The canal, a signature project in China’s Western land-sea trade corridor to reach the Beibu Gulf – also known as the Gulf of Tonkin – and the South China Sea, is expected to carry 108 million tonnes of cargo by 2035 and 130 million tonnes by 2050, according to theContinue Reading
Early US capitalism was centered in New England. After some time, the pursuit of profit led many capitalists to leave that area and move production to New York and the mid-Atlantic states. Much of New England was left with abandoned factory buildings and depressed towns evident to this day.
Eventually employers moved again, abandoning New York and the mid-Atlantic for the Midwest. The same story kept repeating as capitalism’s center relocated to the Far West, the South, and the Southwest. Descriptive terms like “Rust Belt,” “deindustrialization,” and “manufacturing desert” increasingly applied to ever more portions of US capitalism.
So long as capitalism’s movements stayed mostly within the US, the alarms raised by its abandoned victims remained regional, not becoming a national issue yet. Over recent decades, however, many capitalists have moved production facilities and investments outside the US, relocating them to other countries, especially to China.
Ongoing controversies and alarms surround this capitalist exodus. Even the celebrated high-tech sectors, arguably US capitalism’s only remaining robust center, have invested heavily elsewhere.
Since the 1970s, wages were far lower abroad and markets were growing faster there too. Ever more US capitalists had to leave or risk losing their competitive edge over those capitalists (European and Japanese, as well as US) who had left earlier for China and were showing stunningly improved profit rates.
Beyond China, other Asian, South American and African countries also provided incentives of low wages and growing markets, which eventually drew US capitalists and others to move investments there.
Profits from those capitalists’ movements stimulated more movements. Rising profits flowed back to rally US stock markets and produced great gains in income and wealth.
That chiefly benefited the already rich corporate shareholders and top corporate executives. They in turn promoted and funded ideological claims that capitalism’s abandonment of the US was actually a great gain for American society as a whole.
Those claims, categorized under the headings of “neoliberalism” and “globalization,” served neatly to hide or obscure one key fact: Higher profits mainly for the richest few was the chief goal and the result of capitalists abandoning the US.
Neoliberalism was a new version of an old economic theory that justified capitalists’ “free choices” as the necessary means to achieve optimal efficiency for entire economies. According to the neoliberal view, governments should minimize any regulation or other interference in capitalists’ profit-driven decisions.
Neoliberalism celebrated “globalization,” its preferred name for capitalists’ choosing specifically to move production overseas. That “free choice” was said to enable “more efficient” production of goods and services because capitalists could tap globally sourced resources.
The point and punchline flowing from exaltations of neoliberalism, capitalists’ free choices, and globalization were that all citizens benefited when capitalism moved on. Excepting a few dissenters (including some unions), politicians, mass media and academicians largely joined the intense cheerleading for capitalism’s neoliberal globalization.
The economic consequences of capitalism’s profit-driven movement out of its old centers (Western Europe, North America and Japan) brought capitalism there to its current crisis.
First, real wages stagnated in the old centers. Employers who could export jobs (especially in manufacturing) did so. Employers who could not (especially in service sectors) automated them.
As US job opportunities stopped rising, so did wages. Since globalization and automation boosted corporate profits and stock markets while wages stagnated, capitalism’s old centers exhibited extreme widening of income and wealth gaps. Deepening social divisions followed and culminated in capitalism’s crisis now.
Second, unlike many other poor countries, China possessed the ideology and organization to make sure that investments made by capitalists served China’s own development plan and economic strategy.
China required the sharing of incoming capitalists’ advanced technologies (in exchange for those capitalists’ access to low-wage Chinese labor and rapidly expanding Chinese markets). The capitalists entering the Beijing markets were also required to facilitate partnerships between Chinese producers and distribution channels in their home countries.
China’s strategy to prioritize exports meant that it needed to secure access to distribution systems (and thus distribution networks controlled by capitalists) in its targeted markets. Mutually profitable partnerships developed between China and global distributors such as Walmart.
Beijing’s “socialism with Chinese characteristics” included a powerful development-focused political party and state. Conjointly they supervised and controlled an economy that mixed private with state capitalism.
In that model, private employers and state employers each direct masses of employees in their respective enterprises. Both sets of employers function subject to the strategic interventions of a party and government determined to achieve its economic goals.
As a result of how it defined and operated its socialism, China’s economy gained more (especially in GDP growth) from neoliberal globalization than Western Europe, North America and Japan did. China grew fast enough to compete now with capitalism’s old centers.
The decline of the US within a changing world economy has contributed to the crisis of US capitalism. For the US empire that arose out of World War II, China and its BRICS allies (Brazil, Russia, India and South Africa) represent its first serious, sustained economic challenge.
The official US reaction to these changes so far has been a mix of resentment, provocation and denial. Those are neither solutions to the crisis nor successful adjustments to a changed reality.
