with the main article Re: [YEDG] 13th of October Sunday English discussion Article
jiyoen park
The world economy
The gated globe
Governments are putting up impediments to globalisation. It is time for a fresh wave of liberalisation
Oct 12th 2013 |From the print edition
IMAGINE discovering a one-shot boost for the world’s economy. It would revitalise firms, increasing sales and productivity. It would ease access to credit and it would increase the range and quality of goods in the shops while keeping their prices low. What economic energy drink can possibly deliver all these benefits?
Globalisation can. Yet in recent years the trend to greater openness has been replaced by an enthusiasm for building barriers—mostly to the world’s detriment.
The worst did not happen…
Not so long ago, the twin forces of technology and economic liberalisation seemed destined to drive ever greater volumes of capital, goods and people across borders. When the global financial crisis erupted in 2008, that hubris was replaced by fears of a replay of the 1930s. They were not realised, at least in part because the world had learnt from that dreadful decade the lesson that protectionism makes a bad situation worse.
Yet a subtler change took place: unfettered globalisation has been replaced by a more selective brand. As our special report shows, policymakers have become choosier about whom they trade with, how much access they grant foreign investors and banks, and what sort of capital they admit. They have not built impermeable walls, but they are erecting gates.
That is most obvious in capital markets. Global capital flows fell from $11 trillion in 2007 to a third of that last year. The decline has happened partly for cyclical reasons, but also because regulators in America and Europe who saw banks’ foreign adventures end in disaster have sought to ring-fence their financial systems. Capital controls have found respectability in the emerging world because they helped insulate countries such as Brazil from destabilising inflows of hot money.
Sparingly used, capital controls can make financial systems less vulnerable to contagion, and crises less damaging. But governments must not forget the benefits of financial openness. Competition from foreign banks forces domestic ones to compete harder. Ring-fencing banks and imposing capital controls protects from contagion, but also traps savings in countries with little use for them.
Trade protectionism cannot claim the justifications that capital controls sometimes can. Fortunately, the World Trade Organisation (WTO), the trade watchdog, prevents most ostentatious protectionism, but governments have developed sneaky methods of avoiding its ire. New impediments—subsidies to domestic firms, for instance, local content requirements, bogus health-and-safety requirements—have gained popularity. According to Global Trade Alert, a monitoring service, at least 400 new protectionist measures have been put in place each year since 2009, and the trend is on the increase.
Big emerging markets like Brazil, Russia, India and China have displayed a more interventionist approach to globalisation that relies on industrial policy and government-directed lending to give domestic sellers a leg-up. Industrial policy enjoys more respectability than tariffs and quotas, but it raises costs for consumers and puts more efficient foreign firms at a disadvantage. The Peterson Institute reckons local-content requirements cost the world $93 billion in lost trade in 2010.
Attempts to restore the momentum of free trade at a global level foundered with the Doha round of trade talks. Instead, governments are trying to do so through regional free-trade agreements. The idea is that smaller trade clubs make it easier to confront politically divisive issues. The Trans-Pacific Partnership (TPP) that America, Japan and ten others hope to conclude this year aims to set rules for intellectual-property protection, investment, state-owned enterprises and services.
Regional free-trade deals are a mixed blessing. Designed well, they can boost liberalisation, both by cutting barriers in new areas and by spurring action in multilateral talks. Done badly, they may divert rather than expand trade. Today’s big deals are probably a net positive, but they may not live up to their promise: in the rush to sign a deal, TPP participants look likely to accept carve-outs for tobacco, sugar, textiles and dairy products, diminishing the final deal.
…but it could be so much better
Gate-building does not cause much outrage. Yet it is worth remembering what opportunities are being lost. In 2013 the value of goods-and-services exports will run to 31.7% of global GDP. Some big economies trade far less: Brazil’s total exports are just 12.5% of GDP. Increasing that ratio would deliver a shot in the arm to productivity. Trade in services is far lower than in goods; and even in goods, embarrassing levels of protectionism survive. America tacks a 127% tariff on to Chinese paper clips; Japan puts a 778% tariff on rice. Protection is worse in the emerging world. Brazil’s tariffs are, on average, four times higher than America’s, China’s three times.
