What We're Reading:
What We're Reading:
Putin's war machine may be giving his economy a quiet boost. Defense production may be helping offset drops in other industries, economists say. (Bloomberg)
US Senate panel advances bill to bolster security assistance to Taiwan. The Senate Foreign Relations Committee approved a bill to bolster U.S. security assistance to Taiwan, authorizing $6.5 billion over the next five years. (CNN)
Typhoon Muifa wreaks havoc in China after summer of records. Typhoon Muifa made landfall in eastern China last week, shortly after affecting Japan in previous days, arriving as a Category 2 storm and billed as the strongest on record to hit Shanghai, China’s largest city. (The Guardian)
EU is assessing if US Inflation Act in breach of WTO rules. The European Union is checking whether protectionist elements of a $437 billion health, climate and tax law recently passed by the U.S. are in violation of World Trade Organization rules, according to Trade Commissioner Valdis Dombrovskis. (Bloomberg)
Warming, other factors worsened Pakistan floods, study finds. Climate change likely juiced rainfall by up to 50% late last month in two southern Pakistan provinces, but global warming wasn’t the biggest cause of the country’s catastrophic flooding that has killed more than 1,500 people, a new scientific analysis finds. (AP News)
EU weighs next steps in dispute with UK over N. Ireland trade. The European Commission said on Thursday it would consider its next steps—which could include taking Britain to the European Court of Justice—after the British government responded to its legal challenges over post-Brexit trade for Northern Ireland. (Reuters)
'Cooling off' period to avert shutdown as US rail deal heads for vote. U.S. railway parties have agreed to a cooling off period as standard part of the ratification process after reaching a tentative deal overnight, a move that would avert any shutdown in case unions fail to ratify it. (Reuters)
US enlists Mexico to find incentives to attract chipmakers. The U.S. has asked Mexico to find ways of offering incentives to bring chip-makers to North America, as both nations try to lure companies that are crucial to the world’s electronics. (Bloomberg)
The sky-high cost of returning to the office. After two years of remote work, spending a day in the office can be a shock to the wallet—and rising costs are making it worse. (BBC)
William Ruto: New Kenya president’s bold move to scrap subsidies. While leaders around the world are introducing subsidies to protect people from the rising cost of living, in his first major policy announcement, Kenya's President William Ruto has surprised the nation by scrapping a subsidy on petrol which has increased the retail price to an all-time high. (BBC)
Lumber prices fall as US mortgage rates top 6% for the first time in 14 years. Lumber prices fell last week as U.S. mortgage rates hit the highest level in 14 years, pulling back from an earlier rally amid fears of a possible rail strike. (Business Insider)
UN board calls on Russia to leave Ukraine nuclear plant. The U.N. atomic agency’s 35-nation Board of Governors passed a resolution calling on Moscow to immediately end its occupation of a Ukrainian nuclear power plant, where shelling of the facility and nearby areas in recent weeks heightened fears of a possible radiation disaster. (AP News)
How Will Prime Minister Liz Truss Handle Europe?
Jill Rutter, senior research fellow, UK in a Changing Europe
RUTTER: The biggest source of tension between the EU and the U.K. is the Northern Ireland protocol, which has not been resolved. When she first took over as the U.K.’s foreign secretary in December, Liz Truss made much of the fact she was going to try to have a constructive relationship with the EU and launched what was then termed a charm offensive with her EU opposite number Maroš Šefčovič.
But that charm offensive didn’t last very long. And by February this year, she had become a big supporter of the Northern Ireland Protocol Bill, a piece of legislation designed to give the U.K. government unilateral powers to override lots of the withdrawal agreement about the trading relationships between Great Britain. She got Attorney General Suella Braverman to produce an opinion that said this wasn’t breaking international law because the U.K. could justify taking this extreme action by invoking an international law known as the doctrine of necessity, claiming that there was an imminent peril to the U.K.’s interest that justified it taking powers to override its treaty obligations.
BRINK: Do you think that now that she is prime minister, she will moderate her anti-EU tone?
RUTTER: When she was asked in the leadership election campaign to list her achievements, she said one of her big achievements was the Northern Ireland Protocol Bill, even though it hadn’t achieved any of its objectives, it hadn’t sorted out Northern Ireland trading arrangements, hadn’t forced the EU to move in any significant way nor had it restored government in Northern Ireland.