Third, the Ukraine war has exposed key effects of capitalism’s geographic movements and the accelerated economic decline of the US relative to the economic rise of China. Thus the US-led sanctions war against Russia has failed to crush the ruble or collapse the Russian economy.
That failure has followed in good part because Russia obtained crucial support from the alliances (BRICS) already built around China. Those alliances, enriched by both foreign and domestic capitalists’ investments, especially in China and India, provided alternative markets when sanctions closed off Western markets to Russian exports.
Earlier income and wealth gaps in the US, worsened by the export and automation of high-paying jobs, undermined the economic basis of that “vast middle class” that so many employees believed themselves to be part of.
Over recent decades, workers who expected to enjoy “the American dream” found that increased costs of goods and services led to the dream being beyond their reach. Their children, especially those forced to borrow for university, found themselves in a similar situation or in a worse one.
Resistances of all sorts arose (unionization drives, strikes, left and right “populisms”) as working-class living conditions kept deteriorating. Making matters worse, mass media celebrated the stupefying wealth of those few who profited most from neoliberal globalization.
In the US, phenomena like former president Donald Trump, Vermont’s independent Senator Bernie Sanders, white supremacy, unionization, strikes, explicit anti-capitalism, “culture” wars, and frequently bizarre political extremism reflect deepening social divisions.
Many in the US feel betrayed after being abandoned by capitalism. Their differing explanations for the betrayal exacerbate the widely held sense of crisis in the nation.
Capitalism’s global relocation helped raise the total GDP of the BRICS nations (China + allies) well above that of the Group of Seven (US + allies). For all the countries of the Global South, their appeals for development assistance can now be directed to two possible respondents (China and the US), not just the one in the West.
When Chinese entities invest in Africa, of course their investments are structured to help both donors and recipients. Whether the relationship between them is imperialist or not depends on the specifics of the relationship, and its balance of net gains.
Those gains for the BRICS will likely be substantial. Russia’s adjustment to Ukraine-related sanctions against it not only led it to lean more on BRICS but likewise intensified the economic interactions among BRICS members.
Existing economic links and conjoint projects among them grew. New ones are fast emerging. Unsurprisingly, additional countries in the Global South have recently requested BRICS membership.
Capitalism has moved on, abandoning its old centers and thereby pushing its problems and divisions to crisis levels. Because profits still flow back to the old centers, those there gathering the profits delude their countries and themselves into thinking all is well in and for global capitalism. Because those profits sharply aggravate economic inequalities, social crises there deepen.
For example, the wave of labor militancy sweeping across nearly all US industries reflects anger and resentment against those inequalities. The hysterical scapegoating of various minorities by right-wing demagogues and movements is another reflection of the worsening difficulties.
Yet another is the growing realization that the problem, at its root, is the capitalist system. All of these are components of today’s crisis.
Even in capitalism’s new dynamic centers, a critical socialist question returns to agitate people’s minds. Is the new centers’ organization of workplaces – retaining the old capitalist model of employers vs employees in both private and state enterprises – desirable or sustainable?
Is it acceptable for a small group, employers, exclusively and unaccountably to make most key workplace decisions (what, where, and how to produce and what to do with the profits)?
That is clearly undemocratic. Employees in capitalism’s new centers already question the system; some have begun to challenge and move against it. Where those new centers celebrate some variety of socialism, employees will more likely (and sooner) resist subordination to the residues of capitalism in their workplaces.
This article was produced by Economy for All, a project of the Independent Media Institute, which provided it to Asia Times.
Volume drops by 444 tonnes per day
PUBLISHED : 23 Jul 2023 at 07:00
A campaign promoting the sorting of household waste has begun paying off, says the Bangkok Metropolitan Administration (BMA).
The amount of rubbish received by the city’s waste management facilities and the cost of waste treatment has dropped in the past five months, BMA spokesman Aekvarunyoo Amarapala said on Saturday.
The overall city waste volume fell by 67,248 tonnes from February to the end of last month, or about 444 tonnes per day, when compared to the same period last year, resulting in a reduction of 127.8 million baht in waste treatment costs, he said.
In a year-on-year comparison, the quantity of waste the BMA received dropped by 200 tonnes per day on average, or 2.25%, in February; 272 tonnes per day, or 3%, in March; 318 tonnes per day, or 3.6%, in April; 713 tonnes per day, or 7.5%, in May; and 719 tonnes per day, or 7.4% last month.
The fall in the amount of rubbish requiring treatment has brought treatment costs down in the city by 10.6 million baht in February, 16 million baht in March, 18.13 million baht in April, 42 million baht in May and 41 million baht last month, the spokesman said.
“This clearly is a result of BKK Zero Waste, a waste separation project the BMA and public and private partners have jointly been carrying out,” he said.
