The Week Ahead

The Week Ahead

G20 meets. Jinping visits Russia and Germany. Japan makes deals. Mongolia votes. All in The Week Ahead.

Japan and EU move to conclude bilateral FTA

This week, EU and Japan trade negotiators are working to conclude free trade negotiations. The push to conclude negotiations to two of the largest developed economies occurs as the U.S. turns away from both (having already withdrawn from the TPP, which included Japan, U.S. FTA negotiations with Europe are effectively at a standstill now). The move to quickly conclude negotiations between the two highly developed economies is likely reflective of this new dynamic: both economic powerhouses are making a concerted effort to turn against the rise of the protectionist efforts and language articulated by the current U.S. administration, and reflected in the populist left and right-wing political parties and factions in the EU and Japan.

Most indications at this point are that many of the major trade tensions, including in vehicles and agricultural goods have been resolved at this point, with one European commentator noting that the only issue remaining is the political will to push the agreement to its conclusion. Having a final deal before the G20 summit could help speed up final negotiations by having this as a substantial deliverable for both sides. Negotiations between the EU and Japan began in 2013, and there have been over 18 separate rounds of negotiations in Japan and Europe throughout the 4-year period.

Should the EU-Japan deal be successfully negotiated and subsequently ratified in both respective parliaments/executives, it will represent the largest free trade agreement for either. The liberalization of trade barriers between these two developed economies is likely to contribute to higher trade flows (particularly in more protected industries), and provide a modicum of economic growth to both.


Chinese president visits Russia and Germany

Leading up to the G20 summit and starting Monday, Chinese President Xi Jinping will visit both Russia and Germany to discuss bilateral ties. Following his more tumultuous visit to Hong Kong last week-to celebrate the 20th anniversary of the transfer of the island from British to Chinese control, the meetings with the chief executives of Russia and Germany are likely to be more staid affairs. The Chinese president will likely be looking to boost bilateral ties between the two countries and China, and will almost certainly explore endeavors to expand its 21st century Silk Road initiative to create a robust trade route from China through Southern Asia and Central Asia and finally to Eastern Europe, though a more military/defense meeting is expected with Russia.

President Xi is also likely to push both President Putin and Chancellor Merkel to uphold the goals from last year’s G20 summit in Hangzhou and support an open world economy. Both will likely be receptive to these goals, particularly Chancellor Merkel as this dovetails with the EU-Japan FTA negotiations. China, like Japan, South Korea, the European Union, Canada, and Mexico is likely to push for language or at least some notion of consensus on maintaining an open global economy, and push against the protectionist impulses that have become prominent in the United States and elsewhere.


Mongolia heads for second round in presidential election

This Sunday, Mongolian voters will vote for a second time for president, in the first instance of a runoff presidential election in the country’s history. The two candidates, Khaltmaa Battulga of the Democratic Party and Miyeegombo Enkhbold from the Mongolian People’s Party, represent different views on China and come to the election from very different backgrounds. Battulga is a former martial arts star with little political experience outside a term as Agriculture Minister and a “tells it like it is” way of speaking to voters. He has expressed deep skepticism about China’s role in Mongolia’s economy, particularly in its highly lucrative resource extraction industries. From the other side, Enkhbold is the current speaker of the Mongolian parliament and has an extensive political career. He is viewed as a more investment and market-friendly candidate and likely to maintain the policies undertaken by the majority Mongolian People’s Party. Enkhbold had long been viewed as the favorite to win the election, though Battulga performed stronger than expectations and Enkhbold was almost knocked out in the first round when the candidate from the for the Mongolian People’s Revolution Party Sainkhuu Ganbaatar almost beat Enkhbold in a nail-biting 30.3%-30.1% tally.

In addition to relations with China, also on the ballot is the future of Mongolia’s economic policies as a result of a $5.5 billion IMF bailout, following a decline in foreign investment and falling commodity prices, negotiated by Enkhbold’s MPP. Enkhbold has indicated he will continue the tax increases and budgetary belt-tightening required to secure the bailout, while Battulga has been more enigmatic and frequently referred to opaque “Mongolia first” policy goals. Overall, should Enkhbold emerge victorious, it will cement the power of the MPP and represent a relative political and policy continuum for the country. In the event Battulga is elected, some policies are likely to continue, while rhetoric may become more heated and certain relations might become tenser.


G20 Summit will bring together world leaders representing 80% of world economy

This Friday, leaders of the 20 largest economies and the European Union will meet in Hamburg, Germany to discuss major economic, climate, and geopolitical issues. The summit is likely to be a hotbed for quick news as news and political organizations look out for what their leader says and who they interact with in the summit. For example, in the United States, the media has latched onto President Trump’s meeting with Russian President Vladmir Putin, which will inflame reporting on the investigation into the administration’s actions when it was campaigning for the White House. President Erdogan of Turkey has already created a dustup by requesting a political rally be held for Turkish citizens in Germany, which has already been denied by the German government.

It will also be an opportunity for countries to announce new agreements and initiatives, which is why there is such speculation that the EU-Japan FTA will be concluded before the summit. Climate change will be a big issue as the United States will be the only country represented there that has announced its intent to not follow through with the Paris Climate Accord, despite domestic opposition to the withdrawal. Maintaining an open economy will also be a major issue as most developed G20 countries jostle to present an air of stability without inflaming the sometimes powerful populist movements developing domestically.


Final deal between Japan and Kenya on container terminal expected

This week, the Kenyan and Japanese government are expected to formally conclude a development project to create the $230 million Mombasa Southern Bypass. The endeavor will create both a container terminal and provide funding for cargo equipment, creating the “largest commercial port in East Africa.” Although designed ostensibly with an eye towards imports of Japanese goods, particularly autos, the port could also expand opportunities for substantial imports from other major Asian exporters, particularly China and increasingly India and South Korea. While the main products are likely to begin as fuels and food products, the latter of which would certainly be helpful in Kenya, in future the imports could increasingly turn to more advanced goods like new and used consumer electronics and vehicle parts.

 

The Week Ahead provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, The Week Ahead presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.

This edition of The Week Ahead was written by GRI Analyst Brian Daigle.

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