The Weekly Rundown: U.S.-China Trade Talks, Apple's Revenue Warning and Macedonia's Name Change

7 MINS READJan 5, 2019 | 20:17 GMT
People shop in Apple's Grand Central Terminal store in New York on Jan. 3, 2019.

People shop in Apple's Grand Central Terminal store in New York on Jan. 3, 2019. Apple warned Jan. 2 that its first-quarter sales would be less than expected.

(DREW ANGERER/Getty Images)

On the Record

While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China.

Apple CEO Tim Cook, in a Jan. 2 letter to investors

On Our Radar

Trade Talks Start Up Again. The world will be watching Jan. 7-8 for clues on whether trade negotiations between the United States and China can be sustained beyond March 1, when the 90-day tariff truce is up. Just this week, the chief U.S. negotiator, Robert Lighthizer, warned of more tariffs to force Chinese structural reforms, but a turbulent U.S. stock market and the value that President Donald Trump places on that market could compel the White House to rethink its strategy. The new round of trade talks will involve lower-level officials, which means the chance of a major breakthrough is low. But the talks could bring resolution to some low-hanging fruit, such as China's purchases of energy and agricultural products, or they could lead to subsequent talks that involve top negotiators such as Lighthizer and Chinese Vice Premier Liu He.

Apple's Challenges Highlight the Importance of Consumer Electronics. Apple's announcement that it was slashing expectations for its first-quarter earnings punctuates not only the trade war fallout and challenges with the Chinese economy, but also slowing iPhone sales. The latter is important because the global smartphone market has been a key generator of cash flow for a number of technology companies. Its slowing growth could hamper some tech companies' ability to finance new research and development of smart devices connected to the "internet of things," autonomous driving technology, artificial intelligence-enabled devices and other technologies that are set to become the new growth area. With that in mind, all eyes will be on Las Vegas on Jan. 8 when CES 2019 kicks off. Autonomous driving technology, 5G and AI-enabled devices will all be front and center as companies show off their most recent prototypes at the annual consumer electronics show.

Middle East Reassurance Tour Begins. National security adviser John Bolton's four-day trip to Israel and Turkey is underway and U.S. Secretary of State Mike Pompeo begins an extensive Middle Eastern tour Jan. 8. Both officials are visiting key Mideast allies to reassure them that the United States remains committed to its regional partners even as it prepares to withdraw from Syria. The Arab Gulf states, in particular Saudi Arabia and the United Arab Emirates, want to hear that the United States is not going to abandon its anti-Iran strategy, especially considering Bolton and Pompeo's commitment to it juxtaposed with President Donald Trump's increasing hesitance. Meanwhile, Israel wants assurances the Trump administration not only will help subdue Iranian influence in Syria, but that it will also help a hoped-for sale of Israeli F-16s to Croatia.

Venezuela Financial Flows at Risk. South American allies of the United States will drop political recognition of the Venezuelan government, paving the way for more serious moves to pressure Caracas. The Lima Group, a confederation of governments created to pressure the Venezuelan government to allow free elections, said on Jan. 4 that they will not recognize Nicolas Maduro, who begins a new six-year presidential term Jan. 10, as the legitimate leader of Venezuela. The decision gives regional states such as Brazil, Colombia, Peru and Argentina a stronger rationale to order investigations of Venezuelan financial activity within their jurisdictions. Such moves could pressure and weaken some Venezuelan elites who have stashed assets in Latin American countries.

Delayed Results for a Delayed Election. First results from the Democratic Republic of the Congo's presidential election may be delayed beyond the initial Jan. 6 deadline. Mounting evidence of election mismanagement, fraud and other voting irregularities are dogging the contest and those who organized it. With the Congo's Catholic Church saying it knows who won the Dec. 30 election, and with calls on officials to announce the true election results, post-election violence is likely around the corner. Though violence in the past failed to disrupt Congo's mining sector, resurgent global interest in the resource-rich nation will prompt the global powers to weigh in on the results and the aftermath. With the United States and the European Union expected to condemn the election process and even issue sanctions in the following months, China and Russia could seize an opportunity to step in, secure resources and exert influence.

On Our Minds

Macedonia by Any Other Name. Next week could mark a milestone in the history of the Western Balkans, as the Macedonian parliament will vote on changing the country's name from the Republic of Macedonia to the Republic of North Macedonia and end a decadeslong dispute with Greece. Should Macedonian lawmakers approve the new name, the Greek Parliament will hold its own vote on the name-change agreement reached by Macedonia and Greece in June, at a date that has yet to be decided. The name change would open the door for Macedonia to negotiate joining the European Union and NATO, increase the influence of Western institutions in the small Balkan nation and remove (at least at the governmental level) one of the multiple sources of friction in a region that traditionally has been shaped by deep-rooted antagonisms.

Far Side of the Moon. With great power competition heating up earthside, space has become an increasingly important theater for the U.S.-China rivalry. This week, China carried out a space exploration first: landing a probe on the far side of the moon. With this achievement, China demonstrated major strides in communications, launch and extreme environment technology that will serve it well in further space ventures as well as militarily here on Earth. At the same time, the lunar milestone enhances President Xi Jinping's prestige with a Chinese public eager for affirmation that China has regained its prominent role on the world stage — and it also affirms China's position in the developing world, where Beijing has long offered space cooperation as a sweetener to tighter diplomatic links.

A Tale of Four Islands. Japan and Russia are hyping the potential for a World War II peace treaty and at least partial resolution of their longstanding territorial dispute over the southern Kuril islands, known in Japan as the Northern Territories. A foreign ministerial-level meeting is scheduled for next week ahead of a Jan. 21 meeting between Japanese Prime Minister Shinzo Abe and Russian President Vladimir Putin. Abe is rumored to be angling for a treaty to be completed by the time Japan hosts this year's G-20 summit in June and before upper-house parliamentary elections in July. The basis would be a 1956 declaration offering Japan the Kurils' two smallest islands. While the political will to resolve the dispute is higher than ever, 70 years of stalled negotiations should temper optimism. Territorial losses would be politically sensitive for both sides and would require resolving thorny details. We will be watching to see what both sides signal they would be willing to accept and whether the beginning of the series of talks could offer a chance for a major breakthrough.

Silicon Valley Urges Restraint on the White House. The period for public comment on proposed rules to put export controls on U.S. high technology ends Jan. 10, and while it will take months for final rules to be put in place, Silicon Valley is lobbying for restraint. The United States wants the controls to protect U.S. technology and limit the ability for significant emerging technologies to spread to rivals, namely China. The technologies being discussed include artificial intelligence, robotics, additive manufacturing, microprocessor technology and biotechnology. The concern is that restrictions would hamper U.S. competitiveness globally, undermining Silicon Valley. U.S. tech firms could lose vital partnerships and access to key growth markets, and could be kept from fully reaping the benefits of integrating into global supply and value chains.

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On Our Calendar

In the coming week, a U.S. delegation travels to Beijing to restart trade talks, U.S. Secretary of State Mike Pompeo begins an eight-nation tour of the Middle East and the British Parliament debates Prime Minister Theresa May's Brexit deal. For more, see our Geopolitical Calendar.

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