Global (trade) war levels up again

It must be geo-politics week.

The U.S. and Russia are warming up for another biffo over Russian military activities on the border with Ukraine (aka control of oil pipelines).

The U.S. House just passed a $768 billion defence bill.

And while this has been going on, a few days ago European Commission President Ursula von der Leyen snuck in a big blunt instrument blow in the direction of the middle kingdom.

von der Leyen announced that Team Europe is going to marshal around 300 billion euro to build a competitor to China’s Belt and Road project - and that it will be designed to support various build back better and green deals in the U.S. and the UK.

The team will be a public and private partnership and it’s called the Global Gateway.

Grandiose? You bet. A literal new world order in the physical verse.

Just as grandiose as Mark Zuckerberg’s appropriation of meta?

Nope, it’s even grander.

And most (skilfully) of all, China was not mentioned once.

It means the trade war has reached a new level in a way that complicates thing for Australia.

The Morrison government pursued China over COVID related matters with a vengeance. China retaliated with tariffs and by buying less Australian products.

At the same time, our Government also angered the French over the sub deal by going with the U.S. variant, and at the same time the U.S. has also taken trade opportunities away from Australia (by virtue of certain products covered under the so-called Phase One trade deal between the U.S. and China).

It’s an ugly look and outcome for Australia, but back to Team Europe.

Grandiose Global Gateway is Game on Mole!

You will notice if you watched the vision above that von der Leyen did not mention China once, by name, but the veiled references were clear.

Under the guise of a lack of investment choices for global infrastructure rebuild (er, belt and road?) this powerful and newly minted President offered a Team Europe view that is based on the opiate of trust.

Team Europe’s stance is that when it comes to infrastructure construction, the world needs trusted partners (dig) to produce high quality and sustainable projects with high levels of transparency (biff), but at present there are too many problems with the small print when smaller countries look to upgrade their infrastructure (smack).

Moreover, those projects must deliver tangible results for local communities (take that).

The President’s drivers

Here are the key drivers for the move, as explained by the President:

• Jobs and livelihoods

• Fighting climate change

• Sustainable development

• Global health security

• Resilient open reliable supply chains

High quality and sustainable projects with high levels of transparency are what is needed now, and naturally, she said:

“The Global Gateway is this positive offer!”

And in terms of its implementation - it will effectively be a PPP with member states and financial institutions plus the private sector, which in turn will access technology (aka to combat China).

More will be released over coming days and weeks.

Why now?

Reality is that the fiscal’s been broken for a few decades now because Greenspan, Bernanke, Abe, Draghi and Powell have done all the heavy lifting with irrationally accommodative monetary policies - essentially, QE Infinity.

Tell me I’m wrong, but no central banker opted to pop their debt balloon at the time of the global financial crisis (GFC) - and so it’s just grown bigger, with global debt soon to double since that time.

I guess governments think why bother with the fiscal when free and easy monetary policy is doing all the hard work? They simply inject liquidity and stimulate debt fuelled activity - and that’s become the playbook for 30 years.

But with demographics and disinflationary technology around the corner, something more is needed than just propping up secondary markets.

The other reality is that the West is nervous and looking to fight back and ensure Europe, its surrounding region, and its aligned trading partners do not fall prey to China’s soft power takeover via Xi’s Belt and Road directive.

Finally, while COVID has not destroyed physical infrastructure (as a fighting war would have), it has broken a range of supply chains. Key superpowers are now seeking to rebuild those supply chains with less reliance on China - so in that way a rebuild is necessary and should stimulate activity.

Now what?

Another levelling up of what is now a global trade war, with global supply chains being the new theatres of war.

More direct challenges to the U.S./China dual hegemons, with Europe seeking to vend itself back into the power struggle.

Russia versus Ukraine biffo over oil pipelines offering a potential distraction to the Biden Administration which is seeking to pass finding for and implement its build back better programs.

Alignment between the EU, the U.S. and the UK - but with Australia the wiener in the geo-political hot dog.

In the meantime, Europe has signalled it’s game on!

Mike