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Global Economy

The ebbs and flows of global economic conditions, trade and capital flows, thus have substantial implications for the Australian economy, and Australia’s major regional trading partners. Understanding the broad trends, and identifying emerging challenges and opportunities within the global economy, is central to the work of the International Economy Program at the Lowy Institute.

The highly integrated nature of the modern global economy became especially evident during the 2008 global financial crisis. What began as a localised problem within the residential asset-backed securities market in the United States, eventually brought down major financial firms across the Western world, and ultimately pushed the United States and Europe into a deep and prolonged recession. Although global economic growth has recovered somewhat since 2008, it is still much lower than pre-2008 trends, and the hangover from the crisis has manifested itself in the form of high unemployment levels throughout much of the developed and developing world, as well as an increasing level of inequality both within and between countries.

Understanding the economic rise of Asia, and particularly of the growing middle class within Asia, is also crucial to the broader work of the Lowy Institute. Political economy analysis on major players in the region, chiefly China, India and Indonesia, features heavily in the work of the East Asia Program and the International Security Program.  

Are we ready for a rare earths trade war?

Rare earth minerals have emerged as the latest front in the escalating US-China trade war. Nearly a decade after the Chinese government controversially suspended rare earth exports to Japan during the 2010 Senkaku dispute, similar threats are now being made if the bilateral trade dispute with the US

Oman: credibility gulf will test White House

For the US to directly accuse Iran of attacking oil tankers just outside the heavily congested, economically critical and strategically vital waters of the Persian Gulf … well, it ought to be a big deal. A really big deal. And it’s not as if this story is being ignored. As I checked this

America’s fiscal policy rethink reaches Japan

Among some prominent policy wonks in America, a profound rethink of fiscal policy has been underway for the last couple of years, making the case for more-expansionary – or at least less-contractionary – fiscal policy. Japan, already with a mountain of government debt and substantial budget

Huawei and the decoupling dilemma

In two dramatic policy announcements this month, the Trump administration effectively barred US companies and government agencies from buying telecommunications equipment or services from – or selling any components to –Chinese technology champion, Huawei. President Donald Trump signed a broadly

Trump’s tariff tussle

As predictable as Big Ben striking the hour, as subtle as a battering ram, the final stages of the US-China trade negotiations involve upping the ante with a further tariff increase, as seen last week. Tariffs are the negotiating instrument, not the objective. For financial journalists needing an

Economic diplomacy: ASEAN trade, BRI deals and ageing Asia

When the Australian Chamber of Commerce and Industry surveyed its members last year about their use of trade agreements, the ASEAN-Australia New Zealand Free Trade Agreement surprisingly emerged as the third best known and used of 14 available trade concession frameworks. So, it is appropriate

The useful myth of central bank independence

One of the sustaining myths of modern economics is that central banks are independent, able to pursue monetary policy free from the pressures of politics. This makes monetary policy more effective: it gives confidence that the economy will be kept on a steady path unaffected by the exigencies of the

Book Review: Utopia For Realists

Book Review: Utopia For Realists, And How We Can Get There, by Rutger Bregman (Bloomsbury, 2017) Rutger Bregman shot to public fame calling out billionaires at this year’s World Economic Forum meeting in Davos. “1500 private jets flying in here to hear Sir David Attenborough speak about

Economic diplomacy: trade and infrastructure battles in Asia

Each way bet Australian businesses are simultaneously becoming more dependent on China and traditional Anglo markets just when the country’s foreign policy thrust is to diversify links to major emerging nations such as India and Indonesia. This at a time a new survey of business attitudes to

The sudden interest in Modern Monetary Theory

The decade since the financial crisis of 2008 has been unkind to conventional economics. The gap between the observed facts and mainstream theory opened an opportunity for alternative theories to take hold. Among them, Modern Monetary Theory (MMT) fits the American zeitgeist: “big-ticket”

What might a US-China trade deal look like?

