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US and EU may struggle to unite on how to tackle China

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Hello from Washington, where the big news is that Bill Barr, US attorney-general and close ally of Donald Trump, has declared that he has not seen evidence of voter fraud that would affect the outcome of the presidential election.

Meanwhile, we’re still on the lookout for the next US Trade Representative. President-elect Joe Biden has already announced a string of nominations for top economic posts. He wants former Federal Reserve chair Janet Yellen as Treasury secretary. Wally Adeyemo, the president of the Obama Foundation and a former international economic official, is in line to become Yellen’s deputy. Neera Tanden, a former senior aide to Hillary Clinton, will be budget director.

With all that going on, today’s main piece asks whether China can be the unifying force for Europe and the US. Our person in the news is Australia’s trade minister Simon Birmingham.

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The devil is in the detail of any US-EU pact on China

Nothing brings warring parties together like a good villain. Diplomats, particularly American and European diplomats, know this. “If you bicker about certain things, let’s bring in China, or Russia, or whatever bad guys there are,” one told us recently.

Which is exactly what Europe is trying to do with the incoming Biden administration. There’s been talk of the importance of increasing co-operation on China policy from both European capitals and the Biden team for some time now, and the latest iteration of that is the European Commission’s flashy new plan to repair ties with Washington. (The transatlantic relationship, the commission says delicately in the document, is in need of some “maintenance and renewal”).

It’s certainly worth Europe pushing on the White House’s soon-to-be-ajar door. There are clearly areas where the US and Europe can co-operate. Competition from China is a major problem that both sides have. The Biden campaign has said it wants to strengthen co-ordination on screening foreign investments and improve the sharing of intelligence on commercial threats. Parties on both sides of the Atlantic also think there is more to be done to protect emerging technologies with national security implications.

But when it comes to trade policy there is only so far appealing to the sweepier ideas can take you. It’s like when politicians say they like liberty, but then come up with wildly different ideas on what it means and how to achieve it.

For all the talk of co-operation, there may well be some messiness when it comes to the fine print. So where will this messiness emerge?  

For starters, we suspect on tariffs. The US and Europe both want to pressure China into reforming the less capitalist aspects of its economy. But Brussels may not share Washington’s approach of going about it. It’s still unclear exactly what Biden might do here, but Democratic trade folk have talked up the need for Europe to be tougher on China, especially over aluminium and steel overcapacity and dumping. Washington could, therefore, ask Europe to impose more tariffs on Chinese steel and aluminium in return for a removal or weakening of American tariffs on European steel and aluminium. This was a suggested and discarded policy within the Trump White House, and could well be picked up by Biden. Many European states, meanwhile, will want to shy away from too much confrontation with Beijing, a big export partner for countries such as Germany. Nor will anyone want to be seen to be pushed about by Washington.

Another big problem facing both sides is that of the leadership and functioning of the World Trade Organization. If Washington and Brussels want to get serious about curbing China’s more anti-competitive economic practices, then they will need to fix the WTO. The Trump administration has argued that the Geneva-based body is not tough enough on China, but to toughen it up the WTO needs to have a director-general and a working dispute-settlement mechanism. The Biden team, however, has yet to commit to joining with consensus and backing Nigeria’s Ngozi Okonjo-Iweala to take the top job. Democrats on Capitol Hill all seem to think the new administration should take its time and do its own research on the candidates. The European assumption that Biden will sweep in and simply reverse the hold and let everyone move on might, therefore, not be correct. After that, there will need to be a solution on the appellate body, which remains hobbled and broken. 

Then, there’s the yawning gap China has exploited in the decades-long Airbus/Boeing dispute. While the US and Europe have been busy squabbling over subsidies and issuing tariffs and counter tariffs against cheese, wine, whiskey and everything in between, China has developed its own aircraft manufacturing capabilities through the state-owned Commercial Aircraft Corporation. If the US and Europe really want to contain China, ending this dispute between them and moving on is key.

And finally, as we covered last week, there are digital services taxes. This issue is not explicitly to do with China, but is likely to be the premier squabble between the US and Europe over the next few years. And like Airbus/Boeing, it might well distract diplomats and negotiators from their determination to maintain a good relationship.

It makes sense for Europe and the US to collaborate more when trying to come up with a China policy. But the details are tricky and the existing disputes thorny. Bringing in the bad guys might only get Brussels and Washington so far this time around. 

Charted waters

How much damage has the Trump presidency done to trade between China and the US? For all the headlines and rhetoric, it turns out not that much. This chart, based on data from the IMF’s Direction of Trade Statistics, shows that the worsening of relations between the world’s two mightiest economic superpowers has led to falls in the proportion of US imports originating in China and vice versa. The fall has been far from dramatic, however.

Line chart showing the Trump presidency led to some modest trade decoupling between the US and China

Person in the news

Simon Birmingham has suggested that Australia is ready to take a complaint against China to the WTO © Sam Mooy/Getty

Sino-Australian relations have worsened markedly in recent weeks to the point where Simon Birmingham, Australian trade minister, has suggested that Australia is ready to take a complaint against China to the WTO. This comes after Beijing imposed steep tariffs on Australian wine imports. The two sides are embroiled in an escalating trade war, with barley, beef and seafood all targeted by China.

