Blog

The Neverending Trade War, AMLO’s Latest Test, Limits of Leverage, Robbing Peter to Pay Paul, Tit for Tat, and The Week In Review

Blog / Weekly Review

The Neverending Trade War, AMLO’s Latest Test, Limits of Leverage, Robbing Peter to Pay Paul, Tit for Tat, and The Week In Review

Happy Friday, y’all. If you haven’t already, check out our latest podcast with Emma Ashford, a brilliant expert on U.S. foreign policy. You can listen or read the transcript by clicking on this sentence.

The Trade War That Never Ends. U.S. Trade Representative Katherine Tai gave a speech at the Center for Strategic and International Studies on the future of U.S.-China relations. Tai said former U.S. President Donald Trump’s tariffs on China would remain in place for now but also that the U.S. was interested in reopening talks with China over its failed promises on the Trump-era “Phase 1 trade deal.” Meanwhile, top U.S. and Chinese officials met in Switzerland to explore the possibility of a virtual summit between Joe Biden and Xi Jinping before the end of the year.

What it means: One of the most telling lines from Tai’s speech was this one: “I am committed to working through the many challenges ahead of us in this bilateral process in order to deliver meaningful results. But above all else, we must defend — to the hilt — our economic interests.” The U.S. continues to embrace protectionism rather than free trade as the “prime directive” of its economic policy. Tl;dr – Biden is fully embracing the China policies of former U.S. President Donald Trump. Retain even in opposition your capacity for astonishment.

AMLO’s Latest Test. Mexico’s government wants to reform the constitution to increase state control of the electricity market by increasing the power of the Comision Federal de Electricidad (CFE). The draft law also reportedly reserves lithium extraction for state, in addition to eliminating all energy regulators and placing their authority under the CFE.

What it means: It will be interesting to see if Mexican President Andres Manuel Lopez Obrador (AMLO) is able to garner the votes necessary to pass this constitutional change. By itself, his Morena party doesn’t have the two-thirds majority necessary. If he fails, it would be a sign we’ve already seen the high-water mark of his political power. AMLO is often incorrectly pigeon-holed as a hardcore leftist, but when it comes to his approach to Mexico’s electricity and energy markets, he comes by the characterization honestly, and in this case, his desired moves (if realized) would have detrimental effects on the Mexican economy.

The Limits of Leverage. Russian President Vladimir Putin instructed his energy minister to make sure Gazprom complies with its contractual obligations to supply natural gas to the European market via the territory of Ukraine, ordering him to “take these issues under your personal control.” UK natural gas prices dropped almost 30 percent immediately after Putin’s remarks.

What it means: Russia had come under fire due to reports that it was limiting European gas supplies. We are sure Russia didn’t mind watching Europe squirm a bit – but it isn’t in Moscow’s interest to be seen as using its natural gas leverage in a nakedly geopolitical way. Doing so would only jeopardize Nord Stream 2 and encourage European states to find their gas elsewhere. Ironically it is in Russia’s interest to be seen as helping European states acquire the increasingly expensive natural gas they need. A cold winter – not Russian intransigence – is what could really drive European natural gas prices through the roof.

Robbing Peter to Pay Paul. Chile’s Chamber of Deputies (the lower house of the country’s bicameral legislature) approved a bill authorizing a fourth 10 percent withdrawal from the country’s privately run pension system. The decision now goes to the Chilean Senate, where the vote looks to be a close call. The embattled center-right Chilean government is strongly opposed to the measure.

What it means: This is a key litmus test for Chile. If a fourth withdrawal is approved without any accompanying pension reform, it puts a dent in our bullish Chile narrative. If you are interested in our take on the Chilean economy, check out LatamPolitik, or write to us directly for more in-depth analysis.

Tit for Tat. Japan, the U.S., Canada, the Netherlands, and New Zealand conducted a large-scale military exercise over last weekend near Okinawa. China dispatched 52 warplanes – 36 fighter jets and 12 bombers – to Taiwan’s air defense identification zone (ADIZ). A Taiwanese official told the Financial Times that “this is getting close to the brink of conflict.”

What it means: We remain sober on the prospects of an imminent military conflict over Taiwan. That China’s only recourse to U.S.-led military exercises and the U.S. opening trade negotiations with Taiwan is sending a few extra planes into Taiwan’s ADIZ exemplifies the lack of actual power China has in this situation. We will be concerned if we see an escalation that is out of the ordinary or clearly disproportionate in nature. This week’s latest incidents, though good fodder for headline writers trying to sell newspapers or drive clicks, do not meet that threshold.

Honorable mention

The World Health Organization recommended widespread use of a new malaria vaccine for children living in sub-Saharan Africa.

Peruvian President Castillo announced a major “Second Agrarian Reform” package.

Turkish inflation accelerated to 19.58 percent in September from 19.25 percent in August.

Iranian Foreign Minister Hossein Amirabdollahian said following a meeting with Russian Foreign Minister Sergei Lavrov that he expected negotiations between the U.S. and Iran to rejoin the JCPOA (aka the Iran nuclear deal) to begin “soon.”  

The European Union committed €29 billion to the Western Balkans over the next seven years, €9 billion in the form of grants, and €20 billion in the form of investment.

Canada triggered a provision in the 1977 Canada-U.S. Transit Pipelines Treaty in an ongoing dispute with the U.S. state of Michigan, which had ordered Calgary-based Enbridge to stop using Line 5, which pumps 540,000 barrels of oil per day to Ontario and the U.S. Midwest.

Indonesia will allocate $35 billion to develop renewable energy-based power plants in the next 10 years, to account for more than half of the country’s planned additional 40.6 gigawatts of capacity out to 2030.

Desperate for coal supplies, China began unloading Australian coal shipments this week, to the tune of some 450,000 metric tons this week.

The U.S. is working hard to try and patch up diplomatic relations with France, including apparently offering U.S. support for a French-led initiative to strengthen the European Union’s defense capabilities.