Archive for the ‘Globalization & International Trade’ Category

The emerging economies cannot blame all their woes on the rest of the world

Fifteen years ago this month, Thailand at last allowed its currency, the baht, to fall against the dollar, abandoning a long, losing battle with market forces. “I haven’t slept for two months,” said the governor of the central bank on the day of the devaluation. “I think that tonight I’ll be able to sleep at last.” What followed was a five-year nightmare for emerging markets, as the financial crisis spread to Thailand’s neighbours, then to Russia and Brazil, before eventually claiming Argentina and Uruguay in July 2002.

After the tossing and turning of 1997-2002, the next decade went like a dream. In 2003 China resumed double-digit growth; India’s economy expanded by 8%, a feat it would surpass in four of the next six years; Brazil’s new president, Luiz Inácio Lula da Silva, appeased the IMF and the bond markets by cutting public debt and achieving the first of five annual current-account surpluses. Goldman Sachs released the first of its 2050 projections (“Dreaming with the BRICs”, its catchy acronym for Brazil, Russia, India and China), suggesting that the big emerging economies would eventually inherit the Earth.

The crisis-hit countries emerged from devaluation, default and distress with low expectations, cheap and flexible currencies, scope to borrow and room to grow. Global capital markets welcomed them back, buying their equities and their bonds, even when denominated in their own currencies. The popular emerging-markets stockmarket index compiled by MSCI rose by over 350% from the end of 2002 to its peak in October 2007.

Rather than spend these capital inflows, emerging economies recycled them. They amassed foreign-exchange reserves as a guarantee against ever again succumbing to a currency crisis or the ministrations of the IMF. Some have even begun to help fund the fight against crises elsewhere. On July 10th Indonesia’s central bank confirmed it would buy $1 billion of the IMF’s notes, a poignant reversal of roles.

But after a dream decade, something is amiss. China is now struggling to grow as fast as 8% (its GDP expanded by 7.6% in the year to the second quarter). India, a country that once aspired to double-digit growth, can now only dream of ridding itself of double-digit inflation. None of the biggest emerging economies stands on the edge of a dramatic financial precipice, like their counterparts in the euro area, or a fiscal cliff, like America’s. But their economic prospects have nonetheless started to head downhill. Read more…

As published in www.economist.com on July 21, 2012 (from the print edition).

As the balance of world power shifts, the US is developing a novel range of diplomatic, social, economic, political and security tools to fix the world’s complex new geopolitical problems.

By Hillary Clinton, US Secretary of State

I touched down in Beijing in May for the fourth round of the US-China Strategic and Economic Dialogue with a jam-packed agenda, but the world’s attention was focused instead on the fate of a blind human rights dissident who had sought refuge in the American embassy. Suddenly, an already delicate trip had become an outsized test of the US-China relationship.

Throughout history, the rise of new powers usually has played out in zero-sum terms. So it is not surprising that the emergence of countries such as China, India and Brazil has raised questions about the future of the global order that the United States, the United Kingdom and our allies have helped build and defend. Against this backdrop, those few days in May took on even greater significance: could the US and China write a new answer to the old question of what happens when an established power and rising power meet?

When I became secretary of state in early 2009, there were questions about the future of America’s global leadership. We faced two long and expensive wars, an economy in free fall, fraying alliances and an international system that seemed to be buckling under the weight of new threats.

A lot has changed in three years. Under President Obama’s leadership, the US has ended the war in Iraq and begun a transition in Afghanistan; we have revitalised American diplomacy, strengthened our alliances and re-engaged with multilateral institutions. And while the economic recovery is not as strong as anyone would like, we have pulled back from the brink and are heading in the right direction.

New powers are playing a greater role on the world stage. But this is not 1912, when friction between a declining Britain and a rising Germany set the stage for global conflict. It is 2012, and a strong America is working with new powers and partners to update an international system designed to prevent global conflict and promote global prosperity. Read more…

As published in www.newstatesman.com on July 18, 2012.

By Joseph S. Nye

When President Richard Nixon proclaimed in the early 1970’s that he wanted to secure national energy independence, the United States imported a quarter of its oil. By the decade’s end, after an Arab oil embargo and the Iranian Revolution, domestic production was in decline, Americans were importing half their petroleum needs at 15 times the price, and it was widely believed that the country was running out of natural gas.

Energy shocks contributed to a lethal combination of stagnant economic growth and inflation, and every US president since Nixon likewise has proclaimed energy independence as a goal. But few people took those promises seriously.

Today, energy experts no longer scoff. By the end of this decade, according to the US Energy Information Administration, nearly half of the crude oil that America consumes will be produced at home, while 82% will come from the US side of the Atlantic. Philip Verleger, a respected energy analyst, argues that, by 2023, the 50th anniversary of Nixon’s “Project Independence,” the US will be energy independent in the sense that it will export more energy than it imports.

Verleger argues that energy independence “could make this the New American Century by creating an economic environment where the United States enjoys access to energy supplies at much lower cost than other parts of the world.” Already, Europeans and Asians pay 4-6 times more for their natural gas than Americans do.

