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Daily Memo: US Economic Problems, China’s Gamble, Poland’s Defiance

All the news worth knowing today.

GPF Staff |August 4, 2018

A serious problem is hiding behind this month’s report from the U.S. Labor Department. On the surface, the figures seem positive. Job growth was only slightly lower than expected (157,000 added last month), and the unemployment rate is impressively low at 3.9 percent. But these figures belie the fact that wage rate growth is lower than expected at 2.7 percent compared to last year and that average hourly earnings grew only 0.3 percent compared to the previous month. Particularly concerning is that the Labor Department revised last month’s June average hourly earnings growth rate down to 0.1 percent, meaning average hourly earnings adjusted for inflation were essentially flat. Just this month, the Labor Department reported that the Consumer Price Index in June increased 2.9 percent compared to the previous year – the second consecutive month that inflation offset workers’ real hourly earnings. The recent report, then, is a reminder that joblessness is not the United States’ most pressing economic problem; inequality is.

China is resisting U.S. efforts to put more economic pressure on Iran by announcing that it would not stop the importation of Iranian oil. Speaking on the sidelines of a conference yesterday, Iran’s foreign minister lauded the “pivotal” role China will now play in implementing the Iran nuclear deal now that the U.S. has withdrawn from it. China’s foreign minister echoed the sentiment, though, notably, Beijing reportedly told the U.S. only that it wouldn’t decrease imports; it didn’t say it wouldn’t agree to halt increases in imports. China is hedging its bets by neither increasing nor decreasing its imports, which could be considered either a defiant rejection of U.S. demands or an attempt to compromise. The ball is now in Washington’s court. It must determine whether it will sanction China for its unwillingness to stop trading with Iran. Considering this comes amid an already escalating trade war, it will surely aggravate tensions further.

Meanwhile, the government in Tehran may be looking for help from a very unlikely source: Saudi Arabia, its regional rival. As we’ve noted all week, the situation in Iran continues to deteriorate. Protesters are attacking seminaries, hard-line clerics are calling for even more protests, and the Islamic Revolutionary Guard Corps, the protector of the 1979 revolution itself, is ominously suggesting it may intervene. But while these protests take their toll, we note that Saudi Arabia has announced that it will resume oil shipments through the Bab al-Mandeb Strait – which means Riyadh is not concerned for the safety of its ships as they brave any number of potential threats from Iran. Even more surprising is that a spokesman for Iran’s foreign minister told local media that there have been positive developments in Saudi-Iranian relations in recent weeks, and that informal diplomatic ties between the two enemies might resume.

Finally, the saga of Poland’s judiciary reforms continues. Poland’s supreme court ruled to suspend the current government’s reforms. The court is motivated at least partly by self-interest: The reforms include a mandatory retirement age that would force out a number of Polish judges, including the defiant head of the supreme court, who has refused to step down. The court has asked the European Court of Justice to take up the case and determine whether the reforms comport with EU standards. The legalities surrounding the case raise interesting questions that we will leave to legal scholars to debate. The more pressing issue is the political ramifications this move will have, both inside Poland and in the ongoing spat between Poland and the EU on these judicial reforms. The Polish supreme court’s defiance puts the Polish government in a difficult position, and this internal political debate undermines Poland’s disagreement with the EU on whether Brussels gets a say on internal Polish matters.

Honorable Mentions

  • Hamas has reportedly agreed to an long-term cease-fire agreement with Israel. Egypt brokered the deal. Israel’s Cabinet will discuss the issue tomorrow.
  • British Prime Minister Theresa May met with French President Emmanuel Macron, who has insisted that the EU take a hard-line stance on Brexit negotiations. Brussels may be delivering the terms, but Paris is setting them, and May is taking a bilateral approach accordingly.
  • Serbia’s president wrote a letter to Serbs living in Kosovo, claiming Kosovo was not living up to agreements made to its Serb population and that Serbia would “provide security” if necessary. Meanwhile, in Bosnia, the prime minister of Republika Srpska suggested the republic would seek independence should Kosovo be welcome into the U.N. and other international institutions.
  • Ethiopia has offered to mediate the conflict between Eritrea and Djibouti. This is the latest episode in its diplomatic reorganization of its near abroad. If the unrest continues in southern Ethiopia, though, where the army has been deployed to enhance security, Addis Ababa may have a conflict of its own to mediate.
  • Turkish President Recep Tayyip Erdogan has released an ambitious 100-day action plan, the most important item from which is an effort to lower inflation – now at nearly 16 percent.