All the indications we have so far are that she will stick with the course that she set herself as foreign secretary—though she still maintains that her preference is to achieve a negotiated settlement with the EU. In the leadership campaign, she very much became the candidate of the hardline Brexiters in the conservative party, the European Research Group. She wasn’t their first choice, but when their first choice Suella Braverman was eliminated from the contest, most of them rallied behind Liz Truss. So, she’s quite dependent on that hardline Brexit faction for her election.
It’s not clear exactly where her instincts are, but she certainly doesn’t have any reservations about playing to the euroskeptic crowd. In her inaugural speech as she took over the prime ministership on Downing Street, she didn’t mention anything about Northern Ireland and trying to improve relations with the EU. That said, there are some thoughts that the prime minister might use the window of her arrival to reset the relationship. But whether she could take her new team at the Northern Ireland office—where she has appointed two leading members of the very euroskeptic European Research Group as ministers, is an open question if she decided to compromise.
When Rishi Sunak, whom she beat in the leadership contest, was chancellor, he expressed reservations about risking a trade war with the EU at a time when the economy was so precarious. But he is not in Liz Truss’s cabinet and hardly any of Sunak’s supporters are in her cabinet either. She really appointed people who supported her in the leadership campaign. So, it’s not all clear there’ll be any restraining voices. And one of the things to remember is that there were times when Liz Truss was being quite aggressive with the EU as foreign secretary and had to be reined in by Boris Johnson as prime minister. Obviously, as prime minister, she doesn’t have people to rein her in in that way.
A Deregulation Agenda
BRINK: One of her key planks is this idea of making the U.K. a high-growth economy. Do you think that this is a realistic path to pursue in light of all these crises that she’s facing?
RUTTER: She wants to do two things as part of her growth agenda. She wants to lower taxes, but in the short-run, though, as part of her energy bailout package, she’s going to have to massively increase government borrowing and potentially, therefore, get the Bank of England to put up interest rates a bit further, and that’s going to add to public spending. So, her low-tax agenda looks quite difficult to deliver.
The other part of this is to pursue deregulation. Liz Truss mentioned freedom a lot in her speech on the steps of Downing Street. And she has been part of a group of conservatives who do want to deregulate. The problem, of course, if you want to deregulate very substantially is the need to get that through Parliament. And it’s far from clear if she can do that. She’s got quite a lot of people who didn’t vote for her among the MPs. Quite a lot of the Boris Johnson electoral coalition would have a lot of reservations about things like reducing workers’ rights since a lot of people are in precarious labor.
So, I think she might find it very difficult to get a big, really significant deregulatory agenda through. Moreover, deregulation wasn’t a big feature of the 2019 conservative manifesto. And if something wasn’t in an election manifesto, then the House of Lords is usually much more willing to cut up rough about it and resist it.
BRINK: And she really hasn’t got long to do all this because they have to hold an election in two years.
RUTTER: We were looking at the last possible date, which is in January 2025. So, she has a bit over two years. Until Boris Johnson held an election in December, we always assumed that you didn’t want to have winter elections in the U.K. because it was thought people wouldn’t like to go out to vote or campaign in a U.K. winter. But Boris Johnson had an election in mid-winter in December and won. So that rule might have changed and she might try to play it very, very long.
But I think one of the real risks for Liz Truss is, does she even make it to an election? There are quite a lot of people sitting around saying, “We’ll see how she does,” “We could always have another vote of no confidence.” And they know that they have Boris Johnson sitting there saying, “You have a proven election winner here, and you shouldn’t have drummed me out of office in the first place.”
Reprinted with permission; Brink News.
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Russia and China Strengthen Economic Partnership
Jamilex Gotay, editorial associate
Western governments took a mostly united stance against Russia following its invasion of Ukraine, issuing sanctions against the country in hopes of dealing a serious economic blow and weakening its global influence. But while a wedge was driven in between Russia and most other countries, the relationship between China and Russia has grown closer—striking fear of a possible alliance.