The BMA is working with communities across the city as well as 998 businesses, education institutions, fresh markets, religious outlets and organisers of public and festive events.
Its partners are encouraged to separate their waste into wet, dry and recyclable categories before it is picked up by BMA rubbish collectors.
In another project, the BMA has encouraged households, businesses and other organisations to separate kitchen waste from biomass, such as leaves and grass, Mr Aekvarunyoo said.
The volume of wet waste received from a total of 1,112 sources taking part in the project fell by 55 tonnes per day, he added.
That is not the only hurdle. Each day, miners such as Faturahman usually haul two sacks of ore at most. But cyanide processing requires a huge amount of ore in one go, ideally 150 sacks.
Even if miners could afford to wait, the extraction cost is too high individually. As members of a co-operative, however, they could potentially deal with the issues of cash flow and time.
But the most important hurdle is that “the way we process gold is somewhat illegal”, cited Hamdani. “Up until this point, we’ve not obtained permission from the government. We’re still in the process of obtaining the permit.”
The possible solutions, and the regulations needed, are apparent to Jossep.
“First, (the miners) can’t destroy nature. Second, they have to use cleaner methods without mercury. Third, a system is set up so that the gold they produce can be officially purchased by the state,” he said.
“This would provide a huge amount of foreign exchange for the country.”
The potential rewards for upskilling and harnessing the products of Indonesia’s informal gold miners could be huge, if the authorities can overcome the obstacles and if there is help from stronger international regulations.
“One shortcoming of the Minamata Convention in respect of small-scale mining is that the treaty regards this mining as an allowed use for mercury,” said Marcos A Orellana, the United Nations Special Rapporteur on toxics and human rights.
“The position should be the other way around — that mercury should be banned.”
If black markets are not shut down, however, gold miners will continue to use mercury. It is the youngest generation, and succeeding generations, who will ultimately pay the heaviest price.
For Faturahman, his child’s illness has left him in the unenviable position of having to mine more gold to pay for surgery. “Because I don’t have insurance, it’d cost around 30 million rupiah. I don’t have that kind of money,” he said.
“Though this is the state we’re in, I’ll do my best to keep my son healthy. I know that he isn’t like a normal child, but I’m still grateful for his birth. I hope my son will be healthy soon.”
Watch this episode of Undercover Asia here.
Given that HDB flats – which house 78 per cent of the Singapore population – remain affordable to most Singaporeans, what is the significance of having some of the most expensive private residential real estate in Asia? After all, Singapore has one of the highest home ownership rates in the world.
If condominium price increases are much faster and greater than HDB price appreciation, some potential buyers will choose to invest in private condos, said Dr Lee Kwan Ok. As a result, the markets will diverge further and this may lead to unequal financial outcomes among households.
Dr Lee Nai Jia thinks that the quest for property isn’t solely a matter of securing a roof over one’s head. A potential consequence of two diverging housing markets is the deepening divide within society, particularly between asset-rich parents and those without such advantages, he said.
“It’s intrinsically tied to the aspiration of social mobility … Therefore, we need to rethink housing solutions that don’t just address affordability, but also foster a healthy social fabric and personal development,” he said.
“Such an economic chasm poses a threat to societal stability. This is precisely why the government’s strategic emphasis has been directed towards preserving our social contract and prioritising the accessibility of public housing.”
But Professor Qian Wenlan, director of NUS’ Institute of Real Estate and Urban Studies, does not see a sharp divergence materialising and thinks that the majority of the Singapore population would be more concerned about the affordability of public housing.
Furthermore, she sees the spillover effect also moving in the opposite direction, with public housing prices possibly affecting private property prices.
“The injection of supply downstream will mitigate inflation in the public housing market, which may even have a spillover effect on the property market as a whole,” she said.
“By and large, we expect public housing to remain highly affordable to the majority of the population, especially since the government’s policy is to price BTO flats according to median incomes rather than market demand.”
Analysts agreed that in general, the Singapore government has done a good job at housing the nation.
This is unlike cities like Seoul and Hong Kong where residents “struggle a lot” due to housing attainability, said Dr Lee Kwan Ok.
“For example, public housing supply is limited and private housing prices are very high in Seoul, so many young people give up their marriage and childbirth due to housing unaffordability,” she said.
“In Hong Kong, the waiting time for public rental housing is very long, and many are forced to turn to private housing which is very unaffordable.”
Sociologist Tan Ern Ser said that in a society like Singapore, social mobility is always possible to all, but the probability of moving up is unequal across classes.
He thinks the government has been making make public housing more affordable and attractive, with new housing developments, such as Bidadari, Tengah, and the Southern Water Front, for instance; while persuading Singaporeans to redefine success in less material terms.
“I don’t think we could solve this problem of the bifurcation of public and private housing satisfactorily, but we could aim to live a ‘good enough’ life, prioritising what really matters: our mental and physical health, family and friends, and community life,” said Dr Tan.