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Emerging Markets

Regulators close ranks on crypto

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Regulators are continuing to step up their scrutiny of cryptocurrencies, with central banks and South Korea’s tax authorities demonstrating fresh concerns.

In a report published on Wednesday, the Bank for International Settlements, the global body for central banks, argues that digital tokens such as bitcoin have few redeeming features and “work against the public good”. It also dismissed stablecoins — a link between crypto and conventional assets — as an “appendage” to traditional money.

Perhaps unsurprisingly, the BIS did endorse the development of digital currencies backed by central banks, saying they could be a tool to achieve greater financial inclusion and lower the high costs of payments. “Central bank digital currencies . . . offer in digital form the unique advantages of central bank money: settlement finality, liquidity and integrity,” it said.

In contrast, bitcoin wasted energy and cryptocurrencies were “speculative assets rather than money, and in many cases are used to facilitate money laundering, ransomware attacks and other financial crimes”.

South Korea has acted against the financial crime of tax evasion, with more than Won53bn ($47m) of bitcoin, ethereum and other cryptoassets confiscated from 12,000 people. Officials said it was the largest “cryptocurrency seizure for back taxes in Korean history” and noted that local exchanges had allegedly been used to conceal assets because they did not collect the resident registration numbers of account holders. Many of South Korea’s 60 crypto exchanges are battling to meet regulatory conditions to operate beyond September.

This week’s #techAsia newsletter asks whether the death knell is being sounded for cryptocurrencies. That could be the case in China, where it is scaling up tests of its official digital renminbi, and appears serious about stamping out the crypto industry on its soil. Bitcoin fell below $30,000 on Tuesday following the latest regulatory crackdown, but it has recovered to be worth more than $34,000 today.

The Internet of (Five) Things

1. Migrant workers locked up in Taiwan
With Taiwan under pressure to increase manufacturing output to ease global shortages, particularly of semiconductors, electronics groups including Japan’s Canon and Innolux, an affiliate of Apple supplier Foxconn, have been accused of locking up migrant workers amid an outbreak of Covid-19. Some companies have forbidden migrant workers from leaving the dormitories where they live except to go to work.

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2. SoftBank not a ‘one-man show’, says Son
Masayoshi Son has told shareholders that SoftBank will not prioritise short-term trading gains as the company behind the world’s most aggressive technology fund was grilled over governance failures after the collapses of Greensill and Katerra. At its annual shareholder meeting, the 63-year-old billionaire founder defended the Japanese conglomerate’s governance structure, saying the board was not “Masayoshi Son’s one-man show”.

3. Toshiba’s ’dark arts’ and dirty tricks
Today’s Big Read sets the stage for Japan’s most contentious annual shareholder meeting in decades. At its centre is the fate of Osamu Nagayama, the widely respected chair of Toshiba who faces being swept away by a mass shareholder revolt that could — in a single vote on Friday — sack the entire board of one of Japan’s most famous industrial names.

4. ‘Amazon effect’ hits US wages
Companies struggling to find workers as the US economy reopens have blamed higher unemployment benefits, limited immigration, childcare challenges . . . and Amazon. The ecommerce leader recruited aggressively last year, hiring 500,000 people worldwide, while in the US, it paid at least $15 an hour before benefits, double the federal minimum wage. 

Line chart of Average hourly earnings, not seasonally adjusted ($) showing Pandemic demand has boosted warehouse workers' wages

5. US takes down Iranian websites
US authorities have seized dozens of websites linked to Iranian groups, including the Revolutionary Guards, accusing them of spreading misinformation and operating in the country without licences. The Department of Justice said 36 websites had been taken down, 33 of which were operated by the Iranian Islamic Radio and Television Union. 

Tech tools — Brave and Vivaldi push privacy

Pro-privacy browser Brave has launched a global beta of its own-brand search engine Brave Search, reports Techcrunch. The non-tracking search engine is being offered as one of multiple search options that users of the browser can pick from (including Google’s), but Brave says it will make it the default search later this year. Meanwhile, a 4.0 version of Vivaldi, which offers similar browser privacy features, was launched this month. It has now added translation and the options of adding an email client, calendar and RSS reader.

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China bolsters ties with Myanmar junta despite international condemnation

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Trade and diplomatic ties between Myanmar and China are normalising in the face of intense domestic opposition and international condemnation of the military junta that seized power in February.

Beijing has strengthened relations with Myanmar’s military leaders despite a series of violent attacks against Chinese business interests in the country after Aung San Suu Kyi’s government was toppled.

Yun Sun, an expert on Myanmar-China relations with the Stimson Center, a US think-tank, said Beijing had already made a “fundamental assessment” that Myanmar was moving into another prolonged period of military rule.

“I think the Chinese can see that this military coup is successful and is here to stay,” she added.

The resumption of state-level engagements and economic activity signals that Myanmar is reverting to its traditional economic reliance on China. The country has used its larger neighbour as a buffer against international sanctions and divestment by foreign investors, who have announced plans to quit the country or shelved projects.