“While China has not provided Russia with direct support or relief from sanctions, it has extended its trade partnership with a Russian economy struggling to find international partners,” reads an article from FOX Business News. “China has also been a dependable consumer of Russian fuel, buying up liquefied natural gas (LNG) at a steep discount from Russia. The arrangement has benefited both countries, giving Russia a buyer for its energy resources while China has used the windfall to sell energy sources at a markup to a European economy that has found itself short of resources amid sanctions against Russia.”
Russia and China are building a $55 billion pipeline, the Power of Siberia, to deliver gas from Siberia to Shanghai. “This is a major development of strategic importance as Putin is pivoting to Asia in a big way,” Rebekah Koffler, a former DIA intelligence officer and the author of Putin’s Playbook: Russia’s Secret Plan to Defeat America, told Fox News Digital. “The Kremlin has concluded that Russia-U.S. relations are irreplaceable and that the U.S. and Western sanctions are here to stay indefinitely.”
A top Chinese official said his country hopes to create a new international order with Russia that will rival western influence. Chinese President Xi Jinping met with Russian President Vladimir Putin face to face in Uzbekistan late last week for the first time since the war in Ukraine started. “Xi has a fine line to tread. If he leans too much into helping Russia, he risks exposing China to Western sanctions and diplomatic blowback that would harm its own interests,” reads an article from CNN. “The backlash would also come at a sensitive time for Xi, who is only weeks away from seeking a norm-breaking third term at the 20th Party Congress.”
Russia and China are forging much closer economic ties through record trade, strengthening the Yuan and Chinese companies taking advantage of the “exodus of Western brands from Russia,” per CNN. Russia and China have teamed up to send money transfers to China in yuan without using the SWIFT messaging system. This helps Russia bypass international sanctions and works toward the Chinese goal of devaluing the influence of the U.S. dollar.
“This is yet another example of the growing Russia-China strategic partnership," Koffler told Fox News Digital. “By launching the yuan-based transactions with China, Russia is playing into Beijing’s goal of replacing the U.S. dollar as the dominant international currency and medium of exchange by 2049.”
Risk of UK Recession on the Rise
Kendall Payton, editorial associate
The current energy crisis and high inflation in the U.K. has further alarmed economists about the country’s already fragile economy. Between waning gas supply from Russia to Europe and the death of Queen Elizabeth II, the U.K. could be in for a deep economic downturn.
“Looking ahead, the extra public holiday for the queen's funeral on 19 September has the potential to be more damaging for the economy than the extra day off for the Jubilee in June,” Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics, told Yahoo! Finance News.
The British pound slumped to a 37-year low last week as inflation squeezes cash availability. The currency fell below $1.14, the lowest since 1985, according to CNN. “I think the UK is in recession already,” said Michael Hewson, chief market analyst at CMC Markets U.K.
U.K. GDP weakened in Q2 by 0.1%, largely due to the extra celebrations for the Queen’s Platinum jubilee. “Since GDP suffered a minor contraction in Q2, this would imply that the economy is in a recession, albeit largely influenced by additional public holidays,” Philip Shaw, chief economist at Investec, told MarketWatch. “While this is not our baseline case, we would not rule this out, especially if the subdued mood of the nation results in a dip in spending across the period of mourning.”
Business closures and canceled sporting events is likely to further impact consumer spending. Economists also predict the funeral bank holiday to hit September GDP by 0.2%—potentially more damaging to the economy than the extra day off for the Jubilee in June, according to an article in Yahoo Finance News.
The Bank of England postponed a decision on interest rates following the death of the Queen. The Bank is now expected to announce a decision on Sept. 22. Economists predict the Central Bank to raise rates to 2.25%, the highest level since December 2008, according to BBC News. Last month, interest rates were raised by the highest margin in 27 years.
Consumer prices are at the highest in 40 years, with a 10.1% year-over-year increase in July. The new Prime Minister Liz Truss has ensured a plan to provide billions to help households combat high energy costs for two years—capping a household energy bill at £2,500. Analysts said Truss’s plan could cost up to £150bn, but she believes “extraordinary times call for extraordinary measures,” per BBC News.
Week in Review Editorial Team:
Annacaroline Caruso, editor in chief
Jamilex Gotay, editorial associate
Kendall Payton, editorial associate