06 March 2019

U.S.-China Trade War: A Lowdown


A short explainer on the trade war between the U.S. and China. 

U.S. trade in goods with China 
 
(latest info, as of November 2018, sourced from www.census.gov, a U.S. government website)

  • Imports from China: U.S.$493.49 billion
  • Exports to China: U.S.$111.16 billion
  • Trade Balance: minus (–)U.S.$382 billion

Why
The U.S. accuses China of high tariffs (taxes) on American products, which make them expensive for the Chinese to buy.

Also, Washington has accused Beijing of doing nothing to prevent theft of intellectual property rights (like counterfeit goods and pirated software) and stealing of trade secrets (including through corporate espionage or by breaking into computer systems of American companies to gain access to cutting-edge technologies). The U.S. estimates the damages from China’s bad behaviour at around $600 billion.

Tariffs & Impact
To punish China for its bad behaviour and inaction, the U.S. imposed high tariffs on around Chinese goods (like handbags and heavy machinery) with $250 billion. Tariff increases ranged between 10% and 25%.

China hit back with $110 billion in tariffs on American goods.

The U.S. has postponed imposing another of tariffs on Chinese goods (worth $200 billion) as negotiations are underway to broker a better trade deal.

As of today, the Chinese have agreed to buy more American goods, especially agricultural products (like soybean). Farmers are among the major vote banks of Donald Trump. However, to push Trump to buckle down, China has imposed higher tariffs on goods (like coal and chemicals) made in Republican strongholds.

Beijing has also agreed to reduce tariffs on some American products to help those products gain wider market access.

Tariffs (taxes) on Chinese goods would make American products cheaper (comparatively) in the home market. This would induce Americans to buy more American goods (and not expensive Chinese goods).

China’s exports to the U.S. make for nearly 25% of its total exports. A drop in its exports to the U.S. could harm Beijing a lot more than it is willing to admit; of course, bragging aside, Beijing knows that a drop in exports to the U.S., especially amid a slowdown in its economic growth, could lead to industrial contraction, higher unemployment, and social unrest.

Status today
Both the U.S. and China have dug in their heels, though both countries cannot afford to do that for a long haul. Washington and Beijing are waiting for the other to blink, though both parties are staring at each other.


04 March 2019

Venezuela Crisis in a Nutshell

In this short explainer on the crisis enveloping Venezuela, I have tried to be brief and to the point.


Nicolas Maduro                   Juan Guaido


Who’s Who in Venezuela


President: Nicolas Maduro, a hardcore socialist, anti-U.S., leader of United Socialist Party of Venezuela.   

Who supports Nicolas Maduro:
    (a) Within Venezuela: Supreme Court of Venezuela, Defence Forces of Venezuela, PDVSA (state-owned oil company); 

(b) 
Outside Venezuela: China, Russia, Turkey, Iran, Bolivia, Cuba, Nicaragua  (last three are in the Americas).

Who does Maduro blame for the current crisis
: United States of America.

Challenger: Juan Guaido, self-declared Interim President since January 2019 and leader of Popular Will, a centrist party.

Who supports Juan Guaido
:

(a) Within Venezuela: Low-ranking military officials and huge popular support.
(b) Outside Venezuela: U.S., UK, Argentina, Brazil, Chile, Colombia, Ecuador, Peru, Panama, Costa Rica, Guatemala, and Honduras.

Role of Oil in Venezuelan Economy


  • Oil reserves in Venezuela are said to be among the top 3 in the world.
  • Oil accounts for 98% of export earnings. 
  • Oil accounts for 50% of GDP
  • High global oil supply, falling crude prices, and poor extraction technology have led to a big decline in oil production – all of which have drastically reduced the government’s export earnings, thereby widening revenue deficit. 
  •  In 2018, GDP shrunk by double digits for the third consecutive year. 
  • Government does not have foreign exchange reserves to pay for imports and loans. 
  • Venezuela has been in default since 2017 – meaning, it has not paid back foreign loans and not paid for imports. 
  • U.S. and other countries have a long-running embargo against Venezuela; this has shrunk market for Venezuelan products and reduced avenues for borrowings.

