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The sudden change in the prospects for Venezuelan bonds with the sharp drop in oil prices by Dec. 2014. Price of credit default swaps on Venezuela debt show a 61% chance of default in 2015, and a 90% chance of default in the next 5 years. In previous years Venezuela debt was considered safe by emerging market investors because of oil revenues. Venezuela and its state owned oil company, PDVSA, issued a significant amount of debt from 2007 to 2011. Analysts say the debt outstanding for PDVSA and Venezuela is $66 billion. In the short period of a year sharp declines in commodity prices have created a crisis for Venezuela's finances. Fitch Ratings has lowered the credit rating on the bonds to CCC from B. Venezuela's benchmark bonds traded at 46 cents to the dollar on Dec. 19, 2014, after dropping as low as 38 cents. Yields on short dated bonds are above 40%. Problems in Venezuela can create contagion effects for other emerging markets- Russia, Argentina, Turkey, Brazil, India, Indonesia, China- especially with Fed signals about raising rates which lead to capital outflows. ...

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With China's automobile market declining for the fifth month in a row, and trade tensions rising, it now appears that carmakers such as Ford expanded too quickly in the Chinese market. Ford, Peugeot, and Hyundai appear to have poorly times their expansion in China, expanding at the tail end of the Chinese boom just ahead of the new Trump administration's efforts to challenge China's lopsided trade balance.  It has become so bad that this report shows workers at a Peugeot factory in China spending their days washing floors and attending Communist political study sessions at work. At a Ford plant workers shifts are reduced to a couple of days a month. Sales grew 3% in 2017 and declined 2% in the first 11 months of 2018, after increases of 14% in previous years taking the market to 28 million in a dizzying ride as it surpassed the U.S. sales of 17.5 million. Overcapacity is a problem in China with the aggressive expansion. There is capacity to make 43 million cars, but will produce 29 million in 2018, according to PwC, consulting firm. Ford meanwhile put in a new plant in Harbin in 2017, expanding its capacity to 1.6 million a year, but sales peaked at 1.27 million in 2016, and are down 6% in 2017, and 34% in 2018 to about 700,000. While there are no layoffs some workers are making only $220 monthly, forcing them to take second jobs as cab drivers or couriers. Suzuki decided to quit in 2018 exiting China entirely just so it would not pile up losses in what is now a market that is way overblown from the boom years. Electric vehicle production in the pipeline of about 7.5 million vehicles will compound this problem further with 32 new plants planned by 26 firms.   ...

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China's view on its new Air Defense Zone as expressed by the Foreign Ministry is that if European countries and Japan are entitled to set their own air defense zones then China should be able to set its own zone. The differences with Asian neigbors and the U.S. arises over the fact that this overlaps with the zones of S. Korea, Japan and Taiwan and also covers the area of the disputed Senkaku Islands. Other problems lie in the ambiguous wording and failure to share this information in advance with other countries. As it stands B-52's from the U.S. and Japanese planes entered the zone on Nov. 29, and Chinese fighter jets tracked the planes but there was no incident. U.S. civilian airlines have agreed to follow the rules set by China for the air defense zone, and the U.S. government says it will let the airlines make the decision to follow the zone. The EU protested the setting up of the new air defense zone.

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In the next 15 years approximately India will have a higher percentage of working age population to non-working age population than China, based on information from the UN and Morgan Stanley. The number of people over 64 and under 15 has declined from 69% to 56% in 2010, according to UN figures. By 2020 the working age population will increase by 136 million in India, compared to 23 million in China. From this it can be seen that a huge demographic change is playing out. As China's economy matures and with the one-child policy in place, China's working age population is expected to decline; just as India's working age population picks up. This should give India momentum in the next 15-20 years, and lead to an increasing growth rate in India, just as China's growth rate slows. India's weak areas are infrastructure, and education. Infrastructure development will accelerate nevertheless, with larger private investments and participation in projects; and India will move up the experience curve as more projects are completed. Education for the poorer classes and in public schools will remain a problem. Private schools are making up for the weakness in this area, and private schools now make up 20% of attendance even in the rural areas according to one estimate. The strong points are democratic structures and the rule of law, private enterprise and private companies, English speaking middle class, and smart initiatives by business to develop low cost products that are affordable for all segments of sciety in India. For instance a $35 laptop developed by the IIT and Indian Institute of Science researchers, and Tata Chemicals development of a filter for 30 rupees or 65 cents that would filter water for a month for a family of five. This will bring the benefits of development to all segments of society as development progresses, and is crucial for balanced development in the poorer parts of Asia. Tata Motors 1 lakh ruppees car concept and the Tata Nano as its tangible product, is another verson of this kind of development being pioneered in India. Being a democratic country makes some processes slower, yet at the same time the private initiative enabled by democratic processes -cultivated over a long period from British times -enables a creative sort of development that could be turned into a distinct advantage....

