Pelosi’s trip to Taiwan could have major consequences for the global economy | Larry Elliot
RRelations between the United States and China were poor even before the Speaker of the House of Representatives’ visit to Taiwan. Now they have the potential to get really, really bad – with significant consequences for the global economy.
For the moment, things seem manageable. Financial markets reacted relatively calmly to Nancy Pelosi’s visit and the military drills Beijing ordered in response. The assumption is that China will put on a show of force and leave it at that.
However, its president, Xi Jinping, also has economic and financial weapons and can choose to use them. At the softer end of the spectrum, China could make it more difficult for American companies to enter its market. He will not be in a hurry, for example, to allow Boeing to resume sales of its 737 Max planes.
It would accelerate the decoupling of the world’s two largest economies – a trend that began when Donald Trump was in the White House and continued under Joe Biden. Hostility toward Beijing is one of the few things Republicans and Democrats agree on.
There is, however, the risk that China will go further and exploit Taiwan’s dependence on imported fuel by imposing a blockade on the island. As Mark Williams, chief Asia analyst at Capital Economics, notes, this would soon cripple Taiwanese industry and cause “huge global economic disruption.”
Indeed, the island manufactures about half of the world’s semiconductors, used in everything from cellphones to cars, and already in short supply. Restricting the export of chips would lead to supply bottlenecks, higher inflation and lower growth. Inevitably, there would also be pressure on the United States not only to impose economic sanctions and asset freezes, but also to intervene militarily.
Financial markets are likely underestimating the risks posed by Taiwan. At the very least, business confidence will take another hit. Chances of tit-for-tat trade restrictions have increased. There will be more pressure for national self-sufficiency to reduce reliance on global supply chains.
And that’s a relatively optimistic reading of events. There is clearly a risk – small but not negligible – that this increasingly tense Cold War will turn hot.
Oil prices appear to have fallen further
There was a time when Opec oil cartel meetings made headlines. When Sheikh Ahmed Yamani died last year, obituaries made a big deal of how, as Saudi oil minister, he was a central figure in determining the world price of crude.
But all that was a long time ago. OPEC is now OPEC+ thanks to the addition of a few new members, including Russia, but it no longer wields the influence in global energy markets that it had in the 1970s and 1980s.
Oil prices are now well below the levels they reached in the aftermath of Russia’s invasion of Ukraine and will likely continue to fall in the coming months. It has nothing to do with Wednesday’s absurd decision by OPEC+ to increase crude supply by 100,000 barrels per day and everything to do with global demand.
As the International Monetary Fund noted last week, the world’s three major economies – the United States, the euro zone and China – are at a standstill. Oil is trading at around $100 a barrel – a price consistent with strong global growth rather than the recession looming this winter.
Whether or not OPEC+ adds to the downward pressure by increasing production, oil prices are likely to fall further. This will be good news for British motorists, provided of course that lower costs are passed on to them by petrol retailers.
Why regional pay for public sector workers is a dumb idea
Setting up regional compensation commissions to match public sector workers’ pay to local labor market conditions is the kind of proposal Liz Truss might have dreamed up when she was cutting her political teeth as deputy director. of the centre-right think tank Reform.
Nothing wrong with that. Think tanks are there to come up with radical new proposals. Politicians, however, need to separate the good ideas from the silly, and regional compensation for public sector workers falls squarely into the latter category.
There are reasons for this. The first is that cutting public sector wages would reduce purchasing power in parts of the country that suffer from low levels of demand. Another is the need to entice the brightest and the best to accept jobs outside of London and the South East. The proposal is bad economics and bad politics, which runs counter to the government’s race to the top agenda. No wonder Truss dropped the idea within 24 hours of her announcement.