In the past year the cost of impediments to trade has become clearer. Few countries have put up more gates than Russia, India and Brazil; growth in all three has disappointed. The latter two have suffered sharp falls in their currencies. Some countries have counted the cost and are opening up. China’s new leaders are tiptoeing towards looser rules for foreign capital and getting behind a push for a modest global trade deal. Mexico plans to readmit foreign investors to its oil industry in an effort to boost output. Japan hopes that the TPP will shake up its inefficient sectors, complementing fiscal and monetary stimulus.
But the fate of globalisation depends most on America. Over the past 70 years it has used its clout to push the world to open up. Now that clout is threatened by China’s growing influence and America’s domestic divisions. Barack Obama’s decision to skip an Asia-Pacific leaders’ summit in Bali to battle the government shutdown at home was ripe with symbolism: China’s and Russia’s presidents managed to attend. Mr Obama must reassert America’s economic leadership by concluding a TPP, even one with imperfections, and force it through Congress. The moribund world economy needs some of the magic that globalisation can deliver.
From the print edition: Leaders
See you at 9am tomorrow for those below articlesat Twosome Place exit6 of Yeouido Station.The facilitator is Emily Jiyoen ParkWorld economy
The gated globe
The forward march of globalisation has paused since the financial crisis, giving way to a more conditional, interventionist and nationalist model. Greg Ip examines the consequences.
Oct 12th 2013 |From the print edition
FIVE YEARS AGO George W. Bush gathered the leaders of the largest rich and developing countries in Washington for the first summit of the G20. In the face of the worst financial crisis since the Great Depression, the leaders promised not to repeat that era’s descent into economic isolationism, proclaiming their commitment to an open global economy and the rejection of protectionism.
They succeeded only in part. Although they did not retreat into the extreme protectionism of the 1930s, the world economy has certainly become less open. After two decades in which people, capital and goods were moving ever more freely across borders, walls have been going up, albeit ones with gates. Governments increasingly pick and choose whom they trade with, what sort of capital they welcome and how much freedom they allow for doing business abroad.
Virtually all countries still embrace the principles of international trade and investment. They want to enjoy the benefits of globalisation, but as much as possible they now also want to insulate themselves from its downsides, be they volatile capital flows or surging imports.
Globalisation has clearly paused. A simple measure of trade intensity, world exports as a share of world GDP, rose steadily from 1986 to 2008 but has been flat since. Global capital flows, which in 2007 topped $11 trillion, amounted to barely a third of that figure last year. Cross-border direct investment is also well down on its 2007 peak.
Much of this is cyclical. The recent crises and recessions in the rich world have subdued the animal spirits that drive international investment. But much of it is a matter of deliberate policy. In finance, for instance, where the ease of cross-border lending had made it possible for places like America and some southern European countries to run up ever larger current-account deficits, banks now face growing pressure to bolster domestic lending, raise capital and ring-fence foreign units.
World leaders congratulate themselves on having avoided protectionism since the crisis, and on conventional measures they are right: according to the World Trade Organisation (WTO), explicit restrictions on imports have had hardly any impact on trade since 2008. But hidden protectionism is flourishing, often under the guise of export promotion or industrial policy. India, for example, imposes local-content requirements on government purchases of information and communications technology and solar-power equipment. Brazil, which a decade ago compelled its state-controlled oil giant, Petrobras, to buy more of its equipment from local companies, has been tightening restrictions steadily since. And both America and Europe imposed, or threatened to impose, tariffs on Chinese solar panels, alleging widespread government support. At the same time, though, Western countries themselves offer hefty subsidies for green energy at home.
Capital controls, which were long viewed as a relic of a more regulated era, have regained respectability as a tool for stemming unwelcome inflows and outflows of hot money. When Brazil imposed a tax on inflows in 2009-10, it was careful to emphasise that not all foreign investment was unwelcome. “Nobody here is rejecting people that want to invest in our ports or our roads,” says Luiz Awazu Pereira, a deputy governor at the central bank. “But if you are here just because you are running an aggressive hedge fund and noticed that our Treasuries pay 10% while US Treasuries pay zero, this is a less desirable outcome.”