Robert Atkinson, president of the Information Technology & Innovation Foundation, warned in a July 12 report that “export controls shrink the global markets US semiconductors need to survive.”
According to Atkinson, “If the United States is to win the techno-economic battle instigated by China, then trade policy must prioritize global market access for advanced industries with high fixed costs, like aerospace, software, biopharmaceuticals, and especially semiconductors. Yet, the current export controls on chips and semiconductor equipment reduce the available market size for U.S. firms, potentially hurting America’s mid- to long-term competitive advantage.
“This is why scale is so critical for semiconductors, and why if America wants to regain its semiconductor lead—which the CHIPS Act will help accomplish—the federal government must do all it can to maximize the available market. Doing so will allow U.S. firms to sell products at more competitive prices and maximize R&D investments to stay competitive in future product cycles. Given that U.S. and allied semiconductor firms are in increasingly stiff competition with China, a critical factor for success is which country captures more marginal new sales.
“If U.S. export policy limits sales to China, then U.S. costs won’t fall as much as they would otherwise, which will make their products less competitive. American companies will be less profitable, so they will have less to invest in critically needed R&D. In contrast, export controls will enable China to gain scale, allowing it to sell its chips for lower prices and achieve higher profits (or lower levels of government-subsidized losses) to invest in next-generation semiconductors.
Global market access is existential for industries with high fixed costs. Otherwise, costs won’t fall, R&D won’t increase, and competitors will gain structural advantages that ultimately can lead to the demise of advanced U.S. firms and industries with high fixed costs. It’s time for U.S. trade and national security policy to recognize this more nuanced and sophisticated reality.”
In a speech earlier in the afternoon, Mr Tharman reiterated that Singapore is a multiracial nation built on two spaces – on the cultures and languages of the different races, and a common, neutral space where each community has to make some compromises.
However, he added that there is a need for a third space, where Singaporeans participate in each other’s cultures.
“That third space needs to be developed. It is not a melting point, it is learning another culture and taking it very seriously,” he said. “Whether it is art or dance or music or even language, you have to take seriously the other cultures.”
Last month, Mr Tharman announced his intention to run for the Singapore presidency. President Halimah Yacob’s six-year term expires on Sep 13 and she has said she will not stand for re-election.
The Elections Department has said that the Presidential Election may be held at any time from Jun 13, and if it has not been held by the expiration of the term of the incumbent President, it should be held shortly after.
A total of three candidates – former GIC chief investment officer Ng Kok Song, businessman George Goh, and Mr Tharman have announced their bids for the presidency.
Mr Tharman noted that with the world becoming more “turbulent”, the region around Singapore will become more important in the next 5 to 10 years.
Southeast Asia is a region where there is an “openness” to trade and investment, and a “desire to grow” by making use of markets abroad and by inviting investments into their own countries, he added.
“This is a big advantage because it is not true in many other parts of the world,” he said. “So we will have to place more emphasis on the region around us in the years to come.”
SINGAPORE – Prime Minister Anwar Ibrahim began his tenure with a pledge to enact structural reforms and boost investor confidence in Malaysia. But after eight months on the job, the veteran politician is finding it hard to pull the Southeast Asian nation out of a years-long economic funk.
The local stock market saw foreign outflows of 4.19 billion ringgit (US$920 million) in the first half of 2023, with a benchmark gauge that is among the worst global performers so far this year. The Malaysian ringgit has likewise tumbled, making it among the worst performers in Asia’s currency markets.
On the other hand, Malaysia’s economy grew above market expectations at 5.6% in the first quarter of the year, during which approved foreign direct investment (FDI) reportedly rose 60% year-on-year to 71.4 billion ringgit.
Inflation moderated to a one-year low with the consumer price index coming in at 2.8% in May compared to last year, its slowest monthly pace in 2023.
Yet cost-of-living pressures and political dissatisfaction persists, with economic headwinds and external cyclical factors weighing on the government ahead of state elections in August that are seen as an early referendum on Anwar’s “unity” government, a multi-party alliance that sits uneasily with the long-rivaled political camps’ grassroots support bases.
The ringgit’s worrisome performance is a key watchpoint as analysts say that unfavorable exchange rate fluctuations risk deterring foreign investors due to a lack of confidence in earning lucrative returns when the national currency is too weak, which raises the cost of repatriating profits back to home markets.
The cost of servicing external debt in foreign currencies, especially US dollars, also increases as the ringgit wanes, compressing the profit margins and exacerbating credit risks of US dollar-leveraged firms. Malaysia has a relatively high foreign currency-denominated debt exposure compared to some of its regional peers, with data showing only 33% of total debt being ringgit-denominated as of 2022.
Anwar’s administration also contends with a fiscal deficit that is among the widest in Southeast Asia and a national debt that has ballooned to 1.5 trillion ringgit ($329 billion), exceeding 80% of gross domestic product (GDP) when liabilities are included.
