Building the new order Entry 12

You already know that I try to make each entry independent of the previous one, but that I have a common thread: I seek to deduce how the new world order is going to be organized after everything that is happening.

My new context selection.

For some time now, I have been starting all my entries with this “new context” heading in which I summarize what has happened since the previous entry that may affect the evolution of the new order. This time my selection is as follows:

By far the most relevant is the outcome of Xi Jinping’s visit to San Francisco (USA) on the occasion of the APEC (Asia Pacific Economic Cooperation Forum) meeting on November 15. It is so relevant that I will comment on it a little further down, in the body of the entry. However, I do advance that I believe this may be the beginning of a new era, perhaps a peaceful and happy one.

Other news of changes in the context are:

Barack Obama has written an article about Israel’s WAR. What he says is no innovation. He makes diplomatic balancing acts to say that he supports Israel in its right to defend itself, but that he does not believe it should be done by the path of massacring innocent Palestinians. In other words, this is a warning to Israel not to overreact to the attacks. What is important is not the content, on which many people are likely to agree. What is important is that Obama says so (article here). I translate it into non-diplomatic language as, “Israel, you are right, and we love you very much, but please don’t make us angry with our oil suppliers.”

Antonio Costa (the Portuguese prime minister) has resigned. He has done so because of his possible involvement in a corruption case that has not yet been proven. As a Spaniard, it strikes me that someone has the decency to resign before his guilt has been proven. That speaks very well of the person, who does not want to harm his country by defending himself (although perhaps it is an elegant way of minimizing his damages knowing he is affected).

What I want to highlight is not their goodness, or their guilt, but the fact that the accusation is based on the authorizations for lithium mines and green hydrogen exploitations. In other words, the necessary investments in raw materials for the change of energy model reach the point of changing governments (news here).

The USA has lifted some sanctions against Venezuela. Specifically, those related to oil, gas and gold. It has done so based on the excuse that Venezuela has agreed to “improve the opposition’s access to elections”. I think it is more related to the West’s need to reorganize its supplies of raw materials, and, if for that it needs to “forgive” a classic enemy, it does so (news here).

The agreement signed between Qatar and Germany for the supply of gas is also under discussion. It is the same for energy needs. Germany needs gas, but Qatar finances Hamas. It seems that needs are more important than ideas, … (news here).

Related to the issue of raw materials and the countries to “sign” for each block, there is the issue of the elections in Argentina. It should not be forgotten that some of the largest lithium reserves are located there, and that Massa’s Argentina wants to continue with the agreements with China for those reserves. This (and many other things) are discussed in this article, which makes it clear that the West’s attempts to organize access to the raw materials necessary for the change of energy model are lagging far behind those of China.

*****

The new world order has begun.

On November 15, in the framework of the APEC summit, a dinner was held in San Francisco at which Xi Jinping spoke, following the introduction of senior US officials.

I consider very important what was said there, which can be seen in this video (long, but highly recommended). For those who do not have time to watch it in its entirety, I suggest watching the part between minutes 32 to 36. There, Xi Jinping proposes the beginning of a new era.

By the way, one of the speakers introducing Xi Jinping is Evan G. Greenberg, who, in addition to being Chairman of the US-ASEAN Business Council, is CEO of the Swiss company Chubb Limited, which is a very large insurance company. In his speech, Greenberg supports the new relationship of peaceful cooperation between the USA and China. Being in the insurance business, it is logical that he sees such cooperation as particularly interesting.

My attempt to summarize these speeches focuses on the fact that the USA has given up being the world’s hegemonic power (this is acknowledged by the officials introducing Xi Jinping), and accepts to share with China the control of the world. And, Xi Jinping acknowledges that he is asking for no more than that. Sharing is the key word. Xi says the world is big enough to accommodate two superpowers.

They speak of seeking cooperation and the coexistence of different societies, knowing that neither side can impose its model on the other. Nor do they want to completely isolate one side from the other. They recognize that they need each other (at least for now). In fact, China had already advanced its intentions, as can be seen here, and here. And as was made clear in the declaration of the BRICS summit I discussed in entry 10.

This is summarized very well by Ray Dalio here (he was one of the attendees at the dinner). He makes a very interesting mention of the change of objectives, which he summarizes as applying the “derisk” strategy (minimizing risks) instead of the “decoupling” strategy (isolation of the blocks, like the iron curtain).

In addition to that dinner speech, Xi and Biden had a private meeting. After it, both made very significant statements. Specifically, Biden said, “Critical global challenges … demand joint leadership” (implicitly implying the USA’s renunciation of being the world’s hegemonic power). And Xi said he was committed to “a stable, healthy, and sustainable relationship with the United States” (news here).

The pity is that shortly after, Biden has “put his foot in his mouth” in an undiplomatic way of directly calling his guest a dictator (he may be, but you should not insult when he is your guest and he is proposing an agreement that is in your interest). They tell it here, quite ironically, given that Zerohedge is quite anti-Biden. Let’s hope that China “forgives” the mistake of that grandpa who has lost his tongue (or, was it not a mistake and they wanted to keep up the tension? That’s something I’ll get into below).

