For now, things look subdued. Financial markets reacted relatively calmly to Nancy Pelosi’s visit and the military exercises Beijing ordered in response. The assumption is that China will make a show of force and leave it at that. However, its president, Xi Jinping, also has economic and financial weapons at his disposal and may choose to use them. At the milder end of the spectrum, China could make it more difficult for US companies to access its market. He would be in no rush, for example, to allow Boeing to resume sales of its 737 Max planes. That would accelerate the decoupling of the world’s two largest economies — a trend that began when Donald Trump was in the White House and continued under Joe Biden. Hostility toward Beijing is one of the few things Republicans and Democrats agree on. There is, however, a risk that China could go further and take advantage of Taiwan’s dependence on imported fuel by imposing a blockade on the island. As Mark Williams, chief Asia analyst for Capital Economics, notes, this will soon cripple Taiwan’s industry and cause “huge global economic disruption.” That’s because the island makes about half the world’s semiconductors, which are used in everything from cellphones to cars and are already in short supply. Curbing chip exports would lead to supply bottlenecks, higher inflation and weaker growth. Inevitably, there would also be pressure on the US not only to impose economic sanctions and asset freezes but also to intervene militarily. Financial markets are probably underestimating the risks posed by Taiwan. At the very least, business confidence is about to take another hit. The chances of imposing trade restrictions have increased. There will be greater pressure for national self-sufficiency to reduce dependence on global supply chains. And this is a relatively optimistic reading of the facts. There is clearly a risk – low but not negligible – that this increasingly tense cold war could catch fire.
Oil prices look set to fall further
OPEC no longer wields the influence over global energy markets that it did in the 1970s and 1980s. Photo: Dado Ruvić/Reuters There was a time when OPEC oil cartel meetings were headline news. When Sheikh Ahmed Yamani died last year, obituaries made much of how, as Saudi Arabia’s oil minister, he was a key figure in setting the global price of crude. But that was all a long time ago. OPEC is now OPEC+ thanks to the addition of some new members, including Russia, but it no longer has the influence over global energy markets that it did in the 1970s and 1980s. Oil prices are now well below the levels reached immediately after the Russian invasion of Ukraine and will likely fall further in the coming months. This has nothing to do with Wednesday’s meaningless decision by OPEC+ to increase crude supply by 100,000 barrels per day and everything to do with global demand. As the International Monetary Fund noted last week, all three of the world’s major economies – the US, the eurozone and China – are at a standstill. Oil is trading around $100 a barrel – a price consistent with strong global growth rather than the recession looming this winter. Whether or not OPEC+ increases downward pressure by increasing production, oil prices are expected to fall further. This will be good news for UK drivers, provided of course that lower costs are passed on to them from petrol retailers.
Why regional pay for public sector workers is a stupid idea
Setting up regional pay boards to match public sector pay to local labor market conditions is the kind of proposal Liz Truss might have dreamed up when she was cutting her political teeth as deputy director of centre-right thinktank Reform. Nothing wrong with that. Thinktanks are there to propose radical new proposals. Politicians, however, have to separate the good ideas from the bad ones, and regional pay for civil servants falls squarely into the latter category. There are reasons for this. One is that cutting public sector wages will reduce spending power in parts of the country suffering from low levels of demand. Another is the need to incentivize the brightest and the best to take up jobs outside London and the South East. The proposal is bad economics and bad policy, which clashes with the government’s flattening agenda. No wonder Truss scrapped the idea within 24 hours of its announcement.
