Trade War

Newsletter 27 - July 6, 2020

Welcome to newsletter 27, the latest edition of Trade War. As has been true a lot recently, the news of the week has been dominated by politics, much of it alarming. This time it was the passage of Hong Kong’s new National Security Law, seen by many as signaling the end of the territory’s special status as a bastion for civil liberties unavailable in the rest of China.

The law, which lists four broad categories of offenses including terrorism, subversion, separatism, and collusion, provides sentences that can extend to life in prison. The fact that each is poorly defined has many fearing what is illegal could encompass a whole range of activities until now considered acceptable, from meetings with representatives of foreign NGOs to even protesting outside government offices.

End of one country, two systems

The harsh law is widely seen as ending the “one country, two systems” that guaranteed Hong Kong a high degree of autonomy from China until 2047. “China rolled back the autonomy of Hong Kong’s governance that’s been in place since the city’s handover from British colonial rule,” write James Areddy and Chun Han Wong, reporters at the Wall Street Journal.

“The national-security law’s passage showed the Communist Party’s determination to constrain a Western style of governance that has made the city a center for commerce in East Asia.”

Takeover of Hong Kong

With its full text including roughly 10,000 characters and 66 articles, the law “fundamentally [alters] the legal landscape in Hong Kong,” writes the Wall Street Journal’s Chun Han Wong.

“Hong Kong police made their first arrests while enforcing the city’s extraordinary new national-security law hours after it took effect—even as legal experts scrambled to parse its full implications.”

Zurich, Bermuda, or Singapore

The law is seen as likely to hurt Hong Kong’s role as an important international financial center.

"A city that aspires to sit aside New York and London will end up looking increasingly like a Zurich, or Bermuda, or Singapore,” write David Fickling and Nisha Gopalan for Bloomberg Opinion. "Hong Kong's days as a capital of capital are fading.”

Strained relations

China has succeeded in straining relations with twelve of the top twenty countries and regions to which it exports, including the U.S., Japan, South Korea, Vietnam, India, the United Kingdom, Taiwan, Australia, and Canada.

This reality is a potential obstacle to its future economic growth, warns market commentator Neil Kimberley in an opinion piece in the South China Morning Post. “On a country-by-country basis, it could plausibly be argued that other nations need China more than China needs them, but collectively that argument is harder to make,” he writes.

Energy purchases as the biggest casualty of ‘phase one’

While China struggles to meet the agricultural purchase promises of the “phase one” trade deal, even more difficult will be the energy targets.

“Economic fallout from the coronavirus pandemic has cast doubt on whether China can meet its targets to buy U.S. goods under this year’s trade deal—with energy emerging as the biggest casualty,” reports Josh Zumbrun in the Wall Street Journal.

“China has made strides toward its agricultural and manufacturing targets, but it remains far behind—maybe hopelessly far—an ambitious target for purchases of oil, natural gas, refined petroleum products like propane and butane, and coal.”

43 percent factories considering relocation

A manufacturing survey reveals how hard the COVID-19-induced global economic downturn is hitting China’s export sector.

The annual Standard Chartered Bank survey finds that 43 percent of factories in China’s Greater Bay Area, comprising Hong Kong, Macau, and nine Guangdong cities, are actively considering relocating out of China, reports He Huifeng in the South China Morning Post.

BEST case scenario?

Meanwhile, San Francisco Federal Reserve Bank President Mary Daly says that in the best-case scenario, the recovery of the U.S. economy will take four to five years, writes Reuters reporter Heather Long. “If we end up with a pervasive long-lasting hit to the economy, then it could take longer,” the Fed official says.

Separate offensive by Huawei

A fascinating piece looks at the demise of Nortel, once Canada’s hope for a global telecom leader, and examines both the role of a massive still unsolved hack, along with its failure to keep competing with China’s fast-rising Huawei.

“The Nortel hack coincided with a separate offensive by Huawei. This one was totally legal and arguably even more damaging,” writes Natalie Obiko Pearson in Bloomberg Businessweek.

“While Nortel struggled, Huawei thrived thanks to its unique structure—it was privately held, enjoyed generous credit lines from state-owned banks, and had an ability to absorb losses for years before making money on its products. It poached Nortel’s biggest customers and, eventually, hired away the researchers who would give it the lead in 5G networks.”

Notable/In Depth

How containers revolutionized global trade, from the Peterson Institute’s Trade Talks Podcast.

“The almost instantaneous translation and pirating of Hamilton & its very warm reception on Chinese internet this 4th of July feels somehow both very Chinese AND American,” tweets Jiayang Fan, staff writer at The New Yorker.

Informative short video explaining our recent toilet paper shortages.

Book events

Video from my recent book talk on The Myth of Chinese Capitalism at The George Washington University Sigur Center for Asian Studies.

And more upcoming book talks you can consider checking out, the first happening via The Royal Asiatic Society of Beijing (members only) on Wednesday July 8, details below and in this link.

And a second happening a day later on Thursday, via Mumbai’s Gateway House: Indian Council on Global Relations. Register in the link.

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