Taiwan lost one of its few remaining allies Tuesday. El Salvador severed diplomatic ties with the island nation supposedly after asking for money that the Taiwanese foreign ministry was unwilling to provide. This comes amid reports that the economy of Palau, another Taiwanese ally, is now reeling from a tourism ban imposed by China last year. Taiwan’s president is in the United States visiting NASA’s control center in Houston, Texas, something China has long opposed. U.S.-China relations are frayed. It seems like they won’t improve anytime soon.

Elsewhere in the Pacific, Samoa’s prime minister criticized Tonga’s request for China to forgive its debt. He says that such requests only damage the credit-worthiness of Pacific island nations, which will likely borrow in international markets in the future. The statement shows that in the fight against China’s expansion into the South Pacific – expansion made possible by the power of Beijing’s pocketbook – there is hardly any consensus.

Something strange happened in Iran on Tuesday. A televised speech by President Hassan Rouhani was suddenly severed for several seconds. Technical difficulties happen, of course, but in this instance, the feed was cut after Rouhani issued an unusual and potentially controversial statement. He said, “A very close connection between the armed forces of the army, IRGC [Islamic Revolutionary Guard Corps] and our defense ministry should be established to use each other’s capabilities and experiences. I want to say something that I should have told Mr. [Defense Minister Amir] Hatami in private but now …” Perhaps this was a harmless mistake. If it wasn’t, though, it’s more evidence that the political infighting in the Iranian government is spilling out into the public at an economically precarious time.

Iran has meanwhile resumed electricity exports to Iraq, Afghanistan and Pakistan. The initial cuts to Iraq a few weeks ago were the proximate cause for the protests that erupted in Basra. Those protests continue apace. One Iraqi politician has begun to call for a referendum on Basra’s autonomy, citing frustration with the government for failing to provide for the region despite it being the primary provider of the country’s oil revenues.

In the United States, President Donald Trump has once again lamented the Federal Reserve’s decision to raise interest rates. Now, the Fed is independent of the government, which can’t directly influence monetary policy and only has the power to appoint Federal Reserve governors. But the Fed is not the market, and after Trump’s lamentations, the dollar weakened, albeit slightly. In light of the recent currency problems in Turkey, Iran, Russia and elsewhere, we have our eye on anything that affects the value of the dollar.

Honorable Mentions

  • Japan’s Defense Ministry is reportedly considering a record $65 billion budget proposal for the government’s 2019 budget. A notable portion of the increase would be related to purchases of the Aegis Ashore missile defense system.
  • Iran said it will stop using the dollar in its official exchange rate reporting platform, opting instead to show exchange rates in yuan. This seems like a cosmetic change.
  • The Iraqi election recount has been completed and ratified, and Iraqi President Fuad Masum says he will soon be calling for the formation of the government, which has been delayed since May.
  • According to Ifo, a Munich-based economic research organization, Germany is on track this year to report its largest-ever trade surplus in absolute terms (264 billion euros or $304 billion) even though as a percent of GDP this would represent a slight decrease from 2017.
  • It appears that training for joint U.S.-Turkey patrols in Manbij, Syria, has been delayed, despite assurances from U.S. Defense Secretary James Mattis that patrols had already begun.