The world has not given up on trade liberalisation, but it has shifted its focus from the multilateral WTO to regional and bilateral pacts. Months before Lehman Brothers failed in 2008, the WTO’s Doha trade talks collapsed in Geneva largely because India and China wanted bigger safeguards against agricultural imports than America felt able to accept. Shortly afterwards America joined talks to form what is now called the Trans-Pacific Partnership, which also includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Barack Obama has held up the TPP as the sort of agreement China should aspire to join.
The trend in foreign direct investment, too, is still towards liberalisation, but a tally by the UN Commission for Trade and Development shows that restrictions are increasing. Last December Canada allowed a Chinese state-owned enterprise to buy a Canadian oil-sands company, but suggested it would be the last. “When we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments,” explained Stephen Harper, the prime minister.
The flow of people between countries is also being managed more carefully than before the crisis. Borders have not been closed to immigrants, but admission criteria have been tightened. At the same time, however, many countries have made entry easier for scarce highly skilled workers and for entrepreneurs.
Mr Obama sees globalisation not as something to be stopped but to be shaped in pursuit of broader goals. He wants other countries to raise their standards of labour, environmental and intellectual-property protection so that American companies will be able to compete on a level playing field and, perhaps, pay decent middle-class wages once again. When a clothing factory collapsed in Bangladesh in April, killing more than 1,000 people, Mr Obama suspended America’s preferential tariffs on many imports from Bangladesh until it improves workers’ rights.
A clear pattern is beginning to emerge: more state intervention in the flow of money and goods, more regionalisation of trade as countries gravitate towards like-minded neighbours, and more friction as national self-interest wins out over international co-operation. Together, all this amounts to a new, gated kind of globalisation.
A state of imperfection
The appeal of gated globalisation is closely tied to state capitalism, which allowed China and the other big emerging markets—India, Brazil and Russia—to come through the crisis in much better shape than the rich world. They proudly proclaimed their brand of state capitalism as superior to the “Washington consensus” of open markets and minimal government that had prevailed before 2008. But the system also covered up structural flaws that are now becoming more obvious. In China, state-owned enterprises and state-directed lending have siphoned credit from the private sector and fuelled a property bubble. In India and Brazil, inadequate investment in infrastructure has resulted in rising inflation and sharply slowing growth.
The globalisation in the West before 2008 certainly had its flaws. The belief that markets were self-regulating allowed staggering volumes of highly levered and opaque cross-border exposures to build up. When the crisis hit, first in America, then in Europe, the absence of barriers allowed it to spread instantly. Voters, who had never been keen on wide-open borders, took this badly, and support for anti-globalisation parties grew.
A few constraints on global finance are not necessarily a bad thing. Limiting banks’ foreign-currency borrowing, as South Korea has done, makes them less likely to fail if the exchange rate falls. But gated globalisation also carries hidden costs. Policymakers routinely overestimate their ability to distinguish between good and bad capital, and between nurturing exports and innovation and rewarding entrenched interests. The opening up before the crisis had done wonders for channelling capital to the best investment opportunities, lowering prices for consumers and promoting competition. Interfering with this process reduces a country’s growth potential.
This special report will seek to answer two big questions. Is gated globalisation merely a pause on the path to more openness, or is it here to stay? And is it, on balance, a good or a bad thing? The report will look at finance, capital controls, international trade and protectionism in turn to see how gated globalisation affects them for good or ill. Start with finance.
From the print edition: Special report
Trade
In my backyard
Multilateral trade pacts are increasingly giving way to regional ones
Oct 12th 2013 |From the print edition
UKRAINE, LONG PULLED back and forth between east and west, is feeling the tug again, this time between rival trade blocks. Next month it hopes to sign a free-trade agreement with the European Union. But Russia wants Ukraine for its own customs union, which already includes two other former Soviet republics. So earlier this year, in a clumsy effort to change its neighbour’s mind, the Kremlin banned Ukrainian sweets because they allegedly contained carcinogens, then imposed long, intrusive customs checks that slowed Ukrainian exports of steel, machinery and chemicals to a crawl.
