Fareed’s MHI Global Briefing ;

Macron vs the Gilets Jaunes

In the midst of a France overtaken by protest, panic, and the Gilets jaunes in recent days, the vision of French President Emmanuel Macron as antidote to the populist wave in France and elsewhere in Europe is being shaken. “There is no little irony in the fact that the man who was seen as the answer to populism has provoked the most high-profile demonstration of populist rage Europe has yet seen,” writes Larry Elliott, economics editor of The Guardian. Upon taking office, Macron “thought he had a powerful mandate for structural reform. He cut taxes for the rich, made it easier for companies to hire and fire, and took on the rail unions. It was only a matter of time before the backlash began.” “Politicians need to realize that the financial crisis and a decade of flatlining living standards have made a difference to what is and what isn’t politically feasible,” Elliott writes. “It is feasible – indeed, desirable – to use the tax system to tackle climate change, but only if the hit to living standards is fully offset by cuts in other taxes. Otherwise it is simply more of the austerity that voters everywhere are rejecting. And it is politically suicidal to be known as the president of the wealthy and then tell voters angry about rising fuel prices to car share or take public transport.” That’s tantamount to Marie Antoinette’s “let them eat cake.”

Conflict with China neither Trade War nor Cold War

Canadian officials have arrested Meng Wanzhou, CFO of Huawei, a telecommunications giant and “China’s largest private enterprise by revenue.” The arrest, described in Chinese media as a “kidnapping,” is widely seen as exacerbating tensions in an ongoing US-China trade war. The arrest, which Chinese media have called a “kidnapping,” disrupts the conciliatory mood thought to have been created last week at the dinner between U.S. President Donald Trump and Chinese President Xi Jinping. High-tech has immediately been thrust to the forefront of the 90-day trade negotiations. In a development certain to enrage the Chinese, Trump National Security Adviser John Bolton told National Public Radio on Thursday that he “knew in advance” that the arrest was coming. Bolton said he did not know whether Trump knew going into the dinner with Xi. Canadian Prime Minister Justin Trudeau told reporters that his government was not politically involved in the arrest, citing judicial independence. “The appropriate authorities took the decisions in this case without any political involvement or interference. … We were advised by them with a few days’ notice that this was in the works,” he said. “But of course there was no engagement or involvement in the political level in this decision, because we respect the independence of our judicial processes.” Reuters reported that Meng was arrested as part of a U.S. investigation of an alleged scheme to use the global banking system to evade U.S. sanctions against Iran.(Nikkei) But to understand what’s really at stake in the struggle between the US and China, it’s crucial to get our terms right, writes David Zweig for Financial Times. “[T]his is not a trade war. The fight over trade is merely a skirmish in a larger technology war, which itself is a component of a long struggle between a global hegemon—the US—seeking to maintain its dominance, and an ascending challenger—China—that feels it has a moral right to reclaim its status as a great power.” It’s not a cold war, either: the two sides are not extricable without disastrous consequences economically, strategically, and militarily. Faced with Chinese appropriation of US technology, the Trump administration could constrain cooperation with the Chinese to “areas of common interest, such as global health, climate change, nuclear non-proliferation, North Korea, and deterring terrorism,” while excluding Chinese students and researchers from work related to national security and limiting Chinese funding of US tech companies. Those who advocate “decoupling” risk billions to universities, communities, the tourism industry, corporations, and the mitigation of military confrontations—i.e. the chance to avert real war. If such a strategy is pursued, “China will attribute this policy to US racism, while the US will no longer be able to argue that it is not trying to contain its rival.” And US allies, pursuing their own interests with China, may not fall in line. “The Trump administration’s goal is to end China’s state-directed industrial policy. As China is unlikely to concede, this tech war will aggravate Sino-US relations and, if ‘disengagement’ ensues,” writes Zweig, “we are in for a much more rocky road than the imposition of a new cold war might suggest.”