Perhaps they will, perhaps they won’t, but if China and the US do reach a trade agreement in coming weeks it will likely be very long. Meeting to seal the deal, President Donald Trump and China’s leader Xi Jinping will be able to display to the cameras a document of at least a hundred pages

Australia and Indonesia trade: deal (not quite) done

The signing on 4 March of the Indonesia Australia–Comprehensive Economic Partnership Agreement (IA-CEPA) has been hailed as a major bilateral trade agreement and a diplomatic breakthrough given recent tensions between Canberra and Jakarta. However, now the negotiations are concluded, there may

An orthodox economic take on climate change shocks

In a debate as politically fractious as climate change, it is useful to have credible voices joining the fray. On Tuesday night, the Reserve Bank of Australia (RBA) waded into the waters with a speech by Deputy Governor Guy Debelle. It has immediately been seen as an urgent call to action. More

Book Review: A Partnership Transformed

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Economic diplomacy: Development aid in the Belt & Road era

Mergerplomacy Five years after the Department of Foreign Affairs and Trade (DFAT) swallowed AusAID in the first major spending cuts of the new Coalition Government, two contradictory trends seem to be emerging. The reality of the takeover is getting some grudging acceptance in the

Indonesia’s role in multilateral development banks

After Jim Yong Kim resigned last month, President Donald Trump indicated he intends to nominate senior US Treasury official David Malpass to lead the World Bank. Under an unofficial agreement, the World Bank President always comes from the United States. Although the multilateral development

Is Australia wise to pick sides in US-China trade war?

The US-China trade war is viewed by many as a dark cloud over the global economy. So why is Australia’s ambassador to the US, Joe Hockey, seemingly urging Trump to go harder, and not settle for a “pyrrhic victory” that fails to resolve long-term differences between the US and China? In

Economic diplomacy: FTAs, shrinking China, and ecommerce

Bilateral trade’s birthday Australia’s tentative first steps into the world of the bilateral trade deals – which now tend to dominate the trade agenda – are revealed in the first cabinet papers from the Howard government, released on 1 January. The Coalition had talked up the idea of a

2019: a rough road ahead for Xi

In 2018, Xi Jinping seemed to be in an almost unassailable position in Chinese politics. China’s president started the year with the sort of political power that few since Mao have enjoyed, with what was seen as an emphatic victory for him at the 2018 National People’s Congress for his proposal

Why the gloom? Global economic prospects

“Winter is coming” warned Indonesian President Joko Widodo in his address at the October meeting of the International Monetary Fund and World Bank Group in Bali. He wasn’t talking of Game of Thrones feuds but instead was warning about the global economic outlook. Many commentators seem to

Why China’s financial system remains closed

While China still uses the rhetoric of “reform and opening up” its financial system remains relatively closed and is set to get even more unfriendly for foreign investors despite some recent announcements on liberalisation. The recent news that China continues to delay access by Visa and

Could Ivanka Trump become the next World Bank President?

Will Ivanka Trump become the next World Bank President? There is speculation that the President’s daughter is among the names thrown into the mix to replace the current president, Jim Yong Kim, who recently announced his departure. The idea of Ivanka Trump taking over as head of the World Bank

Money talks, and Australia doesn’t have a G8 voice

British think-tank, the Henry Jackson Society, recently released its Audit of Geopolitical Capability, which it describes as providing the “fullest picture of who’s up and who’s down on the international stage”. According to the 2019 audit, Australia was up, ranked eighth in terms of

Best of The Interpreter 2018: The US-China trade war

In recent months, the US-China relationship has accelerated from rivalry toward adversarial antagonism. In the US, a policy shift on China has been propelled by a sense that China is winning and America is losing in a competition for global hegemony.  “I want tariffs,” Donald Trump&

Economic diplomacy: how the world changed in 2018

Geo-economics arrives When former US president Barack Obama last tried to reshape Asia in 2016, he embraced the traditional language of liberal multilateralism and talked of writing the rules for the 21st century in the Trans-Pacific Partnership. But when Vice-President Mike Pence landed in