Since the coup, 875 people have been killed by the junta and 6,242 arrested, according to the Assistance Association of Political Prisoners (Burma), a human rights group. The country’s economy and public services were severely disrupted by mass protests in the three months that followed the putsch, and have only partially recovered.

The resumption of bilateral trade will fuel the widespread suspicion among anti-coup resistance groups that China was prepared to support the new military regime.

The cumulative value of China’s imports from Myanmar for the first five months of the year was $3.38bn, up from $2.43bn in 2020 and $2.56bn in 2019, before the coronavirus pandemic, according to official Chinese customs data.

Exports to Myanmar for the same period have not recovered to the same extent, however. By the end of May, goods valued at $4.28bn had been shipped to Myanmar, compared with $4.56bn and $4.79bn in the two previous years.

In a further sign of strengthening diplomatic relations, Chen Hai, China’s ambassador to Myanmar, met coup leader and military commander-in-chief Min Aung Hlaing in Naypyidaw, the capital, in June. In a subsequent statement, Chen referred to Min Aung Hlaing as the leader of Myanmar.

China was among the countries that abstained in a UN general assembly vote last week calling on the international community to halt the flow of arms to Myanmar and release Aung San Suu Kyi and other political detainees. 

Beijing had good relations with the government of the deposed leader, who is in detention facing multiple criminal charges. However, it has refrained from criticising the military, fanning anger among the mass protest movement that sprang up after the coup. 

Beyond being Myanmar’s biggest trading partner, China also has strategic infrastructure investments in the country, including energy pipelines that give Beijing a critical link to the Indian Ocean.

James Char, a Myanmar expert at the S Rajaratnam School of International Studies in Singapore, said many people in Myanmar still blamed the Chinese government and business interests for complicity in supporting the military’s decades of rule before the transition to democracy.

“The Chinese, themselves, are very clear about [public sentiment in Myanmar],” Char said.

Attacks on China-linked businesses in the wake of the coup culminated in an explosion at a Chinese-backed textile factory west of Yangon on June 11, according to reports from local Myanmar media, as well as junta-controlled information services and Chinese state media.

Beijing’s wariness of inflaming Myanmar protesters would probably slow Chinese direct investments and the resumption of planned larger-scale developments that formed part of President Xi Jinping’s Belt and Road Initiative, analysts said.

Additional reporting by Sherry Fei Ju in Beijing



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Australia calls Great Barrier Reef warning politically motivated

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Australia has labelled a draft decision by the UN’s World Heritage Committee to include the Great Barrier Reef on its “in danger” list as politically motivated.

The committee, which is chaired by Tian Xuejun, China’s vice-minister for education, and selects Unesco World Heritage sites, proposed adding the world’s largest collection of coral reefs to the danger list because of the damaging impact of climate change and coastal development.

The designation could ultimately lead to the reef losing its World Heritage status, although officials said listing was intended to prompt emergency action to safeguard a living structure that stretches 2,300km along Australia’s eastern coast.

But Sussan Ley, Australia’s environment minister, said the government had been “blindsided” by the committee’s finding and alleged there was a lack of consultation and transparency. She added that Canberra would challenge the draft decision.

“When procedures are not followed, when the process is turned on its head five minutes before the draft decision is due to be published, when the assurances my officials received and indeed I did have been upended, what else can you conclude but that it is politics?” she said.

That the World Heritage Committee is chaired by a senior Chinese official has stoked suspicions in Canberra that it had been singled out over its diplomatic and trade clash with Beijing.

China-Australia relations have soured following Canberra’s call last year for an inquiry into the origins of Covid-19 and Beijing’s imposition of tariffs on Australian wine and barley imports.

Ley said she and Marise Payne, Australia’s foreign minister, had already spoken with Audrey Azoulay, Unesco director-general, to complain about the draft decision.

But scientists downplayed the suggestion that the “in danger” listing was politically motivated. Three mass bleaching events in five years demonstrated the need for the government to do more to tackle climate change, they said.

“I’m seeing some press coverage saying this is all a plot by China not to buy wine, lobsters and to screw the Barrier Reef. I think that’s pretty far-fetched given that the draft decision released overnight will be voted on by 21 countries,” said Terry Hughes, professor of marine biology at James Cook University.

The controversy will heap further international pressure on Canberra, which has been pressed by the US, UK and others to commit to a national target of net-zero emissions by 2050.

In a draft decision due to be voted on next month, the committee urged Canberra to “provide clear commitments to address threats from climate change, in conformity with the goals of the 2015 Paris Agreement, and allow to meet water quality targets faster”.

It noted the loss of almost one-third of shallow-water coral cover following a “bleaching” event in 2016 — a process linked to warmer than normal water that can lead to a mass die-off of coral.

The row over the “in danger” listing occurred at a difficult time for Australia’s conservative coalition, which is embroiled in internal squabbling over climate policies.

On Monday, Barnaby Joyce, a climate sceptic and supporter of coal mining, ousted Michael McCormack to become leader of the National party, the junior coalition partner to the Liberal party, and Australia’s deputy prime minister. Joyce is expected to oppose any move to commit to net zero by 2050.

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