Venezuela Doubles Down on Chinese Money to Reverse Crisis

Venezuelan President Nicolas Maduro said Tuesday that new investments from China will help his country dramatically boost its oil production, doubling down on financing from the Asian nation to turn around its crashing economy.


Already a major economic partner, China has agreed to invest $5 billion more in Venezuela, Maduro said following a recent trip to Beijing, adding that the money would help it nearly double its oil production.


“We are taking the first steps into a new economic era,” he said. “We are on track to have a new economy, and the agreements with China will strengthen it.”


A once-wealthy oil nation, Venezuela is gripped by a historic crisis deeper than the Great Depression in the United States. Venezuelans struggle to afford scarce food and medicine, many going abroad in search of a better life.


Venezuela’s inflation this year could top 1 million percent, economists predict.


After two decades of socialist rule and mismanagement, Venezuela’s oil production of 1.2 million barrels a day is a third of what it was two decades ago before the late President Hugo Chavez launched the socialist revolution.


Maduro says under the deal, Venezuela will increase production and the export of oil to China by 1 million barrels a day.


However, China is taking a strong role in its new agreements. Over the last decade China has given Venezuela $65 billion in loans, cash and investment. Venezuela owes more than $20 billion.


The head of the National Petroleum Corporation of China will soon travel to Venezuela to finalize plans on increasing oil exports.


Russ Dallen, a Miami-based partner at brokerage Caracas Capital Markets, said the influx of money appears to be investments China will control.


“The Chinese are reluctant to throw good money after bad,” Dallen said. “They do want to get paid back. The only way they can get paid back is to get Venezuela’s production back up.”


Venezuela also agreed to sell 9.9 percent of shares of the joint venture Sinovensa, giving a Chinese oil company a 49 percent stake. The sale will expand exploitation of gas in Venezuela, the president said.


Maduro also recently launched sweeping economic reforms aimed at rescuing the economy that include a creating new currency, boosting the minimum wage more than 3,000 percent and raising taxes.


Economist Asdrubal Oliveros of Caracas-based firm Econalitica said he doubts that Venezuela can reach the aggressive goal to boost oil exports to China by one million barrels a day given problems faced by the state corporation PDVSA.


“Increased production I see as quite limited,” Oliveros said. “The Chinese companies alone have neither the muscle nor the size to prop up production.”

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European Nations Plan to Use More Hydrogen for Energy Needs

Dozens of European countries are backing a plan to increase the use of hydrogen as an alternative to fossil fuels to cut the continent’s carbon emissions.


Energy officials from 25 countries pledged Tuesday to increase research into hydrogen technology and accelerate its everyday use to power factories, drive cars and heat homes.


The proposal, which was included in a non-binding agreement signed in Linz, Austria, includes the idea of using existing gas grids to distribute hydrogen produced with renewable energy.


The idea of a “hydrogen economy,” where fuels that release greenhouse gases are replaced with hydrogen, has been around for decades. Yet uptake on the concept has been slow so far, compared with some other technologies.


Advocates of hydrogen say it can solve the problem caused by fluctuating supplies of wind, solar, hydro and other renewable energies. By converting electricity generated from those sources into hydrogen, the energy can be stored in large tanks and released again when needed.


Electric vehicles can also use hydrogen to generate power on board, allowing manufacturers to overcome the range restrictions of existing batteries. Hydrogen vehicles can be refueled in a fraction of the time it takes to recharge a battery-powered vehicle.


On Monday the world’s first commuter train service using a prototype hydrogen-powered train began in northern Germany.


The European Union’s top climate and energy official said hydrogen could help the bloc meet its obligations to cut carbon emissions under the 2015 Paris accord. Miguel Arias Canete told reporters it could also contribute to the continent’s energy security by reducing imports of natural gas, much of which currently comes from Russia and countries outside of Europe.


Kirsten Westphal, an energy expert at the German Institute for International and Security Affairs, said encouraging the use of hydrogen as a means of storing and transporting energy makes sense, but added the overall goal for should be reducing fossil fuels rather than pushing a particular energy alternative.

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Africa’s Youth Population, Poverty Spurs Gates Foundation’s Giving

Africa has the globe’s fastest-growing youth population as well as 10 of the poorest countries, a volatile combination that warrants making it “the world’s most important priority for the foreseeable future.”