What happened? The technology of horizontal drilling and hydraulic fracturing, by which shale and other tight rock formations at great depths are bombarded with water and chemicals, has released major new supplies of both natural gas and oil. America’s shale-gas industry grew by 45% annually from 2005 to 2010, and the share of shale gas in America’s overall gas production grew from 4% to 24%.

The US is estimated to have enough gas to sustain its current rate of production for more than a century. While many other countries also have considerable shale-gas potential, problems abound, including water scarcity in China, investment security in Argentina, and environmental restrictions in several European countries. Read more…

Joseph S. Nye, a former US assistant secretary of defense and chairman of the US National Intelligence Council, is a professor at Harvard University and one of the world’s foremost scholars of international relations. He co-founded the important liberal institutionalist approach to international relations, and introduced the idea that states and other international actors possess more or less “soft power.”

As published in www.project-syndicate.org on July 11, 2012.

There are many commonly held beliefs in international relations. But that doesn’t make them true. Here is OpenCanada’s list of the top seven myths of foreign policy.

A United Europe

The dream of a unified Europe is not a new one. Way back in 1871, Victor Hugo was already talking about a “United States of Europe.” Almost a century later (albeit, an extremely bloody century), the Treaty of Rome established the European Economic Community, the precursor to the European Union.

And how does the European project fare today? Not so well, according to just about every headline on the subject. But the eurozone crisis goes much deeper than economic turmoil, saysBrussels-based journalist Gareth Harding. It exposes the myth at the heart of the European dream – that Europeans could ever be Europeans first and Germans, French, Belgians, etc., second.

“The European Union has constructed common institutions, laws, and even a currency. It has created all the symbols of a nation-state … What it lacks is a people who share a common culture, language, or narrative – or at the very least are able to identify with the political construct that has been created in their name,” says Harding.

The European motto is “United in Diversity.” But if the Germans don’t trust the Greeks, and the Brits don’t trust the Spanish, and the Dutch don’t trust the Romanians, and nobody trusts Brussels, can you have real unity?

The U.S. is Exceptional

In the opening scene of his new television show, The Newsroom, Aaron Sorkin’s great white protagonist is asked why he thinks the U.S. is the greatest country in the world. He responds by listing all of the ways that the U.S. is not great – “We’re 7th in literacy, 22nd in science, 49th in life expectancy …” – before lamenting that the U.S. used to be great, back when it stood up for what was right. So it goes in the U.S., where even sharp critics of American greatness can’t entirely cut the cord to the idea of American exceptionalism.

When U.S. President Barack Obama said, “I believe in American exceptionalism, just as I suspect that the Brits believe in British exceptionalism and the Greeks believe in Greek exceptionalism,” he sparked a political controversy. In a more recent speech, Obama was decidedly less relativist, saying, “The United States has been, and will always be, the one indispensable nation in world affairs.” Read more…

As published in www.opencanada.org on July 12, 2012.

Sinopec is one of the few Chinese firms that has capital, operations and sales on a global scale.

 

Following the Chinese government’s mandate that companies should “go out” (走出去) or “go global” (走向世界), many observers anticipate that Chinese multinational corporations (MNCs) will secure a growing share of the international consumer market around the world. This may eventually occur, but for the time being China’s multinational corporations remain a very long way from playing in the premier leagues of international commerce.

How many Chinese corporations can you name? Most likely fewer than 10, or even five. We are all familiar with Tsingtao beer, Air China, Bank of China and Lenovo computers—and some may know names like Huawei Technologies, Haier appliances or China Mobile. But not a single one of these firms made the 2011 ‘Top 100 Global Brands’ list compiled annually by BusinessWeek and Interbrand. The global brand presence of China’s best-known multinationals is nowhere near the likes of Coca-Cola, GE, Intel, McDonald’s, Google, Disney, Honda, Sony, Volkswagen and similar global giants.

Yet when measured in terms of total revenue, it is clear that Chinese companies have steadily climbed up the global rankings. Twelve Chinese companies were included in Fortune’s Global 500 list in 2001. And only a decade later, in 2011, that number rose to 61 (including four with headquarters in Hong Kong). China now ranks third on the global list, only slightly behind Japan but well behind American firms. In 2010 these 61 Chinese enterprises had a combined annual revenue of US$2.89 trillion and an estimated overall profit of US$176.1 billion. Of the 57 mainland companies, 49 are state-owned enterprises (SOEs).

While ranking on the Fortune Global 500 list indicates the growing clout of Chinese corporations, it does not mean that a company is internationally active or even that it is a real multinational. When these companies are ranked by foreign assets and sales, it becomes clear that, with few exceptions, they all operate predominantly within China. In other words, despite the government’s directives and financial incentives to ‘go global’, many leading Chinese corporations have yet to do so.

So why have Chinese multinational corporations encountered difficulties in going global? Ten possible factors may explain it. Read more…

David Shambaugh is a nonresident senior fellow in the Foreign Policy Program and the Center for Northeast Asian Policy Studies (CNAPS) at the Brookings Institution. He is also a professor of political science and international affairs at the George Washington University in Washington DC.