natural gas from Central Asia and stemming the tide of Middle Eastern migrants. Cyprus has few options to push back against Turkey. The European Union, like Italy, needs Ankara on a wide range of issues, but it is threatening to cancel a summit next month with Turkey over the Cyprus issue. Ankara expected EU foot-dragging anyway and will not be deterred from its aim of dominating the eastern Mediterranean.

Saudi Arabia Gets Serious on Business Regulation. Saudi Arabia got serious with private sector reform last week, but successful implementation remains the big question. The kingdom passed its first-ever bankruptcy law, and women are now allowed to run businesses without a male guardian. The General Entertainment Authority also announced it will invest $64 billion over the next decade in entertainment, which will require a lot of private company buy-in.

South Africa's Economic Fix. President Cyril Ramaphosa took a bold step last week by pushing for the first increase of South Africa's value-added tax since 1993. Moreover, Pretoria appears ready for a carbon tax, to be implemented in 2020. The moves are risky for the ruling African National Congress, since they may be unpopular with the South Africa's poor black majority — a critical ANC base — as 2019 elections approach.


On Our Minds

Can Macron Lead the Modern Protectionism Push? While the Trump administration is turning to old-fashioned tariffs to try and appease disaffected workers, French President Emmanuel Macron is trying a different protectionist approach. A looming EU budget debate (without the United Kingdom's contributions this time) will likely result in cuts to the EU's hefty agricultural subsidies, so Macron is asking angry French farmers to embrace a "cultural revolution" to make the agricultural sector more productive, technologically advanced and competitive. Will they buy it? If not, Macron's attempt to appease farmers is only going to further complicate the EU budget debate and could complicate ongoing negotiations between the European Union and South America's Common Market of the South. On the other hand, if Macron is successful, the European Union will have an easier time getting around the agricultural sticking point in negotiating free trade deals.

Does Putin Fear His Own Military? A rumor is circulating that the Russian army is planning to re-create the Soviet Union's Main Political Directorate to maintain moral and political unity among all branches and ministries of the military. After the 1993 failed coup attempt against Boris Yeltsin, the Kremlin made it unconstitutional to engage in ideological indoctrination of the military. But with fissures widening in Russian society, it looks as if President Vladimir Putin is worried the military could turn on him at some point.

Brazil's Venezuela Quandary. The severity of Venezuela's economic crisis is rapidly becoming a regional problem, but will it serve as a litmus test for Brazilian leadership? Already on alert for a Venezuelan incursion into Guyana, Brasilia is trying to get other regional stakeholders behind a plan to manage the lawlessness and mass migration from Venezuela. Brazil wants to see a solution that strengthens the opposition and gets aid into the country without imposing harsher sanctions. Colombia and the United States, on the other hand, want to raise economic pressure on Caracas to try and force the government from power. As the crisis escalates in Venezuela, we're watching to see whether Brasilia can work its way around a web of constraints to contain the fallout.

Turning Japanese. William Dudley of the New York Federal Reserve on Feb. 23 reportedly complimented Japan's experimental "yield curve control" monetary policy, saying it represented a "more efficient" form of stimulus than quantitative easing. With central bank balance sheets already bloated and big question marks hanging over what policies can be pursued if the next downturn arrives too soon, Dudley's remarks could be the first sign that Japan's solution is set to prove contagious. Yield curve control comes with its own risks, though, as it entails a promise from central bank to government that it will artificially keep borrowing costs from rising. The danger would be that an unscrupulous government might be unable to resist temptation and would ultimately spend more than the country's economy can support.


In Case You Missed It

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Three Flashpoints in the Syrian Civil War


On Our Calendar

In the coming week, Russian President Vladimir Putin delivers a state-of-the-nation address, Turkish President Recep Tayyip Erdogan visits four African nations, Germany's conservatives and its Social Democratic Party decide the fate of their grand coalition agreement, and Italy holds general elections. For more, see our Geopolitical Calendar for the week of Feb. 26.


Join the Discussion

What do you think of Russian Foreign Minister Sergei Lavrov's recent criticism of the ability of the United States and its NATO allies to preserve security in Afghanistan?

The U.S. Chamber of Commerce is lobbying members of Congress to try to prevent the Trump administration from withdrawing the United States from the North American Free Trade Agreement. What do you think the future holds for NAFTA?

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