The tiff has geopolitical undertones: Russia does not want Ukraine, with which it has deep cultural and political ties, to drift into the West’s sphere of influence. But it also points to a change in the world trading system. Russia joined the World Trade Organisation in 2012, but it is less interested in strengthening the multilateral trading system than in building its own regional trade block. Fyodor Lukyanov, editor of Russia in Global Affairs, a foreign-policy journal, notes that with America trying to conclude sweeping trade agreements with its neighbours in the Pacific Rim and with Europe, “the whole structure of world trade is changing towards a more fragmented system. That’s why Russia is trying to build something of its own.”
Free-traders in the West worry that the proliferation of regional trade agreements (RTAs) is gutting the multilateral trading system. Arvind Subramanian of the Peterson Institute for International Economics calls the rise of ever larger RTAs an “existential threat” and gives warning that “multilateral trade as we have known it will progressively become history.”
The debate about whether RTAs help or hurt the multilateral trading system has gone on for decades. Supporters argued that wherever two countries entered into an RTA, they would create incentives for others to join or to negotiate their own RTA. Trade barriers around the world would fall, one by one, and political support for multilateral deals would increase. Detractors claimed that once inside an RTA, countries would discriminate against outsiders and lose interest in multilateral liberalisation, undermining the authority of the WTO. They would divert as much trade as they created and introduce big distortions.
For most of the post-war period, the optimistic view prevailed as regional and multilateral liberalisation proceeded in tandem, albeit unevenly. The forerunner of the European Union was established in 1957, even as members of the General Agreement on Tariffs and Trade, the WTO’s predecessor, continued to cut tariffs. In the 1990s Bill Clinton signed the North American Free-Trade Agreement just as the Uruguay round of trade liberalisation was completed. In the early 2000s China joined the WTO and the EU expanded into eastern Europe.
In the past decade, though, RTAs have increasingly looked like an alternative, not a complement, to multilateralism. The Doha “development” round, which began in 2001, immediately ran into trouble as emerging markets chafed at the central bargain: big cuts in their industrial tariffs in exchange for more access to rich-world agricultural markets. Talks faltered in Cancun in 2003 and finally collapsed in Geneva in 2008. One negotiator recalls going to dinner that night convinced that a deal had been struck, only to learn the next day that it had failed.
As Doha began to founder, the appeal of RTAs grew. The number concluded rose from 104 in 1958-2001 to 154 since then. Many of these are tiddlers, but the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) have the potential to become mega-RTAs accounting for a huge share of global trade. TPP “wasn’t initially seen as the big alternative to WTO,” says Gary Hufbauer of the Peterson Institute, “but…the US position is, ‘If emerging market countries don’t want to play ball in the WTO, we have alternatives’.”
In need of protection?
The biggest obstacle to more multilateral trade deals is the changing balance of global economic power. Brazil, Russia, India and China (the BRICs) see themselves as countries still poor enough to need protection for their industries while the rich ones lower their own barriers, especially to agriculture. But the rich world increasingly views the BRICs as full-fledged economic competitors whose state capitalism is incompatible with a free and open global economy.
“For too long, much of the economic force and sacrifice in Geneva to produce global trade agreements has come at the expense of the US and EU,” says Ron Kirk, who was Mr Obama’s first trade negotiator. “We have been lectured over and over by our colleagues from the emerging markets that they have the economic heft and prestige to demand a seat at the table. And we agree.” But that, he says, means they too need to make sacrifices by opening up further to America and Europe.
These divisions became clear in the race to elect a new WTO director-general this year. The contest between Herminio Blanco, Mexico’s former trade minister, and Roberto Azevedo, Brazil’s ambassador to the WTO, became a referendum on Mexico’s liberal preferences versus Brazil’s protectionist stance. Rich countries backed Mr Blanco while emerging markets plumped for Mr Azevedo, the eventual victor. Mr Azevedo has stressed that he represents the interests of all members.
The emerging markets are not monolithic. They often want protection not just from rich countries but from each other, particularly China. Roberto Giannetti da Fonseca, an official with FIESP, Brazil’s largest industrial association, ran a trading company in the 1980s that sold Brazilian manufactured products to China. He struggled to find anything worth buying from China, often settling for arts and crafts. “I could not imagine that 20 years later they’d be invading Brazil with hundreds of products and we’d be crying that we cannot compete.” His organisation is a vocal critic of China’s mercantilist practices and has urged the Brazilian government to negotiate free-trade agreements with North America and Europe.