Major Problems

  • Great political and economic instability 
  • Mostly, a result of catastrophic humanitarian emergency. 
  • Severe shortage of food, medicine, & other essentials – mostly because of hoarding, embargo, and hyperinflation. 
    • Hyperinflation, meaning very, very high rate of inflation, is leading to doubling of prices of essential goods every 19 days on average. Current inflation is around 85,000%. Thousands of health professionals have left the country, leading to medical emergency. 
    • Lack of access to food and healthcare have pushed 90% of people below the poverty line.  
    • On average, a Venezuelan has lost around 12 kg of body weight since 2017. 
    • It is believed that some 3 million have already fled Venezuela; the number is likely to rise to 5 million by the end of 2019.

In a nutshell, years of economic mismanagement, misdirected welfare policies (subsidizing almost everything through high revenue earned by oil exports), huge debt, massive shortage of essential stuff, hyperinflation, political instability – have all led to the current catastrophic humanitarian crisis in Venezuela.

01 February 2019

The Explainer: Budget at a Glance


In India, there is hardly any economic event that captures popular imagination as much as the Union Budget. This Explainer will focus on the complex budget jargon that puts off even 'interested–in–budget' souls.

What is a Vote on Account?
The Central Government must seek approval of the Parliament to withdraw money from the Consolidated Fund of India to meet expenses.

A full budget goes through a long process; with elections due soon and without parliamentary approval, the Central Government may run out of cash to meet expenses. This may paralyze the functioning of the government (a la the shutdown in the U.S.).

Tell me more about Vote on Account (VoA).
VoA is generally undertaken for only two months and can’t exceed six months.

VoA is taken in two cases:
o   Government is unable to pass a full Budget by 31 March;
o   Term of the current government ends close to 31 March.

VoA is different from Interim Budget in one major aspect:
o   Interim Budget focuses on both revenue & expenditure whereas the VoA focuses ONLY on expenses.

What is a Fiscal Year?
Any twelve–month period that is used for submission of accounts, taxation purposes and to state financial reporting by private and public sector companies is called a Fiscal Year.

In India, the Government has laid down the provision that the 12–month starting on April 1 and ending on March 31 of next year will be treated as a Fiscal Year.

To put it in perspective, this article is being written on 1 February 2019, i.e., in Financial Year 201819. This is also called Fiscal Year ’19.

In the same way, the financial year for 201920 will start on 1 April 2019 and will end on 31 March 2020. So, on 1 April 2019, we will enter Fiscal Year ’20.

Define Budget.
The Budget is a statement of revenues and expenditures for the coming fiscal year, i.e., the one that starts on April 1 of this year.

What does the Budget consist of?
Look at the table graphic below. This document titled, Budget at a Glance, is the best document to understand the components of the various types of figures in the Budget.


The Union Budget 201920 consists of the following:
(a)   Actuals for 201718,
(b)   Budget Estimates for 201819,
(c)   Revised Estimates for 201819, and
(d)   Budget Estimates for 201920.

The Actuals for 2017–18 may be represented as such but they STILL would be PROVISIONAL only. This means that these figures are NOT the final figures for 2017
18 but are subject to further revision. In fact, the final figures for 201718 will only be available toward the end of Financial Year 201819 (or Fiscal Year ’19).

Budget Estimates (BE) relate to the figures set out by the Finance Minister in his Budget Speech last year (i.e., in February 2018) for the Financial Year 201819.

However, all figures related to revenue collection, expenditure, other allocations – are subject to change. These numbers are mere ESTIMATES and not actuals. As the year progresses, such figures may sometimes need to be revised. For example, if there is low industrial and agricultural activity (meaning lower economic output), tax collections may dip. 
This, in turn, will reduce the government’s Revenue Receipts.

In such case, the Government may revise the Budget Estimates (made in the Budget). Such altered figures are labeled Revised Estimates (RE). These RE are listed in the third column.

In the fourth and last column, you will find Budget Estimates for the coming Financial Year 201920. These figures reflect the various estimates made by the Government in terms of Receipts (including tax collections) and Expenditures (including interest payments and salary payments to government employees).

23 January 2019

Datagraphic: Top 7 Economies by GDP (Nominal)

India was ranked the sixth biggest economy by GDP in 2017; however, it is back to being the seventh  biggest economy. 


