Highlights of the week: Trump holds the USA hostage, no recession occurred, G7 vs China
A review of the major events of the past seven days and the international media’s reaction to them
Mind continues its series of publications entitled "Highlights of the Week". It highlights the main events that recently have shaken the global community and have a significant impact on the economies of not only individual countries but also entire regions. This time, our information digest deals with the rumours of an impending US default, the political ramifications of this threat, the Chinese-American 'battle' for valuable resources against the backdrop of the G7 summit, and the 'sanctions duel' between the West and russia.
Anticipating default. Republicans take "the worse, the better" position
The threat of US bankruptcy seems increasingly inevitable, and it is a matter of concern for Ukraine, as it could entail not only the cessation of military support… While earlier this week, White House officials and Republican lawmakers expressed cautious optimism regarding a deal to raise the federal government's borrowing limit, by the end of the week, the negotiations clearly hit a deadlock.
During a press conference last Sunday in Hiroshima, US President Joseph Biden adopted a more assertive tone in dialogue with Republicans, stating that "now it’s time for the other side to move from their extreme positions, because much of what they’ve already proposed is simply, quite frankly, unacceptable." He added, "It’s time for Republicans to accept that there is no bipartisan deal to be made solely on their partisan terms. They have to move as well."
At the core of the deadlock are fundamental disagreements over spending levels, according to the Wall Street Journal. Republicans insist on larger cuts than Democrats are willing to agree upon. On the other hand, Biden administration officials have grown disillusioned with Republicans, whom they claim have refused to budge from their position that any final deal entails reducing discretionary spending to 2022 levels for the next fiscal year and then limiting annual increases.
According to them, it is an unacceptable stance for the White House. Democrats have signalled their openness to spending limitations but not direct cuts. Republicans, in turn, are disappointed with the slow response from the White House to their calls for negotiation, noting that they have been urging meetings since February, while official talks only began in early May.
Most media outlets heavily criticise the Republicans' position. Commentator Jill Filipovic of The Guardian, for instance, notes that the Republicans' proposal defends the interests of those who evade paying taxes.
"The shamelessness and recklessness of today’s Republican party seems to know no bounds. As the deadline for raising the debt ceiling or defaulting rapidly approaches, the party continues to hold the country hostage, telling Democrats: give us what we want – things we cannot get by going through normal democratic processes – or we will pitch the global economy off a cliff," she writes.
Democrats in Congress are doing their best to get their Republican colleagues to behave rationally, but it’s notoriously difficult, as The Guardian points out, to negotiate with terrorists. The Republicans want major spending cuts, but they want to force those cuts through by threat instead of having to legislate normally.
And the cuts they demand are horrific: slashing funds for things like cancer research, assistance for the poor in rental housing, support for schools with a large number of low-income students, and even military spending. Additionally, Republicans are trying to undermine Biden's attempt to forgive student loan debt, cancel tax credits for renewable and clean energy, thereby increasing dependence on fossil fuels, increase burdensome work requirements for food stamps and social benefits, and reduce the effectiveness and capabilities of the tax service.
But this crisis precisely demonstrates how dangerous the Republicans have become, with some of their antics being called "fascism" by Jill Filipovic. And since today this word is exclusively associated with russia, it is russia that is seen as the scriptwriter, at least the proactive part of the Republicans led by Trump. In May, when commenting on CNN about why he changed his position, as he himself stated that the debt ceiling should not be a negotiating tool, he said that he was the president then, but not now.
So, essentially, he doesn't care about the consequences of his actions for the United States, the main thing is to create problems for the current administration. They are not concerned that a default lasting over three months will cause a significant recession, resulting in 8 million people losing their jobs. The stock market, where small business owners keep a significant portion of their pension savings and collateral, may collapse. Obviously, their accumulations are in other countries…
But there is some positive news. The recession did not happen. Over the past two years, everyone from Dr. Doom to Elon Musk warned of an inevitable recession, yet the Nasdaq 100 index grew by 23% this year, within spitting distance of a 52-week high, as noted by Bloomberg author Jessica Karl.