In 2018, the then-PH-led government said government debt and liabilities exceeded 1 trillion ringgit, higher than what jailed former premier Najib Razak’s administration had previously disclosed.
Household debt is also among the highest in the region as a result of heavy borrowing by Malaysian citizens, accounting for 81% of the country’s nominal GDP in December 2022, compared with the ratio of nearly 89% in the previous year, according to Bank Negara Malaysia (BNM), the central bank. By comparison, household debt to GDP stood at 47% in 2000.
The Malaysian ringgit is down approximately 10.61% against the US dollar from early January, when it traded at 4.24 before falling to a low of 4.69 in late June. As a historical benchmark, the ringgit weakened to 4.88 during the 1997-98 Asian financial crisis and traded at 4.74 ahead of last November’s general election before recovering by year-end.
The national currency has gradually recovered since mid-July, due mainly to cooler US inflation data, and was trading at 4.55, or approximately 3.41% lower against the dollar in the year to date, at the time of publication.
Analysts are of two minds on whether the ringgit will rebound, with some seeing the government’s perceived lack of a clear economic strategy as a key factor.
Carmelo Ferlito, an economist and chief executive officer of Kuala Lumpur-based think tank Center for Market Education, told Asia Times that he sees “the lack of a comprehensive economic strategy which would include mainly pro-market reforms” as a factor behind the depreciation, saying that authorities fluctuate “between pro-market stances and a heavy desire to control the economy.”
Ferlito attributed lower-than-expected economic growth in China, Malaysia’s top trading partner, and continued strength of the US dollar as the “preferred reserve of value in periods of uncertainty, despite all the talk about de-dollarization,” as other factors driving the ringgit’s slump while also pinning blame on the Anwar-led government’s failure to address structural economic issues.
“So far, contrasting signals have been sent. The desire of attracting FDI is not matched by consistent policies in this direction. Price controls are still in place, labor regulations are still restrictive, and getting a bank account is becoming more complicated. In general, a comprehensive economic strategy is yet to be seen. The lack of vision will keep on playing against the ringgit,” he said.
While Anwar’s focus has so far been on consolidating the government’s finances, plugging leakages and tightening rules for more transparent state procurement contracts, Ferlito voiced hopes that after upcoming state polls, “the government may become braver in addressing structural issues and start to remove price controls, subsidies, red tape and labor limitations.”
Some observers believe that politics have contributed to the ringgit’s recent weakness, which on July 12 hit a record low of 3.49 against neighboring Singapore’s national dollar. A poor performance by the Pakatan Harapan-led (PH) ruling alliance at August state elections, analysts and economists argue, could further impact investor sentiment and political stability.
Politics aside, economic headwinds are a serious challenge with the ongoing global slowdown sharply affecting Malaysia’s export performance, which plummeted 18.9% year-on-year in June, marking the fourth straight month of contraction. The country is a major exporter of electrical and electronic products, as well as petroleum products, rubber, palm oil and its derivatives.
Previous periods of ringgit weakness were generally a boon for Malaysian exports but sluggish growth in China and monetary policy tightening in advanced economies has darkened the global trade outlook. BNM forecasts GDP growth of 4% to 5% this year, falling well short of the two decade-high 8.7% seen in 2022 coming out of the Covid-19 pandemic.
The central bank said in late June that it would intervene in the foreign exchange market to stabilize the ringgit, citing what it called “excessive” losses. BNM said the currency’s depreciation is not reflective of economic fundamentals and that the value of the ringgit will continue to be market-determined.
Re-pegging the ringgit to the US dollar has also been ruled out, with Malaysian Deputy Finance Minister Ahmad Maslan saying last month that doing so would inhibit independent monetary policy-making. The government’s aim is to implement structural policies to boost competitiveness and attract inflows of foreign investment to support the ringgit, he said.
“The depreciation of the ringgit bodes ill for the economy and even society,” said Mohd Shahidan Shaari, a senior business lecturer at the Universiti Malaysia Perlis, in a recent commentary. “If there is no government intervention to curb any further depreciation, one US dollar might be exchanged for five ringgit in the future, which can have numerous detrimental impacts.
“Therefore, closing the barn door before the horse bolts is of utmost importance. One possible measure the government might consider is fixing the exchange rate. By fixing the exchange rate, the government can stabilize the value of the currency and provide certainty for economic actors, including businesses and investors,” he added.
BNM opted to maintain its overnight policy rate at 3% earlier this month after it unexpectedly raised rates in May for the fifth time since last year. Analysts see any near-term policy changes as unlikely with headline inflation having eased in recent months, though some argue that further depreciation of the ringgit could cause BNM to raise rates again.