20 January 2019

The Explainer: Erdogan, Khashoggi, Gulen, & MbS

The murder of Jamal Khashoggi has brought intense focus on Turkish leader Recep T. Erdogan's campaign against Saudi Crown Prince Mohammad bin Salman. I will explore a couple of major reasons behind the purpoted angst of the Turkish leader.

Who was Jamal Khashoggi? Jamal Khashoggi was a Saudi Arabian journalist and an insider in the Saudi royal court. He fled to the U.S after running afoul of
Jamal Khashoggi
the current royal administration in Saudi Arabia. A vociferous critic of the Saudi Arabian royal house, especially the Crown Prince Mohammad bin Salman, he was a columnist for the Washington Post newspaper and head of an Arab news channel.

On 2 October 2018, he visited the Saudi Arabian consulate in Istanbul to collect documents pertaining to the dissolution of his marriage to a Saudi Arabian woman; the documents were necessary for him to get married to his Turkish fiancée. He was murdered inside the consulate by Saudi Arabian intelligence officials. Till date, no trace of his body has been found.

Read Who is Mohammad bin Salman?

The murder of Jamal Khashoggi has since thrown West Asia into turmoil. The Khashoggi saga has embroiled Saudi Arabia and Turkey in a war of words, with the U.S. squeezed between its two important allies. The following are the major players in the Khashoggi saga: Saudi Arabia, Turkey, the United States, Iran, Qatar, and the Muslim Brotherhood.

Turkey directly implicated Saudi Arabia of carrying out the murder on its soil, even pointing a finger at the Crown Prince Mohammad bin Salman for his involvement. Turkish President Recep T. Erdogan claimed the possession of
Recep T. Erdogan (Source: from Wikipedia)
unimpeachable evidence of the involvement of the Saudi Crown Prince, suggesting that the order for the murder “came from the highest authorities in the Saudi administration”.

Why did the Turkish President get so worked up about the murder of a Saudi dissident? The answer to this seemingly distasteful question lies in the ‘great power’ ambitions of the two countries.

We know that Saudi Arabia is the de facto leader of the Muslim World; however, Turkey, under Recep T. Erdogan, wants to become the centre of the Muslim World, just like the Ottoman empire was before its eventual collapse in 1922. Erdogan, an Islamist, has a grand vision of becoming the voice of the Muslim World, and he has made no effort to conceal his ambitions.

Erdogan is a firm supporter of the Muslim Brotherhood, an Egyptian extremist organization with a wide support base in the Muslim World. The Muslim Brotherhood is an anti-monarchy, pro-Sharia group. The Muslim Brotherhood came to power in Egypt through its political party in 2012, a development that rang alarm bells in the capitals of the monarchies in the Muslim World.

The anti-monarchy, pro-Sharia core ideology of the Muslim Brotherhood raised the hackles of the Saudi monarchy who felt threatened by the hardcore Islamist who was now the president of Egypt, a neighbouring country. Alarmed by the spectre of the spread of the Muslim Brotherhood’s ideology in Saudi Arabia, the Saudi Arabia royal house instigated the Egyptian army to oust the Muslim Brotherhood from power and take over the country. Thus, in July 2013, barely a few months after coming to power, the Islamist President of Egypt was ousted and jailed on charges of terrorism.

The Saudi Arabian involvement in the ousting of the democratically elected government in Egypt angered Erdogan, a die-hard supporter of the Muslim Brotherhood. The murder of Jamal Khashoggi came in a blessing for him to put the Saudis on the mat. He leaked evidence of the involvement of the Saudi Crown Prince in the Khashoggi murder case in a calibrated manner; in fact, the method was so effective that it has been called “death by a thousand leaks”.

Saudi Arabia botched its response to the Khashoggi murder saga; from firmly denying its involvement to calling it a rogue intelligence operation without concurrence of the royal house, the Saudi Arabian government came across as confused and unprepared for the massive backlash from the international community.

There is another reason behind Turkey’s shrill campaign against Saudi 
Arabia: Fethullah Gulen. Gulen, a friend-turned-foe of Erdogan, lives in self-imposed exile in the United States. He runs a social and charity organization engaged mostly in education activities. His organization is widely popular across Turkey, with millions of members, with thousands of them in influential positions in the administration.