Trade liberalisation is now proceeding along two different tracks. One, preferred by America, goes “behind the border”, focusing on things such as harmonising safety, health and technical standards, currencies, national treatment of foreign investors, the protection of intellectual property, services such as telecommunications, and enforcement of labour and environmental protection. The other, preferred by China, concentrates on reducing tariffs—outside sensitive sectors.
America started on its track in 2007 when Democrats in Congress struck a deal with President George W. Bush that in future trade agreements, signatories’ adherence to environmental and labour standards would be subject to the same dispute-settlement rules as commercial disputes. Sandy Levin, a Democratic congressman who helped negotiate that deal, notes that people like himself who were intent on correcting market failures at home were also keen to use trade policy to do the same abroad. Their goal, he said, is “to shift the equation that has dominated discussions of trade as ‘free trade’ versus ‘protectionism’ to one of ‘free trade’ versus ‘free and fair trade’.”
In practice, this means America is most likely to strike deals with countries at a similar stage of economic development, such as the European Union and Japan, or with developing countries willing to meet rich-world standards in exchange for market access, such as Mexico and Chile. America’s comprehensive free-trade deal with South Korea is the model for the TPP.
China, by contrast, has pursued a variety of bilateral deals with its neighbours, mostly in the hope of persuading them “that it sought a peaceful rise as an emerging superpower”, says Chin Leng Lim, a trade-law expert at Hong Kong University. China’s free-trade agreements are numerous but shallow, often leaving out sensitive sectors and subjects. Its agreement with the Association of South-East Asian Nations, for example, allows signatories to classify 400-500 tariff categories as sensitive and thus eligible for slower tariff reduction.
Regional trade liberalisation is better than no liberalisation at all, yet it interferes with globalisation in several damaging ways. By excluding sensitive sectors or imposing onerous rules of origin, it complicates life for multinational companies whose supply chains cross multiple borders.
And even global agreements have their limitations. One of the most successful global trade pacts has been the Information-Technology Agreement (ITA), signed in 1996 under the WTO’s auspices to liberalise international trade in technology products. But it is becoming less useful as technological development creates new products that are not covered by it. For example, it includes computer monitors and gaming software but not televisions and game consoles. As flat-panel televisions increasingly double as computer monitors for users to go online, and as video games migrate from consoles and personal computers to hand-held devices, the ITA’s scope is narrowing. WTO members had been negotiating for a year to update the pact to include 256 extra products, many of which did not exist in 1996. But in July China asked for more than 100 of these products to be taken off the table, including audio and video products. In effect, that put a stop to progress on a new ITA.
The WTO is in part a victim of its own success. Thanks to earlier rounds of tariff reductions, further liberalisation offers progressively less economic benefit. Mr Hufbauer, Jeffrey Schott and Woan Foong Wong reckon that a comprehensive (and improbable) Doha deal would lift participants’ output by a mere 0.5%. The Uruguay round in the 1990s is thought to have produced a gain of 0.5-1.3%. Even the TPP will boost participants’ output by only 0.5%, much the same as Doha would, reckons one study by Peter Petri of Brandeis University and Michael Plummer of Johns Hopkins.
In theory, a successful TPP or TTIP could become a magnet for other countries, eventually achieving multilateral trade liberalisation by default. In practice that seems unlikely. China’s and Russia’s interventionism and attachment to state capitalism are difficult to reconcile with the “behind-the-border” liberalisation America and Europe are seeking. And having had no say in designing the pacts, China and Russia may be reluctant to join later.
The decline of multilateralism may not make much difference to big countries able to negotiate regional agreements on their own terms. Small countries without such leverage may be harder hit. But the marginalisation of the WTO as a deterrent to protectionism would hurt everyone. And increasingly such protectionism is taking on new forms that are hard to deal with.
From the print edition: Special report
Spain’s economy
The worst may be over
Mariano Rajoy predicts economic joy, but Spain still has a long way to go
Oct 12th 2013 | MADRID |From the print edition
THE Prado museum, lined with works by Goya, Velázquez and El Greco, is a sanctuary of peace in busy central Madrid. When the museum advertised for eleven gallery attendants recently, it also seemed the perfect refuge from Spain’s job-starved economy: 18,700 people applied.
