U.S.-China trade truce? U.S. and Chinese trade representatives are talking again. On Tuesday, Beijing announced that it would return tariffs on U.S. auto imports to pre-trade war levels. But, as we’ve explained, even if the two sides reach an agreement on trade, the U.S. will continue applying pressure on China regarding its efforts to access advanced U.S. technologies. Bloomberg has reported that the U.S. Commerce Department is moving forward with plans to tighten restrictions on technology exports by U.S. firms, and according to the Washington Post, this week multiple U.S. agencies are expected to lay out evidence of continued Chinese efforts to steal U.S. trade secrets and advanced technologies and to compromise government and corporate IT systems. The war over tech is only going to get uglier. As we noted yesterday, Chinese authorities have arrested a former Canadian diplomat, ostensibly in retaliation for Canada’s arrest of Chinese tech giant Huawei’s CFO, who was granted bail by a Canadian court on Tuesday, at the request of the United States. (U.S. President Donald Trump told Reuters he’d be willing to intervene in the CFO’s case if it helped reach a trade deal.) The U.S. has the upper hand in its offensive against China, but if things devolve into retaliatory tactics like hostage-taking, China, which lacks an independent judiciary, is better equipped to play that game.
Global trade architecture falters. A group of 12 World Trade Organization members, led by the European Union, are expected to unveil a set of proposed changes to the organization’s dispute-resolution system today, according to the Wall Street Journal. This comes as the EU has been locked in a dispute over reforming the institution with the U.S., which has been blocking appointments of appellate judges and threatening to grind the WTO appeals process to a halt, effectively paralyzing the organization. Whatever its flaws, the WTO encapsulates the global trade architecture crafted by the U.S. in the years since World War II, and it now regulates trade of goods worth more than $17 trillion each year. If the WTO ceases to function, the effects on the global economy will be widely felt and will deepen uncertainty at a time of slowing growth. The dispute also reflects just how hard it’s been for the EU and the U.S. to get on the same page about how to jointly address Chinese trade practices, giving Beijing a key divide to exploit.
European leaders are on shaky ground. British Prime Minister Theresa May is likely to survive a no confidence vote in her parliament today. But she’ll find herself in essentially the same position tomorrow, without a politically viable path to parliamentary approval of her Brexit deal with the EU, whose leaders have rejected any renegotiation. In France, Prime Minister Edouard Philippe’s government will face a no-confidence vote tomorrow. He too is expected to survive, given the ruling coalition’s healthy majority in the National Assembly. But the vote is expected to force the government to detail its budgetary plans for the coming year, and doing so may undermine its effort to appease protesters. Earlier this week, President Emmanuel Macron made several pledges, such as state-funded wage hikes and various tax cuts, in a bid to bring an end to the violent “yellow vest” protests rocking France. Protesters have rejected the concessions as “crumbs.” Without cuts elsewhere, France’s budget deficit will blow through the EU’s limit (3 percent of GDP). Finally, in Poland, Prime Minister Mateusz Morawiecki said he would call for a vote of no confidence in the government this week. The goal here for the nationalist government, which lost support amid a recent scandal, is mainly a show of solidarity behind contentious judicial reforms opposed by Brussels ahead of an upcoming summit of European Union leaders.
Like hitting a bullet with a bullet (in space). The U.S. military conducted its second successful test in as many months of the new SM-3 Block IIA missile interceptor on Tuesday, shooting down an intermediate-range ballistic missile from an Aegis Ashore battery in Hawaii. Two previous tests in 2017 and 2018 failed, and the SM-3 Block IIA could substantially bolster U.S. missile shields in Eastern Europe and the Western Pacific. (The interceptor is being jointly developed with Japan.) But the implications of advancements in missile defense are difficult to gauge for two reasons: One, missile defense is expensive and extremely difficult, especially against longer-range missiles, and these tests are typically conducted in conditions optimized for success. Two, missile defense systems don’t always lead to stability, and they certainly don’t put an end to costly arms races. Rather, they’re just as likely to convince the countries they’re intended to contain (such as China, North Korea and Russia) to double down on developing missiles that are harder to shoot down. Moscow, for example, is citing U.S. missile defense installations on its periphery as justification for its continued testing of new missiles that violate the beleaguered Intermediate-Range Nuclear Forces Treaty.
- Turkish President Recep Tayyip Erdogan said the Turkish military will launch a new operation in Syria east of the Euphrates river in the coming days.
- Indian Prime Minister Narendra Modi’s Bharatiya Janata Party suffered major losses in three state elections to the opposition Congress Party.
- Japan’s economy grew 0.9 percent in October, easing fears of an impending recession.
- The European Commission has offered Switzerland six additional months to agree to a new treaty with the EU.
- Hungary’s ruling party approved laws weakening the judiciary in defiance of EU pressure.
- The Philippines extended martial law by a year in the restive southern region of Mindanao.
- The head of Israel Defense Forces’ intelligence unit said it observed a reduction in Iran’s activity in Syria due to unrest at home.