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Yellen dissembles on dollar, US deconstructs WTO, Dollar's precipitous plunge, chips are down for Taiwan, Huawei's long march, whole world hates America, Lula's worldview interview

Apr 21, 2023

UPDATE: Ms. Yellen argued that the United States was secure enough in its leadership of the global economy to welcome economic competition from China, as long as it played by international rules.

The United States is the prime cause for the failure of WTO reform of dispute settlement and relevant judicial systems. The US has attacked WTO mechanisms and solutions to decrease the negative impact on disputes brought against it, which outnumber, by a very large margin, any brought against other countries including China.

Taiwan’s export orders in March plunged by the most since the global financial crisis as global demand for semiconductors shows little sign of improving. The value of overseas orders to Taiwanese companies shrank to US$46.6 billion last month, a 25.7% drop compared to a year ago. The contraction was the largest since January 2009.

Huawei Technologies has announced it is replacing internal software management systems it previously sourced from US vendors with its own in-house version, cheering the move as a victory over US sanctions that had threatened its survival. The in-house Meta-ERP has been rolled out across 80% of the company’s business.

Turkish Interior Minister Suleyman Soylu has said the "whole world hates America" as a result of its uncontrollable foreign policy. He called Europe an American pawn in Africa, which hates nations that abuse it. Soylu also asserted that Europe follows US orders rather than its own. “There is America. Europe is a train in America’s column.”

Yellen dissembles on China relationship

Treasury Secretary Janet L. Yellen on Thursday called for a “constructive” and “healthy” economic relationship between the United States and China, one in which the two nations could work together to confront global challenges in spite of their conflicting national security interests. The speech attempted to disguise US economic warfare within a fantasy discourse of US economic leadership imposed through coercion, human rights and national security.

Ms. Yellen said she and President Biden did not see the U.S.-China relationship as a zero-sum contest “where one must fall for the other to rise. However, both Republicans and Democrats describe China as a dangerous economic rival and a security threat. Many have lost patience with the idea of bringing China into the rules-based international system, arguing that past efforts to do so failed to adequately improve the country’s practices.

Ms. Yellen argued that the United States was secure enough in its leadership of the global economy to welcome economic competition from China, as long as it played by international rules.

“China’s economic growth need not be incompatible with U.S. economic leadership,” she said, adding, “We do not seek to ‘decouple’ our economy from China’s.”

Beijing has criticised the U.S. restrictions, saying that they are unlawful and a blatant effort to weaken the Chinese economy. A spokesman for the Chinese Embassy, Liu Pengyu, said China supported a healthy and mutually beneficial relationship with the United States. He added that “China does not shy away or flinch from competition” but opposes a broadening of national security concerns in trade and any potential threats to global supply chains.

”Yellen said the Biden administration’s economic strategy is entered around investing in American infrastructure, clean energy and technology manufacturing, “not suppressing or containing any other economy.” However, the United States is clearly damaging China’s economy. The Trump and Biden administrations have clamped down on doing business with China for certain advanced technologies. The Biden administration is aggressively subsidising new manufacturing of semiconductors, clean cars and solar panels in the United States to build up alternative industries to China. To achieve its goal the US is restricting imports of China produced renewable energy products such as solar panels and car batteries.

“These national security actions are not designed for us to gain a competitive economic advantage, or stifle China’s economic and technological modernization,” Ms. Yellen said. The Trump and Biden administrations have both focused on preventing China from accessing semiconductor manufacturing technology and advanced semiconductors, which it justifies with accusations of use in military applications.

Yellen said the Biden administration was considering further restrictions on certain U.S. investments in the country in technologies that could be used for surveillance or warfare. And she warned China not to provide material support for Russia’s war in Ukraine, saying that the consequences of violating U.S. sanctions on Russia “will be severe.”

Ms. Yellen said she planned to travel to China “at the appropriate time” to engage in a “substantive dialogue on economic issues.” Commerce Secretary Gina Raimondo is also exploring the possibility of a visit this year.

Compiled from reports.

Illustration by Chad Crowe for Times of India

US trade policy deconstructs WTO

Washington recently announced that it had lodged appeals against a series of WTO rulings that found various US behaviors breached global trade rules, including tariffs on steel and aluminum products from China and other countries and mandatory labeling requirement for products made in the Hong Kong Special Administrative Region.

The US' move, coming after the WTO has recently made several rulings against the US, might seem normal, because after all, under the WTO's rules, all members are afforded the right to file appeals. The US move threatens the global free trade system with the WTO at its core and the global economy as a whole.

The US is appealing every unfavourable panel report placing greater pressure on the WTO Appellate Body. Meanwhile the Appellate Body needs new judges to operate and the US has blocked appointments since the Obama administration. Without a functioning Appellate Body to make a final ruling, any case that is appealed disappears into a legal black hole. In other words, the US' move to file appeals is an underhanded tactic of escaping enforcement of WTO rulings against it.

Ever since the Obama administration moved to muzzle the WTO Appellate Body, it is increasingly clear to the international community that the US' attitude toward the WTO and other multilateral institutions is destructive. When Washington needs the WTO for its own purposes, it espouses the "rules-based international order." When the WTO stands in the way of US unilateralism in global trade, Washington disregards WTO rules and obscures its actions with accusations against other countries, including its allies.