As Spain timidly emerges from a blistering double-dip recession that has ripped 7% out of GDP over five years, job-seekers remain desperate. Unemployment is stuck at 26% and emigration is picking up. So will the recovery create jobs and send Spain into a virtuous cycle of increased domestic consumption, a higher tax take, healthy public finances and more jobs?
Presenting next year’s budget on September 30th, Cristobal Montoro, the budget minister, did not offer rapid relief. Projected growth of 0.7% next year falls short of the government’s own estimates for job creation. And with a planned deficit of 5.8% of GDP adding to an already worrying debt pile, stimulus spending is impossible.
Civil-service pay is being frozen for a fourth year in a row and pensions will not keep up with inflation, yet the public debt will still reach almost 100% of GDP. Spanish companies and households are busy trying to pay off their own debts. After taking a €41 billion ($55.6 billion) bail-out last year, Spain’s banks find it safer to lend to the government than to business.
Even so, Spain’s story is now one of hope. Mariano Rajoy, the prime minister, says the third quarter will show a return to growth. Deep in the real economy, exciting things are happening. Car plants are humming, taking work from less competitive factories in Europe. Retail sales figures are improving elsewhere. Even consumer credit has crept up in recent months. Recession inflicted a brutal cull on businesses, but those still standing are more efficient and productive than ever. Exports, spurred by Spain’s new competitiveness, should grow more than 5% both this year and next, doubling their pre-recession weight in the economy. With exports booming, the current account has swung into surplus.
Recovery in the European Union, Spain’s main export market, will help further. The stockmarket is soaring, with the Ibex-35 indicator gaining 11% in September. After a bruising 21 months in office, Mr Rajoy predicts economic happiness next year. His Popular Party (PP) has even seen a bounce in opinion polls.
But Javier Díaz-Giménez, of the IESE business school, warns that the recovery is anaemic, fragile and unlikely to create jobs. Average GDP growth of 1%, he points out, would not see Spain return to pre-recession levels until 2021. The IMF sees 25% unemployment through to 2018.
The danger, warns Angel Laborda of the Funcas think-tank, is relaxation. Already he worries that this year’s 6.5% deficit target will be missed. Overall fiscal pressure is relatively low for a country that wants a sophisticated welfare system. Structural reforms are still needed, he says, but Spain enters a two-year period of elections in 2014, sapping political courage. Overconfidence threatens to slow the fall in house prices, making it even harder to sell the 700,000 new homes left by the housing bubble that pitched Spain into recession. Fitch, a ratings agency, warns that at current rates of selling it will take six years to clear the overhang. Prices have fallen 30% or more from the peak, but Jesús Encinar of idealista.com, a property portal, sees a further 20% drop.
The next test for Mr Rajoy is pensions. A diet rich in olive oil, wine and fresh vegetables helps make Spaniards among the longest-living people in Europe. The baby-boomers will retire over the coming decade. By 2050, the number of pensioners will have leapt from just over 9m to 15m; and the social-security system already loses the equivalent of 1.4% of GDP. The previous government hiked the retirement age to 67, but that is not enough. “To claim that the current system is sustainable is like saying smoking does not cause cancer,” says Mr Díaz-Giménez. The government has made bold proposals to calculate pensions according to life expectancy and the size of the state pension pot. But Mr Rajoy is under pressure to backtrack. Even the employers’ federation has warned of pensioners’ lost spending power.
Labour reforms have helped to boost productivity, allowing employers and unions to opt for wage moderation rather than sackings. More may be needed if jobs are to be created. Lowering, or scrapping, the minimum wage might help. Taxes could also be cut, but only if public spending is cut. Luis de Guindos, the finance minister, says jobs will come when growth reaches 1%. Until then, the Prado museum remains a safe harbour.
From the print edition: Europe
Sincerely yours
Jiyoen Park
김은영
Thanks Emily
See you tomorrow.
Sophia
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김은영
Greetings all,
please find the topics and articles to be discussed.
Regards,
Sophia.
1st Topic
1. What drove the U.S. government to an out-and-out default on the nation’s debt?
2. After a deal to raise the debt ceiling dramatically struck on Oct. 17, what economic ramifications would be expected?
3. Are you in favor of or oppose Obama Care? And Why?
2nd topic
1. How can you interpret Mr. Li’s visit to Vietnam? A threat of China’s expansion in South East Asia or a rising balancing power in operation against American decline?