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The recent appointment of fast food executive Andrew Puzder as Labor Secretary has caused great concern among union leaders. Puzder supports a $9 minimum wage compared to $15 supported by Democrats. Unions now represent 7% of the labor force, down from a high of 20% during Reagan's time when Reagan appointed a construction company executive as Labor Secretary and cut regulations.  Globalization has thinned the ranks of workers in unions. And the failure of Democratic administrations to stem the shift of factories overseas to China, Mexico and other places, as part of global supply chains focussed on cost, has weakened Democratic support among workers since the period of Bill Clinton. It eroded to the point where Obama won 65% of support among unions and Hillary Clinton won 56% in 2016. Interestingly the Republican Romney gained 33% versus 37% for Trump, showing voters were more inclined to move away from Democrats and only a smaller number willing to support Republicans, but the shift enough to give Republicans a win in 2016 for the presidency. The figures are from a Election Day survey of trade union AFL-CIO, and a larger proportion in midwestern states showed disaffection with policies from Clinton to Obama. In fact Obama spent years promoting another free trade agreement TPP that favored tech more than auto and older industries, just as Bill Clinton had promoted NAFTA, without giving thought to what this was doing to its worker base of support. A similar situation happened with Social Democrats in Germany as a SPD administration moved to the centre and handed Christian Democrats led by Merkel a win in parliamentary elections. As Democrats such as former Labor Secretary Reich, a professor at UC Berkeley who served under Bill Clinton, describe the problems of working class people their is less reflection on the impact of the changes from globalization and how Democrats handled or mishandled it, and more on the politics between the two parties.   ...

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In his second part of the series on Capitalism and Globalization Schieritz says Trump's arguments have backing, and goes back to the studies done by David Autor of MIT on the adverse impact of free trade on communities across the U.S.. Lyrarc has covered this issue since 2006, and the reality is that this issue was brought up long before the Autor study gained prominence. On Nov. 12, 2010 Robert Lighthizer, Deputy Trade Representative under U.S. president Reagan wrote an op-ed in the NYT titled "Throwing Free Trade Overboard," that made a strident and strong case for what Trump says 5 years later, and from no less than a top trade official under Repubican Reagan.Trump comes late to this in 2015 when it was already amply clear what was happening. It is not so much Trump having discerned this, than others who should have paid attention, including Lew and leaders in both parties, and the business community,  who for too long ignored it. Or as Hilsenrath in a recent WSJ report says, simply said we have seen this before with Japan's entry into the American market, not realizing the speed and widespread impact of the changes in trade with China, that are unprecedented in history- evident just from the great speed of urbanization and manufacturing work force growth in China, policy rapidly impacting vulnerable communities across the U.S. The corrective course has to be credible which is why it has to come from a a reawakening among leaders such as May, Merkel and Clinton, who are keen students of change, and capable of designing and executing a corrective course of action, and winning the popular support and patience needed to stay the course which could run for most of the next decade. It would also provide leadership and show the way for societies in Brazil, China, India and other countries facing similar problems.     ...

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Galston of the Brookings Institution says globalization has hurt workers in manufacturing with job losses and declining incomes. It has produced outcomes that have favored some industries such as tech, and not others such as automobiles which in the past helped create the broad middle class by offering good paying jobs to people with less than a college education. Immigration has created an issue that political leaders outside of the main parties have appealed to in France, the U.S. and Britain. The result is a polarization in the voters that has rarely been seen to this extent before. The middle class in the period from the 1950's to the 1980's is not the middle class that we see today in Europe and the U.S. The 2008 financial crisis added to the problems with the slow and uncertain recovery for some groups such as white men, the less educated, students, and people on minimum wage. 

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Former World Bank chief Zoellick points to the need for investments in human capital and productivity improvements in emerging markets such as India, China and Brazil to overcome the problem of slow growth in 2013.