“Bank Negara can continue to raise interest rates to attract investors into the ringgit. However, as long as rates are elevated in the US, Europe and the UK, many investors will not come back into the ringgit to help it appreciate,” said Mayra Rodriguez Valladares, a financial risk consultant at MRV Associate and former foreign exchange analyst from the Federal Reserve Bank of New York.
“It is very challenging for one central bank alone to influence foreign exchange rates. In fact, no central bank wants to deplete its foreign exchange reserves defending its currency. The lessons from the Asian financial crisis of 1997 are important to remember,” she told Asia Times. “Central banks cannot go against foreign exchange traders; this is a market that is about $8 trillion a day.”
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The US Inflation Reduction Act (IRA) is a milestone on the path towards the electric vehicle (EV) era — a monumental shift with the potential to remodel not just the US automotive industry, but the global landscape.
Washington is working to establish alternatives to China’s control over critical mineral resources within the Asia-Pacific region, potentially recalibrating the global EV industry.
With its targeted incentives, including a battery production tax credit and purchase incentives for EVs assembled in the United States, the IRA underscores President Joe Biden’s administration’s commitment to stimulating sustainable growth and bolstering its domestic manufacturing.
But the IRA will also have far-reaching global effects, as evidenced by the US-Japan agreement in March 2023. This accord, which allows metals sourced or processed in Japan to qualify for IRA subsidies, is a strategic maneuver and a signal flare.
It could mark the initiation of a series of strategic alliances forming across the Asia-Pacific region. Australia, another resource-rich nation, recently jumped on the IRA subsidy initiative, and Indonesia, which has vast nickel reserves, seems ready to follow suit.
Other recent policy changes in the United States will amplify the impact of the IRA. The Biden administration’s ambitious new tailpipe emissions standards, in tandem with the directives proposed in the Bipartisan Infrastructure Law, accelerate the IRA’s push towards greener transportation.
Government projections suggest that under the full thrust of this multifaceted policy framework, EVs, which accounted for just 5.8% of new vehicle sales in the US in 2022, could reach as much as 67% of new vehicle sales in the United States by 2032.
Collectively, these policy measures outline a comprehensive strategy for nurturing a resilient supply chain, encompassing both US and Asia-Pacific allies, ideally positioned to meet the escalating demand for critical minerals — the linchpin of emerging clean energy technologies.
As countries embark on the transition to EVs, a high-stakes global competition is emerging. Amid the contest for EV market share and industry leadership, the economic consequences of this rivalry are set to reverberate globally.
Heightened competitive dynamics may compel legacy automakers and their home countries, including Japan and South Korea, to grapple with a vortex of challenges.
These challenges include surging research and development investment needs, shrinking profit margins due to fierce competition from both new and established players, tightening regulations and the specter of trade barriers.
Yet this flux of changes also creates opportunities. Manufacturing hubs like Thailand and resource-rich territories such as Australia and Indonesia stand to benefit.
By capitalizing on increased demand for resources and parts, these countries could stimulate their economic growth and expand their global influence, provided they leverage their comparative advantages and make strategic investments in infrastructure and innovation.
But outcomes hinge on a range of variables that pose potential risks, such as price volatility, supply disruptions, environmental or social impacts and geopolitical tensions.
The most potent variable in this landscape is China, whose dominance in the EV supply chain is deep-rooted. The dominance is deeply entrenched in the upstream and midstream phases — from raw minerals through battery production.
Yet it is China’s vast and rapidly expanding EV market that could further fortify this grip. This holistic control will continue to empower China to steer global markets even amid potential disruptions and escalating US-China tensions.
China, with such a vast influence over the EV supply chain and its capacity to leverage political pressure, is well-positioned to adroitly exploit shifts in supply-demand dynamics.
The strategies that China might employ, drawing from historical precedents, include controlling prices and supply or even engaging in tactical diplomacy, such as strategically influencing trade agreements or imposing economic sanctions to exert pressure.
The United States, through its recent policy initiatives, is striving to gain control over a global market that is as geographically dispersed as it is vertically integrated — a Herculean task.
In this pursuit, any strategic US endeavor to decouple from China will likely face intense pushback. Such pushback, combined with China’s potential to escalate its strategies, may inadvertently create opportunities for China to consolidate its market presence.
This narrative underscores the intricacies of the high-stakes global competition and the nuanced balance required to navigate the future of EVs.
The Biden administration’s actions could reshape market dynamics and redefine the industry’s competitive landscape. The IRA – with the resulting subsidy initiatives stretching across the Asia-Pacific region – is altering the outlook for the global auto industry.
A multifaceted array of opportunities and challenges lies ahead. For Asia-Pacific nations, this isn’t merely a challenge — it’s an opportunity to counterbalance China’s dominance in this emerging technology. The key to unlocking this potential lies in strategic foresight, regional cooperation and thoughtful policy calibration.