For your references:
2)http://www.nytimes.com/interactive/2012/05/31/world/asia/Territorial-Cla...
3)http://www.economist.com/node/21560585?ah=1b164dbd43b0cb27ba0d4c3b12a5e227&zid=306
The fiscal deal in Washington
Worse than Europe, really
None of the deeper problems with American government was solved this week
IMAGINE you are in a taxi and the driver suddenly turns violently and speeds towards a wall, tyres screeching, only to stop at the very last moment, inches from the bricks—and cheerfully informs you that he wants to do the same to you in three months time. Would you be grateful that he has not killed you? Or would you wonder why you chose his cab in the first place?
That is the journey Congress has taken the American people on over the past few weeks (see article). The last-minute deal to raise America’s debt ceiling, avoid a default and reopen the government at least until mid-January, which was signed by the president on October 16th, is welcome only compared with the immediate alternative.
For a long time American politicians have poured scorn on their European peers for failing to deal with the euro crisis. This week Washington equalled Brussels on one measure of dysfunctionality and surpassed it by another. The way in which the Democrats and Republicans, having failed to reach any agreement, decided to “kick the can down the road”, was deeply European. The deal allows the government to stay open till January 15th and the debt ceiling to be raised until February 7th. Just as America’s economy seems to be recovering, with the promise of GDP growing by 2.7% in 2014, it could face another shutdown of the kind that has just sent consumer confidence to a nine-month low and knocked back growth in the fourth quarter by an estimated 0.6 percentage points.
The way in which the Americans have surpassed the Europeans is the unreality of their discussion. The Europeans at least talk vaguely about banking unions and other solutions to their mess. In America the immediate budget deficit—at 3.4% of GDP—is smaller than that of many European countries. Indeed the danger is of too much tightening in the short term. But the country’s long-term fiscal problem is immense: it taxes like a small-government country but spends like a big-government one. Eventually demography—and the huge tribe of retiring baby-boomers who expect pensions and health care—will bankrupt the country. By the IMF’s calculation, if America is to reduce its debt to what it regards as a sensible level by 2030, allowing for all this age-related spending, it needs a “fiscal adjustment” of 11.7% of GDP—more than any other advanced country other than Japan. Yet the Republicans refuse to discuss tax rises, without which Barack Obama and the Democrats refuse to discuss cuts to entitlements: neither of those things had anything to do with the impasse of the past few weeks.
Aux armes, citoyens
And to what end? Politically, neither Mr Obama nor the Republicans has much to show for their combat: the president has not persuaded his rivals to get rid of the sequester, which continues to squeeze vital functions such as defence and research, while the Republicans have to keep paying for Obamacare, the health reforms they had hoped to kill in this process. It is the political equivalent of the Somme: great damage has been done, but barely any ground gained.
The bigger losers politically, though, are the Republicans. Their demand that the Democrats rescind the key parts of many of the laws that Mr Obama has passed over the past five years was the principal reason for a debacle that has embarrassed America. Americans have noticed: the proportion who view them favourably dropped to 28%, the lowest level for either party since Gallup started asking the question in 1992.
When the Republicans are a small government party, this newspaper has much sympathy for their views. As long as they remain the no-government one, it is not inclined to take a ride in their cab again.
Relations with South-East Asia
Being there
With the superpower otherwise engaged, China makes hay in South-East Asia
HUNDREDS of thousands lined the streets of Vietnam’s capital on October 13th as Li Keqiang, China’s prime minister, arrived for a three-day visit. They were not there for him, though. It was a state funeral for Vo Nguyen Giap, a legendary general, second only to Ho Chi Minh in Vietnam’s pantheon of national heroes. Indeed, many Vietnamese found the timing of Mr Li’s arrival rather offensive and thought that he should have postponed it to avoid intruding on their grief. “Disrespectful” and “arrogant” were two adjectives used. “Typical” was another.
Unperturbed, Mr Li (pictured above, left) was able to portray his meeting with his Vietnamese counterpart, Nguyen Tan Dung (above, right), as a “breakthrough”. It capped a fortnight of high-level Chinese diplomacy in South-East Asia, intended to repair ties frayed in recent years by China’s extensive and disputed territorial claims in the South China Sea.