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Researchers David Autor of the Massachusetts Institute of Technology, Gordon Hanson of the University of California, San Diego, and David Dorn of the Center for Monetary and Fiscal Studies in Madrid, in independent research, studied the impact of trade on 722 clusters of interrelated counties in the U.S. They focussed on the surge in Chinese imports and found a pattern. Counties with higher exposure to Chinese import growth showed higher unemployment and higher expenditures by the government for unemployment benefits, food stamps and disability benefits. Their calculations show the increased government payments amount to one to two thirds of the gains from trade with China. This does not include the losses suffered by people losing jobs who deplete savings as they look for new jobs. Hanson studied the effects of trade and Chinese imports in the 1990's and found the effects were relatively small. This time the effects are large and show counties that lacked local investments in industrial machinery and technologies in which China was still playing catchup such as Caterpillar in Peoria, Illinois, and Boeing in Everett, Washington, were most susceptible to higher jobless rates and in need of government support payments. Autor and Hanson found that from 2000-2007, communities in the 75th percentile- ones with greater exposure to Chinese import growth than 75% of all communities- saw a manufacturing jobless rate of about one-third more than communities in the 25th percentile. The government payments mean higher taxes or larger deficits are needed to support these communities, and long periods of unemployment reduce the incentive to work. Michael Spence, a Nobel prize winning economist from New York University, says the world has never seen such a rapid pace of growth as China experienced between 2000-2011, with rates approaching 12% in some years, making past experience and prevailing theories on trade an insufficient guide to what is happening....

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It is not clear how China's president Jinping's support for the idea of "China Dream," -of China as a world power on a level with the U.S.- should be interpreted. China will increase its defense budget and continue its efforts to be the dominant power in its region, even as the U.S. and Japan begin to build closer ties in the Pacific. Is it simply a new assertiveness for its rights in relation to territorial disputes with Japan, and a continuation of a policy of peaceful development of earlier leaders. The move could also be an effort to build close ties with the military as the new leadership of Jinping-Keqiang prepares to make major changes in the economy. A speech in Dec. 2012 to Communist party officials in Guangdong province by Jinping, on how the lack of unity with the military led to the collapse of the Soviet Union under Gorbachev, could throw light on the thinking. In a few days an old party was gone, as he put it. This also follows the Bo Xilai episode which involved contacts with the military and the risks of division in the military and political leadership....

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U.S. president Trump's statement calling for a list of goods for tariffs on $200 billion of Chinese goods leaves China without a clear response and facing new risks. The U.S. exports about $150 billion in goods to China so that China would have to impose penalties to respond at the same level. Placing restrictions on American firms on access to China's market, and imposing other penalties would have the effect of reinforcing the perception of unfair practices targeting American business and lead to hardening of U.S. response.  The U.S. sees itself as being in a better position with the U.S. economy experiencing a growth trend. China with large local government and bank debt faces a difficult situation. President Jinping's policy of reducing the risks of bad debt in the banking system involved sacrificing some growth to stabilize the system. China's GDP growth in 2017 was 6.9%, the target at 6.5%. Future targets and actual growth now look to be much lower.The trade war with the U.S. has the effect of dampening growth leading to calls for the central bank to loosen its monetary stance. In response to Trump's announcement the People's Bank of China pumped $31 billion into the nation's banks. China is studying Japan's response in the 1980's and 1990's when the U.S. took strong action against Japan's growing trade surplus. Japan responded by appreciating its currency and using stimulus to cushion the effect of lower exports on the economy. The stimulus led to the housing bubble and over time a period of low growth and stagnant economy. The large China stimulus in 2008-2009 has compounded the problems in the banking system. Not deleveraging and controlling financial risks in China's banking system because of the trade war would bring a new set of risks. ...

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Tyler Cowan says slower growth in India is a troubling sign in 2012, and as significant if not more than the eurozone crisis. A less mentioned and major problem is the low productivity in agriculture, and he points to Japan, Taiwan, and S. Korea where major increases in agricultural productivity preceded successful industrialization. With growing population and continued growth India will be one of the largest economies in the world. The other major problem is shortages of energy supplies and the inability of state owned company, Coal India, to upgrade technology and increase output.

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A shift in priorities away from focussing on high growth to lower sustainable growth was announced by China's premier Wen Jiabao at the National People's Congress, China's parliament, in March 2012. This shift will reduce investment in infrastructure, power generation and exports, which will affect the level of imports of commodities from commodity producing nations in the Middle East, Australia, Canada and Brazil. It should increase imports of software, computers, entertainment, tourism and high tech goods from the U.S. and Europe. Chinese leaders have said they would make this kind of shift for some years now but growth has consistently increased more than the target rate, and domestic consumption as a percentage of the economy has actually decreased in the last decade. Now 9-10% growth rates may be a thing of the past and the target of 7.5% set this year may be actually closer to the real figure. The Chinese leaders have belatedly realized the need to make these changes now because slowing markets in Europe -which is seeing declining growth and high unemployment- and in the U.S., make the issue impossible to avoid. Wen told the Congress: "Accelerating the transformation of the pattern of economc development... is both a long term task and our most pressing task at present... Domestically it has become more urgent but also more difficult... to alleviate the problem of unbalanced, uncoordinated and unsustainable development." This is his way of saying that its unavoidable and better to start in earnest now, and at the same time recognizing the resistance to change from the stateowned companies and the other interests who have benefitted from surging growth, and now occupy a central role in the power structure. An opinion article in the People's Daily, China's official newspaper, said: "imperfect reforms are to be preferred to a crisis caused by no reforms." The World Bank's president Zoellick is respected by the Chinese leaders. He also urged them to make changes now. The recent report of the DRC, China's planning research arm, and the World Bank, also laid out the new direction away from a focus on infrastructure to domestic consumption. The fear is sudden deceleration in the absence of policy action. The impact of this will be negative for commodities over time, leading to slower growth in Australia, Brazil, and Canada. It should boost imports from Europe and the U.S. of high tech, consumer, pharmaceutical goods over time....