The Bill & Melinda Gates Foundation lays out that argument in its second annual report on progress toward sustainable development goals set by the United Nations for 2030. This Goalkeepers Data Report, released Tuesday, urges targeting Africa with the same kind of investment intensity that lifted once-poor China and India into the ranks of middle-income nations.

Sixty percent of Africans are younger than 24, numbers that Melinda Gates emphasized in a phone interview earlier this month with VOA’s English to Africa Service.

“If the world makes the right investments in health and nutrition and education,” she said, it could unleash the potential of “an amazing generation that has unbelievable ingenuity.”    

The report notes that while the youth population is booming in Africa, it’s shrinking elsewhere in the world. For example, the median age is 19 in Africa – and 35 in North America. Populations are expected to soar by 2050 in the 10 poorest countries: Benin, Burundi, Central African Republic, Democratic Republic of Congo, Madagascar, Malawi, Nigeria, Somalia, South Sudan and Zambia. 

Melinda Gates described the foundation as a “catalytic wedge,” whose investments can fuel beneficial projects and programs.

“We start getting things going” with many partners on the ground “working in culturally, contextually sensitive ways,” she said. “We take some risks, but ultimately it’s the governments who scale them up, and that work is done in deep partnership with many people around the globe.”

The Gates Foundation is the biggest of U.S. funders aiding Africa, such as the Ford, Rockefeller, Conrad N. Hilton, Carnegie and Open Society foundations, the website Inside Philanthropy reported in 2016. 

Earlier this year, it observed that charitable giving by Africans is growing, too.    

To date, the Gates Foundation has invested more than $15 billion “in projects relevant to Africa,” the report says, while promising to spend more. It has targeted three areas for investment: health, education and agriculture.

Health: The foundation subsidizes a range of health programs, from childhood vaccination and good nutrition, but it gives special attention to family planning and HIV interventions.

Among countries that have risen economically, “every one of them allowed voluntary access to contraceptives to women,” Gates told VOA. “We know if men and women can space the births of their children … there are more opportunities then for those children and their families. Girls can stay in school” and, when educated, are better able to provide for their families.

“Those people create amazing opportunities and new jobs in the economy,” Gates added.

The U.S. government is the biggest donor in global family planning and reproductive health, according to the Kaiser Family Foundation (KFF), a nonprofit focused on health issues. U.S. spending on that front was at $608 million in fiscal year 2018, though the Trump administration has proposed reductions for 2019. Funding levels can reflect domestic and international political debates, especially over abortion, KFF’s website notes. It adds that, since 1973, the government has banned “direct use of U.S. funding overseas for abortion as a method of family planning. …”

The report praised Rwanda for building “an effective health system” that has brought about “the steepest drop in child mortality ever recorded.” In 2005, the country recorded 103 deaths per 1,000 lives births; a decade later, the death rate dropped to 50.

As for HIV infections, the report acknowledged progress in Zimbabwe, where a fourth of all adults were infected in 1997, the peak year of the epidemic.

“Since 2010, new infections are down by 49 percent, and AIDS-related deaths are down by 45 percent,” it noted. But it warned that the youth boom could bring a reversal without continued support for treatment and prevention methods.

Education: While school enrollment and literacy rates have improved, as the United Nations reports, that’s not enough.

“We need to get the quality of education to come up, much like Vietnam has done,” Melinda Gates told VOA.

Students in that country, labeled as low income until 2010, ranked among the best in the world in science in the Paris-based Organization for Economic Cooperation and Development’s most recent assessment of 15-year-olds.

Agriculture: “… We need to make sure that we help countries move from subsistence farming to making real investments” supporting larger-scale operations so people can feed themselves, Gates said. 

Ghana provides a good example, she and the report noted.

With its current agricultural productivity and innovations such as new hybrid varieties of maize, the country’s “poverty rate is projected to fall from 20 percent in 2016 to 6 percent in 2030.”

But, the report observed, “There is ample room for Ghana’s agrifood system to keep developing.” For example, “cocoa, the country’s main export crop, is sold raw and processed outside the country. Meanwhile, almost half of all processed foods consumed in Ghana are imported.” Buying food processed in Ghana would keep more money in the country and generate jobs, it said.   