The journey into the uncharted territory of the EV era will be fraught with economic and political complexity. Yet each strategic step brings closer the vision of a balanced global EV industry and a future less dependent on a single player.
Hiroshi Matsushima is Economic Fellow at the Institute for Policy Integrity at New York University School of Law.
This article was originally published by East Asia Forum and is republished under a Creative Commons license.
TOKYO — Has Bank of Japan (BOJ) Governor Kazuo Ueda, 103 days into the job, already blown it?
Inquiring minds in trading pits everywhere can’t help but wonder as inflation and gross domestic product (GDP) diverge in dangerous ways. And markets are getting exactly the last thing you’d want from Ueda’s BOJ: crickets.
Data released on Friday (July 21) showed that core inflation, which excludes fresh food, rose 3.3% in June year on year, faster than in the US. Japan’s inflation surge shows how quickly price dynamics can shift — and perhaps get away from a central bank.
This adds an economic exclamation point to next week’s BOJ policy meeting. The two-day event ending July 28 is shaping up to be the BOJ’s last chance to salvage its reputation in world markets.
The odds the BOJ will do just that aren’t great. “Although we don’t rule out some yield-curve-control-related change at the BoJ’s upcoming policy meeting, our base case is for the central bank to stick to its guns,” says Stefan Angrick, senior economist at Moody’s Analytics.
Norman Villamin, group chief strategist at Union Bancaire Privée, adds that “the Bank of Japan may once again be forced to defend the policy via liquidity injections moving through the summer.”
Given Ueda’s recent comments, Mitsuhiro Furusawa, a former vice minister of finance for international affairs, told Bloomberg: “It’s unlikely that the bank will modify the instrument at the upcoming meeting. In the past, I thought July is possible, but the way he’s speaking, if he moves next week, it’ll be a major surprise.”
This crisis of confidence confronting the BOJ has many fathers, of course. Blame must be shared by Prime Minister Fumio Kishida’s ruling Liberal Democratic Party (LDP) for squandering the last decade. The same goes for a succession of BOJ leaders who forget about what William McChesney Martin said about punch bowls 70 years ago.
It was in 1951 when Martin, then chairman of the US Federal Reserve, famously quipped that a central banker’s job is to remove the punchbowl just as the party gets going. Far from internalizing this mindset as, say the Bundesbank of old did, the BOJ has been refilling and refilling the punchbowl for decades.
First, with the quantitative easing that the BOJ pioneered in 2000 and 2001, just after cutting rates to zero in 1999. The unsurprising result is a level of financial intoxication that no Group of Seven (G7) economy had ever known.
Twenty-plus years ago, when then-BOJ leader Masaru Hayami served up quantitative easing (QE), it was meant to be a special monetary cocktail available for a limited time only. Over time, though, the Tokyo political establishment got hooked on loose monetary policy.
One government after another prodded the BOJ leader at the moment to keep the liquidity flowing — and to up the dosage. This cycle got supersized in 2013, when the LDP hired Ueda’s predecessor, Haruhiko Kuroda.
At the time, then-prime minister Shinzo Abe said he was mixing up his own cocktail of badly needed structural reforms to end deflation. Abe promised a mix of Ronald Reagan and Margaret Thatcher with Japanese characteristics. Mostly, though, Abe just prodded Kuroda to add more punch bowls.
It backfired. As Kuroda fired his monetary “bazooka,” the yen plunged and exports soared. That generated a corporate earnings boom, one that propelled the Nikkei Stock Average up 57% in 2013 alone.
But those gains never made it to the average Japanese as wages flatlined. That’s because Abe’s party failed to implement the supply-side revolution it promised.
Moves fell by the wayside to cut red tape, liberalize labor markets, increase innovation and productivity, empower women and restore Tokyo’s place as Asia’s financial hub. Instead, Abe bet it all on ultraloose central bank policies, the likes of which modern economics had never seen before.
In short order, the Kuroda-led BOJ drove the yen down 30%, hoarded more than half of all outstanding Japanese government bonds and morphed the BOJ into a giant hedge fund by gorging on stocks. By 2018, the BOJ’s balance sheet topped the size of Japan’s US$5 trillion economy, a first for G7 members.
None of it generated real inflation, though. That took Vladimir Putin’s invasion of Ukraine. The massive boost to oil prices had Japan importing too much inflation too fast via an undervalued exchange rate. The Putin factor collided with Covid-19 era supply chain price pressures.
Japan suddenly had the inflation it sought for a decade. It was the “bad” kind, though, generated more by supply shocks than rising consumer demand. It also came too quickly, catching BOJ officials flat-footed.
On Thursday (July 20), Kishida’s government dramatized the problem by projecting that inflation will likely hit 2.6% this fiscal year.
That’s the highest in at least three decades and well above the BOJ’s 2% target. Worse, it’s double the government’s GDP expectations, now projected to expand 1.3% in the current fiscal year ending in March 2024.