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Hillary Clinton narrowly loses the Michigan primary to Bernie Sanders in March 2016, as the Sanders campaign focusses on Clinton's support for trade agreements that hurt American workers and lead to loss of manufacturing jobs. About three fifths of voters in the Michigan primary considered this a major issue. Many less educated younger workers see their job prospects diminish and wages drop with free trade that hurts American manufacturing jobs. Bill Clinton signed the NAFTA agreement with Mexico, and as a member of the Obama administration Clinton supported the Trans Pacific Trade Agreement, later opposing TPP when she left the cabinet. Sentiment against trade that hurts manufacturing jobs in the U.S. is strongest in midwestern states such as Michigan, Ohio and Illinois. This was also a major issue benefitting the Liberals under Justin Trudeau who won in Canada's industrial Ontario province which has suffered hollowing out and loss of manufacturing jobs under the Conservative Harper administration. In the U.S. the issue goes back to the Clinton Administration for two decades. New jobs created by Apple, Google, and other tech companies pale in comparison with the industrial jobs created in another era that benefitted working class families. This issue and high unemployment or under employment, lower wages for working class families, was a major issue in the 2016 U.S. presidential election campaign. Widening wealth disparities, and lack of upward mobility, high tution and healthcare costs for ordinary families, dominated the campaign in the U.S....

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In this interview with Gerald Seib of the WSJ, U.S. president Obama responds to criticism within his party as he pushes for the Trans Pacific Partnership free trade agreement with Japan and other countries in Latin America and Asia. European nations and India have joined the Asian Infrastructure Investment Bank setup by China, creating pressure for the U.S. to respond to China's influence in the region. The interview shows president Obama taking the criticism from inside the Democratic party personally about his lack of concern for middle class and working class families during his six and half years in office.

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Tourists from China went up by 20% in 2015, going over 1 million. Foreign enrollment at Australian educational institutions was up significantly in 2015, going up to 645,000, up 25% over 2012 with the weaker Australian dollar. Australia's services sector including inbound education and tourism exceeded in value the minerals and metal ores exports in the last two months of 2015. This enabled the Australian economy to grow by 3% in the 4th quarter of 2015 over the prior year.

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This editorial in the Economist looks at China's relationship with Russia. It says the Ukraine conflict and western sanctions have resulted in Russia moving closer to China. Yet the two countries have competing interests in central Asia, and different relations with India and Vietnam, in the Asian region. Russia is also wary of China copying designs of Sukhoi aircraft in sales to China of advanced military technology. The major oil and gas deal signed in 2014 provides Russia with a new outlet for oil and gas with the cooling of the relationship with Europe. Yet Russia has strong ties built with Germany over the entire post war period, and differences have emerged in U.S.- German relations. Germany's relationship with Russia- cooled by sanctions and German wariness over Russian intervention in Ukraine and Russian wariness over NATO close to its borders- spans 7 decades and is likely to remain strong in the long term. This comes from the shared sense of awareness of the terrible conflicts of an earlier period, just as it has for French-German relations, and from the strong efforts made by Germany to preserve the relationship and peace in Europe. Chinese president Xi's visit to Moscow on May 9, for celebrations of victory over Nazi Germany, will be followed by a visit May 10 by Chancellor Merkel of Germany. A factor in German-Russian relations is the close trade links, cultural exchanges, and history going back to the GDR where Chancellor Merkel is from, built up over many years, that are likely to set the long term future of relations. China's dominant partner relationship in the China- Russia relations does not bode well for the future of relations, compared to the equal partner relations with its European neighbor, Germany. In this different light Ukraine is a temporary pause, in German-Russian relations and peace in Europe, a situation which is in China's long term interest as it focusses on its economy and the next phase of development for a modernized economy. Especially as China continues to build on its own vital trade relations with Germany and the European Union, the latest example being Germany, other EU nations, and India, joining the China sponsored Asian Infrastructure Investment Bank. ...