United States: Pride before the fall.
Also: Mexico, Pakistan, China, Germany, Ukraine, Russia and Southeast Asia.
UNITED STATES. Pride before the fall.
Revisionist powers are relishing American decline. They will have to wait.
President Biden and lawmakers on Tuesday failed to produce a deal on government borrowing, though parties agreed to reconvene on Friday. Elsewhere, a court ordered Donald Trump to pay $5 million for sexual abuse and defamation.
INTELLIGENCE. Talk of the US's collapse is as old as the republic, though the news overnight is more than the usual grist for Chinese and Russian propaganda. On most indicators, US power is unassailable and its economy – though sharing a global rise in inflation – is in fine fettle. The rescue of First Republic Bank signalled more a willingness for dealmaking, than a financial crisis-style battening of the hatches. The debt ceiling impasse is more an exercise in pre-election posturing than a genuine fiscal cliff. Americans are polarised from guns to gender, but on the issues that define its power – countering China; retaining tech dominance; improving infrastructure – they are largely united.
FOR BUSINESS. A cause for real concern is Congress’s inability to pass reforms that maintain US competitiveness. Secondly, a small but genuine decline in the Dollar’s role in global trade may herald, in time, a return to currency blocs.
UNITED STATES. MEXICO. South at the border.
Biden speaks past his Mexican counterpart.
The US and Mexican presidents discussed border controls on Tuesday before Covid migration orders end tomorrow. On Monday, Mexico’s courts overruled the government’s electoral reforms, which critics claim will weaken democracy.
INTELLIGENCE. Border controls are becoming the White House’s biggest headache, as President Biden’s approval rating slumps to 36%. Cooperation from Mexican President Andrés Manuel López Obrador will be essential to curbing an expected spike in illegal crossings, but AMLO has his own travails, with the supreme court knocking back proposed curbs to Mexico’s election authority, corruption allegations against his family, and his popularity falling among young voters and the poor. US-Mexico relations have soured under both leaders, with disagreements over guns, narcotics and espionage. Before agreeing to American requests, Mexico’s leader will want to consider what’s in it for him.
FOR BUSINESS. Mexico is the US’s second largest economic partner, but an expected rise in nearshoring in the wake of trouble with China has been hampered in part by bilateral politics. Growing border issues won’t make things easier.
PAKISTAN. Sent off.
Islamabad arrests a former prime minister, causing chaos.
Cricketer-turned-politician Imran Khan was arrested on Tuesday, hours after the military rebuked him over accusations it tried to assassinate him in November. Pakistani authorities had attempted to arrest Khan in March.
INTELLIGENCE. The arrest of Pakistan’s most popular leader on potentially spurious grounds may only embolden Khan’s Pakistan Tehreek-e-Insaf party, which called on supporters to “shut down” the country. Protesters stormed the army headquarters and at least four have been killed. Pakistan has suffered increased violence and a worsening economy in recent months. Inflation rose to 36.4% in April, the highest rate in South Asia and the highest in Pakistan since 1964. Moody's warned this week that Pakistan could default as early as July without an IMF bailout. Pakistan's central bank has around $4.5 billion in foreign reserves, worth about a month of imports for the country of 231 million.
FOR BUSINESS. Political patrons in China or the Gulf may again extend the beleaguered government a bailout, but patience is wearing thin, and the mercurial Khan could yet strike a deal with the military and external backers.
CHINA. GERMANY. Trading barbs.
Europe is getting assertive with its biggest trading partner.
The foreign ministers of China and Germany spoke bluntly to the press on Tuesday after meeting in Berlin. Germany said China’s neutrality on Ukraine was “taking the side of the aggressor.” China said it would not “pour oil on the fire.”
INTELLIGENCE. Germany tried ‘Change through Trade’ with the USSR, but is showing less patience with China, judging from Foreign Minister Annalena Baerbock’s words to her counterpart. China is Germany’s largest trade partner and Chancellor Olaf Scholz – less hawkish than his minister – led a senior delegation there in November, but this was a high point. Berlin has taken a stronger line in recent months and, to the consternation of Europe’s exporters, the EU is mulling sanctions on seven Chinese firms over links to Russia while Italy considers leaving China’s Belt and Road Initiative. Chinese media noted on Tuesday that Chinese investment in Europe has fallen to a ten-year low.
FOR BUSINESS. Europe is hardening towards China, but neither Brussels nor Berlin will wish to emulate Washington’s policy of containment. European firms may nonetheless find themselves targeted as a warning to politicians.
UKRAINE. RUSSIA. UNITED STATES. Fighting snakes.
The US strikes a blow against Russia, but faces a bigger battle.
The FBI claimed on Tuesday it had shut down a major Russian cyberespionage tool, "Snake", after a 20-year operation. The Pentagon meanwhile said it would provide an additional $1.2 billion in long-term military aid to Ukraine.
INTELLIGENCE. US intelligence, technology and money have been the determinative factors in keeping Ukraine independent, but despite Washington’s largesse and tactical successes, many are growing weary. As President Biden’s ratings decline and domestic issues mount, Americans are wondering if the effort in Europe is worth the cost. An opinion poll on Tuesday found only 39% of US voters support maintaining sanctions if they cause inflation – the lowest level since the survey began. Without a stronger contribution from Europe and with potential flashpoints in Asia, Vladimir Putin will hope that continued US involvement in his war will not last the US election cycle.
FOR BUSINESS. The war of attrition in Ukraine won’t end suddenly, but declining public support will concern Pentagon planners. Business should remain patient, but watch for how Republican positions evolve alongside voter opinion.
SOUTHEAST ASIA. Talk is cheap.
The region is economically dynamic, but strategically weak.
The annual summit of the Association of Southeast Asian Nations began on Wednesday, with Timor-Leste attending for the first time. On Sunday, an ASEAN humanitarian convoy came under fire in Myanmar's north-eastern Shan State.
INTELLIGENCE. Though leaders like to say it is ‘central’ to Asian architecture, ASEAN is largely a toothless tiger, good at meetings and dispensing homilies. Its lack of agency has been on display in Myanmar, where, aside from the weekend’s attack, it has been unable to end the civil war. In the South China Sea, meanwhile, it has failed to advance maritime code of conduct negotiations, which began in 2002. Admitting Timor-Leste, however, represents progress. Tiny, poor and 21 years old, it is seen at risk of becoming a Chinese Cuba off the coast of US assets in Australia. ASEAN will this year deliver a roadmap for Timor’s accession. Even a club with no teeth provides some protection.
FOR BUSINESS. With the IMF forecasting growth of 4.3% this year and 4.7% next, Southeast Asia is a bright spot, attracting investment out of China. Yet the region’s limp negotiating hand leaves it vulnerable to geopolitics.
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