If it were true that both powers accept this new world order, it would be enough to begin agreements to reform the global organizations (UN, World Bank, …) so that the weight of the BRICS+ countries (the new Breton Woods) would be recognized. With that, a new era could begin in which there would be peaceful cooperation between the blocs, and some trade between them. Such trade could be in place for a while. As long as needed until each of the blocs can reorganize its resources without needing the other (which I think is the end result). In the meantime, the West can have access to raw materials controlled by China and its friends, and China can continue to sell to the West until its domestic consumption is powerful enough. Moreover, China and USA together can force an end to the wars in Ukraine and Israel. Let us hope so.

*****

Inflation, interest rates, and fear.

Although at first glance it may seem that this issue is not related to Xi Jinping’s speech above, it is, and very much so, as will become clear below. That is why I have included it in this entry.

In previous entries I have discussed the problems that inflation is creating in the West. Also the problems that rate hikes, in an attempt to control inflation, are generating in the balance sheets of banks, as well as in the debt sustainability of countries.

The fact is that the risks derived from Israel’s new WAR, and the fear that this may lead to WWIII, may have the positive consequence of helping to fix inflation without the need for further interest rate hikes.

This is so because, as we know, inflation appears when there is more demand than supply. And, … demand is consumption.

The truth is that global instability is causing consumption to shrink. Nobody buys a new car if they think they are going to be fired from their job tomorrow. Much less if they think a world war is going to start. And this can be extrapolated to many other decisions, including investment in corporate growth.

If the fear of war reduces demand, there will be no inflation without the need to raise interest rates, which would be very desirable for the West. Of course, if the fear disappears, its effects will also disappear.

Putting this reasoning together with what was stated in the previous point of Xi Jinping’s offer of cooperation, we conclude that it is in the world’s interest to go down the path offered by Xi to achieve global stability, but it is also advisable for the Western economy to let fear continue to exist as long as possible, in order to control inflation.

That is, a logical (if somewhat Machiavellian) Western response to Xi Jinping’s proposal would be to acquiesce to the agreement, and move in that direction, but keep the tension going for a while. I think that is what they are going to do. Perhaps that is why there has been little coverage in the usual media of Xi Jinping’s speech, despite its great importance, while there is a lot of talk about Israel’s WAR.

Also related to this strategy may be what has been reported as an “absent-mindedness” of Biden when he called Xi Jinping a dictator while he was still visiting the US. Perhaps it was not that, but something premeditated. It would be a way of making China’s desire to close the agreement a little uncomfortable, without hindering it completely by framing it as a “senile absent-mindedness”.

Inflation matters a lot in the West. World peace matters more. For now they are going to try to reconcile the goals. If the time comes when they have to choose, let’s hope they choose peace.

*****

Self-citation.

Thinking about all that is going on, and going through my old entries, I came across something I wrote on April 28, 2020 in entry 7 of “Thinking 2020.” It is so related to what is current that I can’t resist excerpting the following:

Geopolitics.

The US will lose its hegemony (so will the dollar). China will rise, but will not replace it.

For some decade (one or two, no more) we will be in a balance of blocs similar to the cold war. Between them there will be little trade and no coordination.

This requires dismantling the infinity of cross-investments that currently exist between the blocs. This will not be immediate at all. In this reorganization there is room for many failures and many successes.

China will have to look for its customers in “its allied bloc”, as well as in domestic consumption. Also its supplies, which is something it already has almost done (unlike the USA).

The US will have to do something similar. Since it has that job backlog and a very weak economy, it is going to suffer doing it.

It seems that I was not far off the mark.

*****

Readings that have interested me.

In the process of writing this entry I have come across many issues of other subjects. I would like to share the following:

The folks at VisualCapitalist have generated another very interesting graph comparing the export capacity of each country (you can see it here). A first summary is that China exports more than the USA, and that Asia and Europe export more than America.

Elon Musk (always him) has a plan to take over almost the entire banking business (news here). And, … it is not to be ruled out that he will succeed. Besides, he already knows something about it, because we must remember that he was the creator of Paypal.

In addition, as he must have time to spare, he has signed an agreement with the Pentagon to create a new space shield (news here).

Ray Dalio, before writing about the dinner with Xi Jinping that I have already quoted above, wrote another post that I liked very much (this one). He comes to say that the risk of WWIII in the military field is moving away, but that a cold war between China and USA is advancing.

The “Techno-optimistic Manifesto” has been created (you can see it here). The truth is that I like what they say. It can be summarized as: less fear of technology and more intelligent work, there is a future.

Scott Galloway, in his always interesting blog, has published a post comparing the different way Americans view Israel’s position depending on their age. The differences are very large, and he concludes that the cause lies in the way each age group consumes information and socializes (you can see it here).

Although the entry has been shorter than usual, I end it here. I do so in order to avoid dealing with other issues, of much lesser importance, which could divert attention from something as important as Xi Jinping’s proposal. In the next entry I will continue with the issue of raw materials.

As always, I welcome comments on my email: pgonzalez@ie3.org