Erdogan accused Gulen of instigating the July 2016 military coup. Thousands of 
Fethullah Gulen
his followers were arrested while another 1.5 lakh were fired from their jobs in the administration, including in the military. Turkish jails are full of Gulen’s followers with allegations of vendetta flying thick.

Erdogan has demanded the extradition of Gulen from the U.S., a request Washington has repeatedly turned down, citing lack of credible evidence from the Turkish government.

It is believed that Erdogan is using the Jamal Khashoggi issue as a bargaining chip: Erdogan will stop badgering the Saudi Royal House (i.e., Crown Prince MbS) if the U.S. hands over Gulen to Turkey.

Why will the U.S. agree to this arrangement? A major reason could be the extraordinary pressure from Saudi Arabia on Donald Trump; Trump sees MbS as an important cog in the U.S. policy in the region.

If you have been following the Jamal Khashoggi saga, you would have noticed that the noise from Turkey against MbS has subsided considerably; maybe the Gulen factor is at play. We do not yet know.

19 January 2019

The Explainer: Who is Mohammad bin Salman?


Muhammad bin Salman, the Crown Prince of Saudi Arabia, has come to dominate the politics of his country and the region. His policies and action (both domestic and foreign) are changing the political landscape in West Asia.


Who is Mohammad bin Salman?
Mohammad bin Salman is the Crown Prince of the Kingdom of Saudi Arabia. As the Crown Prince, he is next in line to succeed his father and King, Salman bin Abdulaziz Al Saud (who is also the Prime Minister of the kingdom). 

Virtually unknown in the corridors of power before his meteoric rise, MbS, as he is popularly called, was appointed the Crown Prince in June 2017. Today, he is also the kingdom’s Deputy Prime Minister, Minister of Defence, Chairman of the Council for Economic and Development Affairs, and Chairman of the Council of Political and Security Affairs.

MbS is the most powerful person in today’s Saudi Arabia. The King, his father, trusts him blindly and has stood by him even as the calls for the Crown Prince’s removal for his involvement in the botched Yemen War and the Jamal Khashoggi murder saga grow louder.

Reformer. MbS is seen as an ardent reformer by his supporters. They point to the several reforms he has ushered in the deeply conservative country: lifting the ban on women drivers, allowing cinemas and music concerts, and introducing a spate of economic reforms. The once all-powerful religious police have now been restricted to the barracks.   

Megalomaniac. MbS’ detractors, and there are many, describe him as megalomaniacal and impetuous. They cite his catastrophic war campaign in Yemen and the ill-planned embargo against Qatar as examples of his whimsical behaviour.

They also describe him as power-hungry, someone who cannot tolerate dissent; the jailing of hundreds of political dissidents, including women activists, is a case in point.

Saad Hariri
The Saad Hariri Incident. Another example is his treatment of the Prime Minister of Lebanon, Saad Hariri. When Hariri arrived in the Kingdom to meet King Salman, he was bundled to an unknown location; there was a complete blackout of the news concerning Hariri, a leader of a sovereign nation. One week later, Hariri was forced to tender his resignation from the prime minister’s post of his country from the soil of a foreign nation. His freedom from the clutches of the Saudi Arabian government came only after the French President Emmanuel Macron went to Riyadh to negotiate his release. Once back home, Hariri withdrew his resignation. Analysts believe that he paid the price due to his inability to stem the growing influence of Iran and its Lebanese proxy, Hezbollah, a Shia militant group.

Bakr bin Laden
Whipping the Cream of the Saudi Society. The incident that jolted the elite Saudis most took place in November 2017. Around 200 prominent Saudis, including the former Crown Prince Muhammad bin Nayef and Bakr bin Laden, the head of Saudi Binladin Group (a construction giant), were rounded up and detained for several months on the orders of MbS. The entire operation was described as a campaign against corruption and embezzlement; the detained were accused of enriching themselves at the cost of the Saudi State. It is believed that a few of those detained were tortured and forced into giving up their wealth. Bakr bin Laden and his two brothers were forced to transfer their 36 per cent shareholding in Saudi Binladin Group to a state-controlled company, overseen by MbS.

The second part of this article will appear tomorrow.