The true cost of fast fashion

This article is based on episode 10 of the Good Will Hunters podcast, featuring an interview with Clare Press, sustainability editor-at-large at Vogue Australia.  It’s known as “fast fashion”, clothes cheap to buy, yet costly to make, if the true labour and environmental

Xi and Trump at G20: A tariff truce

This truce is by no means the end of trade tensions between China and the US. Over what was undoubtedly a delicious dinner last Saturday night on the sidelines of the G20 meeting in Buenos Aires, US President Donald Trump and Chinese President Xi Jinping agreed to extend the deadline for the

Logic at the wayside at G20

The theme for the upcoming G20 Leaders Meeting to be held in Argentina is “Building Consensus for Fair and Sustainable Development”. As the “premier forum for international economic cooperation”, the G20 brings together advanced and emerging economies to, among other things, improve the

“America First” and global economic governance

President Donald Trump’s stated objective is “America first”. What might this isolationist mantra mean for global economic governance, which is the economic component of the “rules-based order”?  AMERICA FIRST! — Donald J. Trump (@realDonaldTrump) November 21, 2018 Trump might

Economic diplomacy: Indonesian trade, RCEP and PNG aid

Plan B for Indonesia An interesting division is emerging between the federal government and a potential future Labor administration over the value of free trade agreements (FTAs) with implications for future relations with Indonesia. With the new Trade Minister Simon Birmingham inheriting

US versus China: the economic model

With the US–China economic rivalry intensifying and “decoupling” becoming the mantra in Washington, what mindset, or economic model, is behind President Donald Trump’s response to China? Trump is a Republican, but not as we know them. Republicans favour free international trade,

The challenges facing APEC leaders

The Asia-Pacific Economic Conference (APEC) Summit is being held at a time of enormous global and regional geopolitical uncertainty. It is a tumultuous time for the region, and APEC 2018 provides a real opportunity for leaders to agree on the kinds of reforms that could make a positive difference

Trump and intellectual property

It’s hardly surprising that America – the land of Thomas Edison, Graham Alexander Bell, and Steve Jobs – is a vigorous defender of inventors’ rights. President Trump has turned up the heat on the long-standing concerns about intellectual property ‘theft’ by foreigners, especially China

Decoupling from China: cutting the Gordian Knot

The conviction that the interests of the US and China are fundamentally incompatible is gathering weight in Washington, as a consensus for confrontation with Beijing takes hold. Having progressively raised tariffs against Chinese-made goods, and adopted reports declaring that China’s “economic

The Economist: a change of heart

This week’s Economist magazine features Australia on the cover with the caption: “Aussie Rules: what Australia can teach the world”. Inside, the text is effusive: Australia is “the wonder down under”, “possibly the most successful rich country”. How times (and predictions) change!

Is the TPP worth it?

The TPP, the biggest and most controversial trade deal in recent decades, has just passed the Senate in Australia with bipartisan support. Despite its speedy confirmation, the TPP warranted more serious scrutiny than it was afforded. While for its proponents, the TPP is a “gold standard” “

Economic diplomacy: Japan + China, BRI push back

Bonsai diplomacy Australia’s China-befuddled political class could do worse than observe how the world’s leading centre-right politician Shinzo Abe manages a masterclass in “bifurcated hedging” when he arrives in Beijing today. The Japanese Prime Minister will be trying to rebuild old

Australian energy diplomacy

Successive federal governments have declared Australia to be an “energy superpower”. The 2017 Foreign Policy White Paper is the most recent example, highlighting the size of Australia’s exports of coal and liquefied natural gas. Yet Australian foreign policy has often overlooked energy

Pakistan: indebted to China, Saudi Arabia, and IMF

Saudi Arabia was the first country Imran Khan visited after assuming office as Pakistan’s new Prime Minister. As he made the trip last month, he asked for financial help for Pakistan’s turbulent economy. Soon after his return, it was announced that Pakistan had invited Saudi

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