Since 2000, more than a billion people have risen from extreme poverty, a level that the World Bank sets at $1.90 a day. Melinda Gates attributed that rise to “investments the world made systematically in human capital: in health, in education, in agriculture. …

“A lot of the gains that we’ve seen can drop back, particularly with a growing population,” she said. “So our message to the world is keep your foot on the gas. Keep the accelerator going.”

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ADB Ramps Up Pacific Presence as Aid Donors Jostle for Influence

The Asian Development Bank said on Tuesday it is expanding its presence in the Pacific islands, at a time of competition for influence there, opening seven new country offices and expecting its loans and grants in the region to top $4 billion by 2020.

The pledge from the Japan-led bank comes amidst a vigorous new campaign by the United States and its allies to check China’s rising sway in the region, where it has sought deeper diplomatic ties and emerged as the second-largest donor.

The battle for influence in the sparsely populated Pacific matters because each of the tiny island states has a vote at international forums like the United Nations, and they also control vast swathes of resource-rich ocean.

The ADB said it will open offices in the Cook Islands, Micronesia, Kiribati, the Marshall Islands, Nauru, Palau, and Tuvalu, as well as expand missions in Samoa, the Solomon Islands, Tonga and Vanuatu.

“The new country offices will allow ADB to have more regular contact and substantive communication with government and development partners,” the bank said in a statement.

Its overall assistance to the Pacific, which stands at $2.9 billion, is expected to surpass $4 billion by 2020, it added, with the money destined for economic and social development projects and disaster resilience.

China has likewise pledged to keep lending to a region where it says its aid is supporting sustainable development.

However, it has spent $1.3 billion on concessionary loans and gifts since 2011, stoking concern in the West that several tiny nations could end up overburdened and in debt to Beijing.

Australia in particular, which has long viewed the Pacific as its backyard, has been critical of some Chinese aid projects, and a former foreign minister has warned that the lending could undermine the long-term sovereignty of recipients.

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In Florence’s Wake, Uncertainty Haunts Migrant Workers

Francisco Javier Jaramillo and Victor Chavez should be picking sweet potatoes at a North Carolina farm and sending much-needed money to their families in Mexico.

Instead, Hurricane Florence has forced the migrant workers to evacuate their farm and seek refuge at a school-turned-shelter near the tiny hamlet of Spivey’s Corner, where they sleep in school hallways, wait and worry.

“If the sweet potato fields are flooded, we cannot work. If we cannot work, we will be sent home. We will have nothing,” said Chavez, 39.

When Florence tore through the Carolinas last week, bringing wave after wave of wind and rain, the storm not only disrupted a harvest but also jeopardized its harvesters.

Known for its fields upon fields of sweet potatoes, tobacco and peanuts, North Carolina’s agricultural engine is powered by more than 83,000 migrant workers.

Many come from Mexico and other Latin American countries to toil on restrictive contracts working fields that double as floodplains when the weather sours.

The contracts guarantee a certain number of working hours but that can be nullified if a farmer declares an act of god if, for example, fields are so flooded or hurricane-battered their crop cannot be salvaged. That would mean these workers get sent home without the hours, or money, promised.

A spokeswoman for North Carolina’s agriculture department said there are no estimates yet of the extent of crop damage.

At peak harvest in 2016 there were more than 83,000 migrant workers on North Carolina farms, according to the Employment Security Commission.

Workers on an H2A visa for temporary agricultural workers are among the most vulnerable people hit by a hurricane, according to advocates, lawyers and outreach workers who talked with Reuters. They have the least means to cushion the blow and the most to lose.

“H2A workers are very isolated, very vulnerable,” said Lariza Garzon, with the Episcopal Farmworkers Ministry. “They may not know their rights.”

Lee Wicker, deputy director of the 700-farmer North Carolina Growers Association, said maybe decades ago that might have been true but now resources are in place to ensure workers have the supports they need.

About 20,000 of the workers come to North Carolina every year on H2A visas, which tether them to an employer on whom they rely for housing, transportation and, in many cases, information about the outside world, said Caitlin Ryland, a supervising attorney with Legal Aid of North Carolina’s farmworker unit.