Last week, regional banks in the US enjoyed the strongest rally since 2021, adding bullish sentiment. According to the Federal Reserve Bank of San Francisco's estimates, there are still tons of excess savings in the US economy – around $500 billion. "If you stratify savings by income, even those in the lowest income levels still have significantly more in their bank accounts than they did in 2019," she quotes Stanford professor and economist Jonathan Levin as saying.
The biggest threat to global security is China. The United States is searching for valuable minerals
The G7 summit in Hiroshima was eagerly awaited for important news, but there were few. The extensive sanctions, including those against rosatom, did not reach a consensus. So, last week, the UK and the United States separately intensified sanctions against russia (although the latter noted that it was in coordination with G7 countries and other international partners).
In response, russia also expanded its list of sanctions, targeting 500 individuals. As reported by The New York Times, it includes five of Trump's adversaries who have no connection to russia: the state attorney general of New York Letitia James, who conducted investigations and filed lawsuits against him; the secretary of state of Georgia Brad Raffensperger, who resisted Trump's pressure to change the results of the 2020 election; and Capitol Police officer Lt. Michael Byrd, who shot and killed pro-Trump rioter Ashli Babbitt on January 6, 2021. "None of them has anything to do with russia policy, and the only evident reason they would have come to Moscow’s attention is because Mr. Trump has publicly assailed them," emphasised the NYT.
But the most important news from the summit was the discussion on the world's dependence on China, which processes over 80% of mineral resources. On Saturday, the leaders of the G7 countries reaffirmed the need to manage risks associated with vulnerable mineral supply chains and create more resilient sources.
The United States and Australia announced a partnership to exchange information and coordinate standards and investments to establish more responsible and resilient supply chains. Japan signed an agreement with the United States for the supply of critical minerals, and Europe is in the process of negotiating a similar agreement. However, like the United States, these regions have a significantly higher demand for critical minerals such as lithium, cobalt, nickel, and graphite to support their own production, particularly in the production of batteries, which is becoming increasingly important in meeting climate requirements.
The reasons for the deficit are evident and extend beyond the commitments made in the 'green' transition. Like in many other industries, including the defence industry, they include ignoring the russian threat, not supporting domestic producers when markets were in a negative trend, and saving money by buying from dumping russian and Chinese companies.
We observe the same situation in the uranium enrichment market and the solar energy sector. Soon, this could also affect the wind energy sector. The Economist recently highlighted concerns about Western wind turbine manufacturers, who, despite favourable policies, incurred significant losses last year.
The four largest Western wind turbine manufacturers – Ge Renewable Energy, Nordex, Siemens Gamesa, and Vestas – accounting for nearly 90% of the non-Chinese market, reported a cumulative net loss of almost €5 billion in 2022. They also announced even greater losses for the first quarter of this year. The outlet identifies factors such as supply chain disruptions, raw material and component shortages, inflation, high interest rates, and geopolitical tensions.
The situation may somewhat improve due to the EU's decision in April to streamline the permitting process for new wind energy projects through accelerated renewable energy development zones. This could reduce the project realisation timeline from three years to one, making projects more cost-effective and competitive. "Europe is actually held back by a lack of concrete timelines for investments and clear regulations. Without them, the forecast for Western turbine-makers will remain choppy," points out the British outlet.
The newspaper expresses concerns about wind turbine manufacturers facing the same fate as the solar panel industry, which lost its leadership early on to cheap Chinese competitors benefiting from state subsidies. Currently, Chinese turbine manufacturers are rapidly growing and profitable. While primarily serving their domestic market, where Western companies are prohibited from competing, they also show interest in foreign clients, particularly in countries involved in the Chinese Belt and Road Initiative. Therefore, caution is advised.
If you have read this article to the end, we hope that means it was useful for you.
We work to ensure that our journalistic and analytical work is of high quality, and we strive to perform it as competently as possible. This also requires financial independence. Support us for only UAH 196 per month.
Become a Mind subscriber for just USD 5 per month and support the development of independent business journalism!
You can unsubscribe at any time in your LIQPAY account or by sending us an email: [email protected]