While the US continues to proclaim leads a "rules-based international order," the international community increasingly understands that Washington’s selfish ambitions put the world economic order in serious peril. Thus, the world has become increasingly vigilant about US behaviour, with many countries, including Washington's own allies, criticising its hostility in international fora.

The US Inflation Reduction Act discriminates against companies and products made outside the US or North America and disrupts global industrial and supply chains by ignoring the WTO and international law.

At a time when the global economy is facing the risk of slipping into a recession, the reckless sabotage of the global trade system and international trade order poses new risks to the global economy. The longer the WTO dispute settlement mechanism is paralysed, the bigger the risk of trade protectionism and even trade war the global trading system will face.

As many as 127 WTO members made a joint proposal to protest the US' long-term obstruction of the appointment of judges to the WTO's Supreme Appellate Body. This was the 61st proposal made by the vast majority of WTO members on this issue. The three-year dysfunction of the Appellate Body, which was caused singlehandedly by the US, has seriously restricted the WTO from playing its due role in upholding free trade rules.

To put it more bluntly, the US, with its constant and reckless attack on the WTO as well as protectionist economic policies at home, may have created a time bomb in the real rules-based international multilateral trade system. Specifically, with the US' Inflation Reduction Act coming into effect, there are growing concerns over an upcoming super-large-scale global trade war, which would cause chaos for the current global economy.

The Editor

De-dollarization at stunning pace

Dollar’s reserve currency status has fallen precipitously. The dollar share of official global reserve currencies dropped from 73% in 2001 to about 55% in 2021. And in 2022, it tumbled to 47% of total global reserves. The greenback’s share in global reserves slid last year at 10 times the average speed of the past two decades as a number of countries looked for alternatives after US-led sanctions were placed on Russia. Adjusting for exchange rate movements, the dollar has lost about 11% of its market share since 2016 and double that amount since 2008.

Coordinated sanctions against Russia alerted many countries, pushing them to seek currency alternatives — for trade settlements and reserve build-up.

"It seems reasonable to speculate that the main driver of the collapse in USD's reserve status in 2022 may have reflected a panicked reaction to property rights being jeopardised. What we witnessed in 2022 was sort of a 'defund-the-global-police' moment, whereby many reserve managers in the world disagreed with the conduct of both Russia and the U.S.," the note said.

Analysts who continue to ignore the de-dollarization trend are being too complacent. "If the U.S. makes more policy errors and abandons the culture of self-examination, there will likely come a time when much of the rest of the world will actively avoid using the dollar," Jen wrote. "While the Global South is unable to totally avoid using the dollar, much of it has already become unwilling to do so."

"If the financial markets outside the U.S. could thrive (growing in size and becoming ever more energetic, without being unstable), and if the opposite happens in the U.S., the dollar could very well meet its demise. This is, however, not an imminent risk, in our opinion, though the trends are heading in that direction," Jen described.

The note added that analysts are failing to notice these changes because the nominal value of the world's central banks' dollar holdings is usually used in calculations and changes in the price of the dollar go unaccounted for.

More and more countries, led by China and Russia, are making bilateral trade agreements that exclude the U.S. dollar. The yuan is already the most traded currency in Russia. This happened only in February after the yuan surpassed the dollar in monthly trading volume for the first time.

China recently completed the first yuan-settled LNG trade. China also struck a deal with Brazil to trade in their own country's currencies.

At the same time, China and Malaysia are discussing the creation of an Asian Monetary Fund to reduce reliance on the U.S. dollar, while India and Malaysia announced that they abandoned trading in U.S. dollars and can now settle in Indian Rupees.

Watch interview on Bloomberg.

Read report summary here.

Chips are down for Taiwan

Weakening demand for electronic components, which includes semiconductors, was the main factor behind the decline. Orders for components fell 29.4%, also the biggest fall since 2009. Earlier sales data from industry leader Taiwan Semiconductor Manufacturing Co (TSMC) indicated the weakness in global demand.

“Taiwan’s exports should continue to fall if the US economy weakens further”

The world’s biggest contract manufacturer of chips missed revenue estimates for the second straight quarter, with sales of NT$508.6 billion ($16.7 billion) in the January-to-March period, TSMC said earlier this month.

During a briefing about earnings on Thursday, TSMC chief executive officer CC Wei said the company was “passing through the bottom of the cycle” of its business in the second quarter. The markets for PCs and smartphones “continue to be soft”, he added.

In terms of regions, waning demand from the United States was a particular concern, said ING Bank chief China economist Iris Pang. She pointed out that while orders from China and Hong Kong fell more than 30% year-on-year, the dollar value was more or less in line with Chinese orders from November and December. US orders in March were well down from their levels late last year.

Huawei’s “Long March”

The Chinese tech giant held an internal ceremony to celebrate the switch to its ‘MetaERP’ — an enterprise resource planning system — to replace tools it largely purchased from Oracle earlier. ERP software is used by companies to manage key business operations ranging from accounting to supply chain management.

