Highlights of the week: US likely to avert default, russia vs China, heated discussions at OPEC+

Mind continues its serial 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 news digest focuses on the agreements between different political forces in the United States regarding the national debt, Joe Biden's policy on cooperation with the Pacific region, Ukraine's opportunities to obtain 'frozen' russian funds, and the rivalry for influence between China and russia.

Finally, US President Joe Biden and House Speaker Kevin McCarthy have reached a preliminary agreement to raise the US debt ceiling for two years and establish new spending limits for this period. The influential Wall Street Journal believes that this puts an end to the stand-off that threatened a historic default on the US national debt and posed a threat to the global economy.

The agreement was announced a few hours after Biden and McCarthy spoke on the phone for about 90 minutes on Saturday evening, following weeks of negotiations between the White House and Republican leaders in the House of Representatives, the outlet notes. It reminds that the agreement requires approval from both houses of Congress. McCarthy stated that the vote could take place on Wednesday, May 31, in the House of Representatives, where Republicans have a slight majority, although some conservatives have quickly voiced their disagreement.

Biden called the agreement a compromise. However, some conservatives stated that they wanted more. For example, Republican Dan Bishop wrote on Twitter that House Republicans "congratulate McCarthy on getting almost nothing" in exchange for raising the federal borrowing limit by $4 trillion (the current federal debt limit is $31.4 trillion).

What does the agreement specifically entail? Sources from the WSJ state that it involves preserving non-defence expenditures in 2024 at approximately the same level as in the 2023 fiscal year and increasing them by about 1% in 2025. Defence spending will be approximately in line with Biden's plans for the 2024 fiscal year, or about 3% higher than last year, when $858 billion was allocated.

However, protracted negotiations to avoid a catastrophic default are resulting in temporary delays with other legislative priorities, including a large volume of documents related to defence policy. Politico reported this on Sunday.

American Business vs Biden Administration. The former wants the Trans-Pacific Partnership, while the government proposes the Indo-Pacific region, and still without lifting restrictions.

On Saturday, May 27th, the United States announced an agreement to coordinate supply chains with 13 ally countries from the Indo-Pacific region – the I.P.E.F. The goal of the agreement is to increase the economic presence of the United States in the region. However, The New York Times notes that prominent business groups have stated that the agreement does not include tariff reductions or a decrease in other trade barriers.

Over 30 of these groups, including the U.S. Chamber of Commerce and the National Association of Manufacturers, warn that the content and direction of the administration's proposals for negotiations risk not only failing to achieve significant strategic and commercial results but also jeopardizing U.S. trade and economic interests in the Indo-Pacific region and beyond. Conversely, the Biden administration asserts that the agreement is aimed at better protecting American workers and the environment.

It involved lowering tariffs on auto parts and agricultural products, strengthening intellectual property protection for pharmaceuticals, and many other changes. However, the Trans-Pacific Partnership sparked deep divisions among both Republicans and Democrats, with some politicians from both parties claiming that it would destroy American industry. Former President Donald Trump withdrew the United States from this agreement, while Japan, Australia, and other members implemented the agreement without U.S. participation.

"I.P.E.F. is not a traditional trade agreement," said U.S. Trade Representative Katherine Tai. "It is our vision, our new vision for how our economies can collaborate to deliver real opportunities for our people. We’re not just trying to maximise the efficiencies of globalisation. We’re trying to promote sustainability, resilience, and inclusiveness."

Ukraine may receive frozen russian assets, but not soon

There is unrest in Europe as well. According to IMF forecasts, there may be slight growth in the United Kingdom, as reported by The Spectator. Although, the outlet has been discussing negative economic trends caused by the pandemic and the war in Ukraine for almost the entire week.

While the United States accounts for about a quarter of global production and slightly over 10% of global trade, approximately half of the world's trade invoices are issued in dollars. The dollar was involved in almost 90% of global currency transactions last year, and this share has remained largely unchanged for 20 years," notes The Wall Street Journal.

However, the coverage of the war in Ukraine has another aspect. Last year, the West froze russian assets worth around $300 billion and is discussing the possibility of transferring them to Ukraine for recovery. But many are concerned about whether it is being done within the framework of the law. The American outlet The Atlantic writes about the "legion of reasons" to transfer these funds to Ukraine, although it acknowledges that there have been no precedents for the United States to confiscate the assets of a country with which they are not in a state of war (despite the kremlin's claims to the contrary). However, debates on this matter will continue for a long time.

Where is Central Asia heading? China and russia vie for influence

On the eve of the international forum in Astana, the Centre for European Policy Analysis (CEPA) warns that the United States and Europe should not assume that Kazakhstan's balancing act between the East and the West will eventually push it away from russia. Although there are prospects, as the country's prosperity depends on trade and investment from foreign partners, with the Netherlands and the United States being the most prominent investors. On the other hand, China has perhaps the most significant impact on its economy: last year, trade figures between the two countries grew by more than a third, reaching $24 billion.

The Economist also observes that China and russia are competing for favour of Central Asia, whose economy is booming unlike that of Western countries. The currencies of Kazakhstan, Tajikistan, and Uzbekistan have appreciated against the dollar since the start of the war, which contradicts the trends in developing markets.

Capital, companies, and emigrant russians, many of whom are highly educated, could potentially create an even healthier economy in 2024. Therefore, it is understandable that during a recent meeting with the new group, which China dubbed "c+c5," Xi Jinping offered $3.8 billion in investments, trade deals, and knowledge transfer to the leaders of Central Asian countries. This is in addition to existing projects aimed at strengthening China's economic ties with Central Asia, with Beijing already participating in over 90 industrial projects in the region. Turkmenistan's gas alone accounts for over 70% of the country's annual gas imports.

In 2022, China was the largest trading partner of Central Asia, as the value of imports and exports between the two sides reached $70 billion, an increase of over 40% compared to the previous year, according to official Chinese data. For comparison, trade between russia and Central Asia amounted to less than $40 billion.

Who will win? Business Insider already states that the russian economy is subject to China's influence, and it may soon become a vassal of Beijing. French President Emmanuel Macron shares the same assessment. Even sources close to the kremlin say that russia is destined to become a Chinese raw material colony. While russian officials deny this characterization, experts believe that there is some basis for it.

Petroleum stand-off between russia and Saudi Arabia. Meanwhile, the British complain that Ukraine is developing wind energy faster

The Wall Street Journal has also weighed in on the matter, shifting the focus towards the increasingly strained relations between Saudi Arabia and russia. moscow continues to flood the market with large volumes of cheaper oil, undermining Riyadh's efforts to raise energy prices. The article discusses the upcoming OPEC+ meeting on June 4th, where a decision on oil production plans for the second half of the year is expected to be made. The conflicting interests raise doubts about the prospects of reaching a consensus.

Among these projects is a Red Sea resort the size of Belgium, featuring Maldives-style hotels hovering over the water, and a futuristic high-tech city in the desert worth $500 billion, which is 33 times larger than New York, according to the WSJ. In contrast, russia surpassed Saudi Arabia as China's top oil supplier in March, and in April, russian oil imports to India exceeded the combined flows from Saudi Arabia and Iraq for the first time. Therefore, the upcoming meeting will be closely watched.

Meanwhile, Europe is concerned with renewable energy. Since the start of Ukraine's full-scale invasion, Ukraine has constructed more onshore wind turbines than England, despite the UK government's promise to relax restrictions on onshore wind farms. The Guardian, a British newspaper, reports these striking figures: Ukraine has built 19 wind turbines within 100 km of the front line, while the British only put two into operation last year.