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World’s Largest Free Trade Deal, La Belle Epoque, The Brexit that Never Ends, CryptoCurrency, and The Week In Review

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World’s Largest Free Trade Deal, La Belle Epoque, The Brexit that Never Ends, CryptoCurrency, and The Week In Review

The world’s largest free trade deal. Australia and New Zealand ratified the Regional Comprehensive Economic Partnership (RCEP). As a result, RCEP will come into force on January 1, 2022. When it does, it will become the world’s largest free trade agreement in terms of percentage of global GDP at 28.7 percent and the second largest in terms of overall merchandise trade at 27.8 percent (slightly below the EU).

What it means: India pulled out of RCEP last year and the U.S. pulled out of the rival Trans-Pacific Partnership (now the CPTPP) in 2017, which makes the RCEP a highly regional affair. RCEP will refocus regional trade and economic linkages away from global supply chains toward regionally focused relationships within East Asia. As far as mega-trade deals go, RCEP is broader than it is deep – it eschews agreements on thorny issues like intellectual property and labor conditions and preserves flexibility on particularly sensitive sectors and produces. China, Japan, and South Korea are all part of RCEP, and their combined presence in a single free trade framework is the most important part of this deal.

La Belle Époque. The U.S. and China announced an agreement to work together to address the challenges posed by climate change. The announcement is symbolic, as it contained little in the way of concrete objectives, promising only to lower emissions and phase out coal usage. Meanwhile, U.S. President Joe Biden and Chinese Xi Jinping are set to meet via a virtual summit as soon as next Monday, and the expected result is starting several dialogues on issues like visa restrictions, nuclear proliferation, and tariffs.

What it means: Despite an increasingly competitive relationship, both the U.S. and China have an interest in making that competition more predictable and manageable. Neither side is spoiling for a fight right now. This is what the pre-World War I looked like, with rivals more concerned with their own internal issues than anything else, and it is what we expect most of the next decade to look like, shadowboxing and political grandstanding aside.

The Brexit that never ends. The UK’s Brexit minister warned that suspending the Northern Ireland component of the UK-EU Brexit deal might become the “only option” if EU-UK talks to resolve their impasse fail. The UK again threatened to trigger Article 16 of the protocol on Northern Ireland, which could in effect end the Irish Sea border and from Brussels’s perspective create a backdoor into the single market. That is not an acceptable outcome for the EU, as preserving the single market’s integrity has largely been its key focus in all Brexit negotiations. It is also why Ireland announced this week that it is preparing for a “possible trade with Britain.”

What it means: If the EU compromises despite holding most of the leverage over the UK, it would be an indication of political weakness. That said: we continue to think this is all part of the negotiation process, and productive talks on the ongoing France-UK fisheries spat may offer a positive indicator that these issues will be worked out eventually. Still, the higher stakes the bluff, the more chance there is that eventually, one side will “call” it – and that would have negative economic consequences for both the EU and the UK.

Crypto as a currency. Zimbabwe is gathering information on cryptocurrencies, with a view toward adopting Bitcoin as legal tender, a la El Salvador.

What it means: This is the aspect of the cryptocurrency we are most interested in – the adoption of crypto as a primary means of exchange in countries where the currency has been debased, rather than as a speculative asset for those seeking to get rich fast. Governments like Zimbabwe and El Salvador see the challenge posed by cryptocurrencies in the future and are seeking to head it off by maintaining at least some control and visibility over their usage, whether by developing state-backed digital wallets or attempting to regulate their use before they gain widespread adoption. The future of cryptocurrency will be decided in developing markets.   

Honorable mention

Brazilian pop star Marília Mendonça died in a plane crash at the age of 26. Ninguém vai sofrer sozinho, todo mundo vai sofrer.

The Japanese government announced cash/voucher distributions to households with children aged 18 and younger in the amount of ¥50,000 (~$443).

Poland accused Belarus and Russia of flying thousands of migrants from the Middle East, South Asia, and Africa to Belarus and sending them to the Polish border.

The Chilean Senate rejected the motion to allow the fourth 10 percent withdrawal, falling a single vote shy of passing the motion. More at LatamPolitik.

The U.S. embassy in Riyadh sent a letter to the Saudi Ministry of Investment criticizing Saudi tax authorities for lack of transparency and due process.

Tunisia’s Union Générale Tunisienne du Travail (UGTT) rejected a government plan to cut subsidies demanded by the International Monetary Fund and other lenders.

South Africa’s National Treasury said it would cut its budget deficit and curb debt, refusing to commit to new long-term spending despite reaping significant gains from high commodity prices.

The Royal Bank of Canada downgraded its economic growth outlook for every province in the country save one: Alberta.

Australian Foreign Minister Marise Payne visited Indonesia, Malaysia, Cambodia, and Vietnam.