“We were cut off from the old ERP system and other core operation and management systems three years ago,” said Tao Jingwen, a Huawei board member and president of its quality, business process and IT management department. “Today we are proud to announce that we have broken through that blockade, we have survived!” The ceremony held in Dongguan, south China was attended by the Huawei’s rotating chairperson Meng Wanzhou, the daughter of the company’s founder Ren Zhengfei.

In May 2019, the US Commerce Department added Huawei to a trade blacklist over alleged security concerns the company denies. The listing and several successive rounds of trade sanctions hobbled Huawei’s ability to source items made with US technology. It also cut it off from servicing and patches for ERP tools it largely purchased from Oracle.

The cut off was a “massive crisis” for Huawei, Tao said in his speech, saying that the old system had been core to the company’s operations for over two decades. “Not having access to ERP became Huawei’s ‘Dadu River’ (reference to an epic battle to cross the Luding Bridge during the Long March) that blocked our way forward and threatened our very existence.”

While Tao’s speech did not mention if Huawei intended to commercialise its ERP system and compete with the likes of Oracle and SAP, it provides a potential new business line for the company which has been expanding into areas in its bid to outmanouvre illegal US sanctions.

Huawei’s ‘meta-ERP’ system is a ‘cloud-native’ product, which uses the company’s cloud-computing systems for greater efficiency than traditional ERP products, a person familiar with the matter said.

While the older system was like “a massive old building in disrepair,” the new system has been fully tested and is processing 15 million lines of accounting entries daily, Tao said.

“whole world hates America”

Turkish Interior Minister Suleyman Soylu, a known critic of the US who has previously accused it of orchestrating the 2016 military coup attempt, claimed that the "whole world hates America". Soylu added that confidence in the US is waning as a result of its uncontrollable foreign policy. On a related note, he called Europe an American pawn in Africa, which hates nations that abuse it. Soylu continued to undermine Europe's importance and asserted that it follows US orders rather than its own. “There is America. Europe is a train in America’s column. There is nothing special...”

This follows recent anti-US sentiments across Turkey, and Turkish President Recep Tayyip Erdogan's criticism of US Ambassador Jeffrey Flake, noting that a diplomat such as him “should know his place.”

"[US President] Joe Biden's ambassador visits Kemal. Shame on you, think with your head. You are an ambassador. Your interlocutor here is the president. How will you stand up after that and ask for a rendezvous with the president? Our doors are closed for him, he can no longer come in. Why? He needs to know his place," Erdogan said this month after Flake visited Erdogan's rival, Kemal Kilicdaroglu.

This also comes amid preparations for the upcoming presidential elections scheduled for May 14. CHP leader, Kilicdaroglu, is Erdogan’s main rival and designated candidate for five other alliances. Back in February, Soylu publicly condemned the US ambassador, telling him to take his “dirty hands off Turkey", adding, "Every US ambassador asks themselves how they can harm Turkey. It has been one of Turkey’s greatest misfortunes for years. They gather other ambassadors and try to give them advice. They do the same in Europe as US embassies run Europe,"

Around that time as well, Ankara summoned the ambassadors of Western countries, including the US, to criticize their decision to temporarily shut diplomatic missions and issue security alerts following the recent burnings of the holy Quran in Europe.

Meanwhile, Turkish Foreign Minister Mevlut Cavusoglu denounced Western countries' attempts to try to make Turkey look unstable or give the impression that there is a terrorist threat in the country.

Lula’s Worldview Interview

Celso Amorim is regarded as being among the most influential forces formulating Brazil’s grand strategy, and President Lula’s chief foreign policy advisor, having previously served as Brazil’s Foreign Minister on two occasions and once as Defense Minister. Amorim’s latest interview articulates Lula’s worldview at length.

'We are not obliged to follow all US opinions', says Celso Amorim

At 80 years of age, former Foreign Minister Celso Amorim is the diplomat with the most experience in activity in Brazil. He is also the closest to Lula (PT), who chose him to be special advisor with the mission of representing the president himself in delicate international missions.

Amorim commanded the Ministry of Foreign Relations in Itamar Franco's government between 1993 and 1995, held the same position in Lula's two previous terms as President of the Republic, and was Defence Minister under Dilma Roussef (PT).

In this interview, he defends Lula's position on the war in Ukraine and says that the president's criticism is not only of the position of the US and the European Union in relation to the conflict.

He says that criticisms have already been made loud and clear to Russia, which invaded the neighbouring country, and that Brazil even accompanied Western countries in a condemnation of the act at the UN.

He says, however, that peace must be sought, and that "sanctions" or insistence on "defeating Russia" will not solve the issue.

"What do you want? A revenge? To teach a lesson?" he says of Western countries' stance in the conflict. "The last time that was tried [with the Treaty of Versailles after Germany's defeat in the First World War] that's what happened," he says.

Amorim also says that Brazil recognises the importance of the role of the US, which recognised the result of the Brazilian presidential election when it was under questioning by former president Jair Bolsonaro (PL). But that, however, does not oblige Brazil to follow US interests in international affairs.

"There was no pact," he says.

Read complete interview here.

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