Will the Center Hold in Post-Merkel Germany?

In Germany, the Christian Democratic Union (CDU) is on the verge of electing a new leader, as German Chancellor Angela Merkel, “arguably the most powerful woman in the world,” prepares to step aside. (CNN) Tomorrow’s election “will mark the first open leadership contest within Germany’s dominant party in decades,” at a moment when “mainstream parties across Europe continue to struggle in the face of challenges from upstart movements and the far right, ambitious CDU pols have seized the moment to launch a rare, broader debate about the direction of their party and the country.” writes Emily Schultheis in The Atlantic. But as much as they may prefer to focus on political renewal, the three contenders for the top job—a former political rival of Merkel, an unofficially anointed successor, and an ambitious young member of her cabinet—are stuck between promising change and honoring Merkel’s outsize legacy. Hanging over the discussion is the question of what, exactly, Merkel’s towering political presence has done to Germany. Did she help the CDU ascend to new electoral heights, shifting its positions where necessary to capture the political zeitgeist? Or did she dilute her party’s identity, creating an opening for the rise of the far-right populist Alternative for Germany (AfD) and plunging the CDU into the same crisis facing its counterparts across Europe? Merkel herself “has not only mostly resisted pressure to shift toward the far right, but also moved the party pragmatically to the left over the years, on issues ranging from energy and the environment to immigration and same-sex marriage.” The candidates’ “most charged exchanges have been over migration, easily the most controversial aspect of Merkel’s tenure”—the same debate facing center-right parties all over Europe. “With right-wing populism chipping away at their former dominance, these parties have largely chosen to either stand their ground in hopes that voters eventually come back, or mimic the rhetoric and policies of the far right to beat it at its own game.” The three contenders for Merkel’s job “are stuck between promising change and honoring Merkel’s outsize legacy.” Were Merkel’s politics shrewd, or “did she dilute her party’s identity, creating an opening for the rise of the far-right populist Alternative for Germany (AfD) and plunging the CDU into the same crisis facing its counterparts across Europe?” “Whoever wins will have to balance the CDU’s desire for something new with the consequences of 18 years of Merkelism, the demands of the party, and the priorities of the wider electorate.”

“The Nobel Prize for Climate Catastrophe”

William Nordhaus, an economist known for his work on climate change, will receive the Nobel Prize in Economics this weekend. The award has heartened many who see the award as “giving climate the attention it deserves, just as the world is waking up to the severity of our ecological emergency.” But, writes Jason Hickel in Foreign Policy, many climate scientists “believe that the failure of the world’s governments to pursue aggressive climate action over the past few decades is in large part due to arguments that Nordhaus has advanced.” It all comes down to “the question of growth. The stakes couldn’t be higher. After all, this isn’t just a matter of abstract academic debate; the future of human civilization hangs in the balance.” Nordhaus showed that a rapid reduction in carbon emissions “would significantly slow down the rate of economic growth.” Nordhaus has therefore advocated for “‘balance’ between climate mitigation and GDP growth.” Sympathetic economists have figured that climate catastrophes “will not really hurt the global economy all that much… [b]ecause if climate breakdown ends up starving and displacing a few hundred million impoverished Africans and Asians, that will register as only a tiny blip in GDP.” Similarly, “sectors most vulnerable to global warming—agricultural, forestry, and fishing—contribute relatively little to global GDP, only about 4 percent. So even if the entire global agricultural system were to collapse in the future, the costs, in terms of world GDP, would be minimal.” “These arguments obviously offend common sense,” writes Hickel. “And indeed, scientists have been quick to critique them. It’s absurd to believe that the global economy would just keep chugging along despite a collapse in the world’s food supply.” “Can’t we have it both ways? Can’t we have economic growth and stay under 1.5 degrees Celsius? Well, that might have been possible a few decades ago,” Hickel writes, “but it’s too late now—we put off the energy transition for far too long, thanks to Nordhaus and the prophets of postponement.”

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