Xi Jinping, China’s president and leader of the Communist Party, visited Indonesia, Malaysia and the summit of the Asia-Pacific Economic Co-operation forum (APEC). Mr Li attended a summit in Brunei with leaders of the ten-member Association of South-East Asian Nations (ASEAN) and went on to Thailand. That Barack Obama was due at both APEC and ASEAN, but withdrew because of the budget stand-off in Washington, gave the Chinese leaders’ tours even more prominence.
Vietnam is the ASEAN country where suspicion of China is strongest. After centuries of animosity and a brief, bloody war in 1979, a territorial dispute still simmers, the most extensive of the four China has with ASEAN members in the South China Sea (the others being Brunei, Malaysia and the Philippines). Not only do both China and Vietnam claim the Spratly Islands to the south, but Vietnam regards itself as having been illegitimately evicted from the Paracel islands to the north, when China seized them in 1974 from the dying regime of the former South Vietnam. Confrontations over fishing and oil and gas exploration are frequent.
Yet in June, during a visit to China by Vietnam’s president, Truong Tan Sang, the two countries signed a new “strategic partnership”. China is Vietnam’s largest trading partner—not even counting a flourishing illegal trade over the border—as it is for ASEAN as a whole. Mr Li’s breakthrough was to go further in parking the territorial dispute so that it does not get in the way of other business. He even agreed to a “maritime co-operation” work group.
In China, this helped smother unpleasant memories of 2010, when, at a meeting in Hanoi, Hillary Clinton, America’s secretary of state at the time, waded into the South China Sea dispute, declaring an American “national interest” in it. China blames American interference for emboldening Vietnam and the Philippines to stand up to it over the sea. Now China Daily, an official newspaper, has quoted a Chinese analyst: “Hanoi has already realised that it is unrealistic to count on Washington to give public support to its claims on some islands.”
That analysis is a stretch. But Mr Li’s tour, like Mr Xi’s, was a reminder of how big a regional power China has become, and of how absent Mr Obama was. Everywhere they displayed their economic clout. In Thailand, for example, Mr Li delighted the government by offering help in two areas of self-inflicted economic harm, by agreeing to buy more rice and rubber. Mr Xi had already floated the idea of a Chinese-led “Asian infrastructure bank” to help meet one of the region’s most pressing needs. In Brunei, Mr Li had earlier proposed a new treaty with ASEAN, to realise his vision of a “diamond decade” in its relations with China.
Not that alluring
If this was a charm offensive, however, one ASEAN country still gets the offence without the charm. China is incensed that the Philippines is challenging its ill-explained, expansive claim in the South China Sea at the international tribunal of the United Nations’ law of the sea. It suits China to try to isolate the Philippines. Vietnamese scholars, however, say their government is fully aware of this—and has not ruled out joining the Philippines’ legal action.
A few weeks of diplomatic activity have not changed the fundamental reality—that South-East Asia looks to China as its main trading partner and America as the prime guarantor of its security. They have, however, heightened a perception that power in the region is shifting. A commentary in the Jakarta Post, an English-language newspaper in Indonesia, argued bluntly that “it is China, not the United States, who is the leader of the Asia-Pacific region in the 21st century.” Pointing to Mr Obama’s no-show and the government shutdown, it concluded that his “much touted ‘pivot’ to Asia feels more like a pirouette with an overemphasis on military engagement.”
The Chinese press is happy to foster the impression of a power shift, taking the argument beyond South-East Asia. Its official news agency, Xinhua, published a commentary calling for a “de-Americanised world”. It argued that, with the possibility of a sovereign default by the superpower, “such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated.”
That notion attracts some sympathy in South-East Asia but few would want an American-led international order to give way to one dominated by China. Some Vietnamese officials thought the criticism of the timing of Mr Li’s visit to Hanoi was unfair. After all, he was there in time to offer condolences at a time of national grief. But it is not just in Vietnam that many are prepared to think the worst of Chinese motives.
RYAN SHIN
Hi all,
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박주하
I look forward to the discussion tomorrow!
Cheers!
Serena!
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