In December, with his retirement less than four months away, Kuroda tested out how declaring “last call” might go down. Not well: Kuroda’s December 20 move to let 10-year yields drift as high as 0.5% caused bedlam in markets.
The yen surged, Japanese stocks cratered and Wall Street panicked. Kuroda’s response was refilling the punchbowl — again — and then passing bartending responsibilities to Ueda.
It now falls to Ueda to devise a 12-step program for Tokyo without crashing global markets. The trouble is, 23 years of open-bar policies made it okay for investors everywhere to drink free on Japan’s dime.
The arrangement gave way to the so-called “yen-carry trade.” Two-plus decades of zero rates made Japan the premier creditor nation. Investors of all stripes got into the habit of borrowing cheaply in yen to fund bets on higher-yielding assets everywhere.
This strategy has kept aloft everything from Argentine debt to South African commodities to Indian real estate to the New Zealand dollar to cryptocurrencies.
This explains why Kuroda’s flash of sobriety in December caused a mini earthquake globally. When the yen or JGB yields surge, the bottom falls out from under markets across the globe. Asian markets in particular don’t tend to fare well amid big yen gyrations.
These pivots back toward “risk off” crouches often blow up a hedge fund or two. And, clearly, the last thing China needs right now as GDP slows, exports stall and questions linger about the depths of its real estate problem is financial turbulence from Japan.
“Given the BOJ’s outlier status among global central banks that have spent the better part of the last two years fighting inflation,” says economist Udith Sikand at Gavekal Research, “even the smallest of changes to its policy stance could create a ripple effect through foreign exchange markets that have gotten used to the yen being a perennially cheap funding source.”
All of which explains why next week’s BOJ meeting is so crucial. It may be Ueda’s last chance to guide yen-denominated assets instead of being overwhelmed by negative market forces, not least the so-called “bond vigilantes.”
The reference here is to activist traders who take matters into their own hands to highlight government, monetary or corporate policies they deem as unwise or dangerous. They make their voices heard by driving up bond yields and boycotting debt auctions, thereby raising government borrowing costs.
If Ueda isn’t careful, the financial forces that the BOJ has long held at bay could strike back. At the very least, his team must emerge from the July 28 meeting with a plan to begin winding down decades of QE.
“We expect the BOJ to widen the fluctuation range for 10-year JGB yields,” says economist Takeshi Yamaguchi at Morgan Stanley MYFG. “That said, we do not see a meaningful rise in yields. We would see a potential knee-jerk negative equity market reaction as a buying opportunity.”
It’s easier said than done, of course. The last thing Ueda’s team wants is to tank the Nikkei — or Japan’s broader economy. Ueda, of course, has the events of December 20 on his mind. But the lessons from the 2006-07 era of BOJ policymaking also loom large.
At the time, then-BOJ governor Toshihiko Fukui tried his hand at weaning Japan Inc off the monetary sauce. QE, after all, was meant to bring the economy back from a kind of near-death experience; it was never meant to be permanent.
Fukui decided it was time to get Japan clean. First, he ended QE. In July 2006, he pulled off an official rate hike and then a second one in early 2007.
Not surprisingly, global markets struck back when investors, banks, companies and politicians howled in protest. Before long, Fukui was on the defensive and the rate hikes stopped.
By 2008, after Masaaki Shirakawa took over as BOJ governor, Tokyo was slashing rates back to zero and restoring QE. Then came Kuroda in 2013 to turbocharge QE.
Ueda also has lessons from Washington on his mind, namely the collapse of Silicon Valley Bank (SVB) amid aggressive US Fed tightening moves. As Ueda’s team understands, some of the conditions imperiling US lenders seem eerily familiar to headwinds facing Japan’s regional banks.
All too many of these 100-plus institutions saw profits squeezed by an aging and shrinking population. The communities they service have been hit by an exodus of companies keen on headquartering in Tokyo rather than the provinces.
The BOJ’s rigid “yield curve control” regime, which makes it hard for banks to borrow at one part of the maturity spectrum and lend at the other, is an added blow. So many regional lenders hoard bonds rather than lending SVB-style. This makes these embattled lenders vulnerable to BOJ tapering or tightening.
On the other side of the risk list is that the BOJ might be letting inflation become ingrained. Earlier this year, Japanese unions scored the biggest wage gains for workers in 31 years. The average 3.91% increase could add fuel to the BOJ’s inflation troubles and exacerbate concerns among traders worried the Ueda-led BOJ is already losing the plot.
“It’s a close call, but we still think yield curve control tweaks are possible, given that recent data support steady inflation growth and a sustained economic recovery,” says economist Min Joo Kang at ING Bank.
The only thing clear about the July 27-28 meeting, however, is that the BOJ will be in the global spotlight as rarely before.
Follow William Pesek on Twitter at @WilliamPesek