They are frequently housed in areas close to farmland that can be prone to flooding, Ryland said.

Wicker said that sometimes happens, but said storms like Florence have outsize effects.

For workers like Jaramillo and Chavez, in a precarious labor position and with limited access to outside information, leaving camps for a few days to wait out a storm can be daunting.

Misinformation is rampant: many believe fleeing a storm can get them deported and barred from returning.

If their employer reports them as having abandoned their job, under the terms of the H2A visa it can start the clock ticking on having to leave the United States, Ryland said.

Fleeing for their lives in the face of a storm does not count as abandoning a job, she said, but many workers may not know that.

A spokeswoman for North Carolina’s Department of Labor wrote in an email that “the Agricultural Safety and Health Bureau has not received any complaints from migrant workers concerning unsafe housing conditions due to the storm.”

Five migrant workers Reuters spoke with at a supermarket outside Clinton, in Sampson County about 35 miles (56 km) east of Fayetteville, had elected to stay in their work camps despite the threats presented by the weather.

Explaining why he stayed, Miguel Hernandez motioned to the cement blocks used to build his barracks in an area under a flash-flood warning – surely they could withstand a storm, he said.

But Luis Alberto, a 25-year-old migrant worker from the Mexican state of Nayarit, was scared for his life when he and four friends decided to go to a shelter several miles away.

Luis Alberto, who asked not to use his last name, regularly sends money home to support his family. What worries him now is what happens next — if the crop is destroyed, if they cannot get the contracted hours of work they need.

“We want to know what is going to happen to us,” he said. “Can we keep working? Will we be sent back to Mexico?”

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As Midterms Near, Trump Gambles on his Hardline Trade Policy

Farmers worry about falling crop prices and lost sales overseas. Manufacturers fear rising costs and new foreign taxes on their exports. American allies overseas are furious.


By any conventional gauge, President Donald Trump’s uncompromising stance toward tariffs and the pain they’ve begun to cause U.S. individuals and companies so close to midterm elections would seem politically reckless. Yet Trump appears to be betting that his combative actions will soon benefit the country and prove a political winner.


Ditching decades of U.S. trade policy that he says swindled America and robbed its workers, Trump insists he can save U.S. jobs and factories by abandoning or rewriting trade deals, slapping taxes on imports and waging a brutal tariff war with China, America’s biggest trading partner.


“Prior presidents in both political parties have never really moved to try to help and protect the American economy and its workforce, its farmers, its manufacturing workers, in a way of creating a level playing field,” Larry Kudlow, the top White House economic adviser, told reporters last week. “They give it lip service, and then they back off. This president has no intention of backing off. None. Zero.”


Trump’s apparent belief is that he and congressional Republicans can rely on the unswerving support of core GOP voters — even in rural areas that have been economically hurt by his trade disputes — and maybe succeed in delivering better trade deals before Election Day. Still, as an insurance policy against failure, the administration is providing $12 billion in farm aid to soothe trade-war wounds in rural America.


All told, it’s a high-risk political gamble.


“It’s still unclear ultimately how the issue plays in November,” said Nathan Gonzales, publisher of Inside Elections, a nonpartisan newsletter.


The U.S. and China have imposed import taxes on $50 billion worth of each other’s products in a rumble over American allegations that Beijing uses predatory tactics to acquire foreign trade secrets and to try to overtake America’s global supremacy in high technology. Over the weekend, news reports indicated that the administration is set to announce tariffs on $200 billion more in Chinese imports — a step that that would significantly escalate the trade war between the world’s two largest economies. Beijing has said it would swiftly retaliate against additional U.S. tariffs.

Caught in the crossfire are U.S. soybean farmers, a prime target of Beijing’s retaliatory tariffs, whose exports to China account for about 60 percent of their overseas sales. These tariffs make U.S. soybeans prohibitively expensive in China. That means lost sales for American farmers.


Separately Trump has enraged U.S. allies like Canada and the European Union by declaring their steel and aluminum a threat to America’s national security as justification for slapping taxes on them.


On yet another trade front, the president would raise the stakes considerably if he carries out a threat to tax $340 billion in imported cars, trucks and auto parts — action that would raise prices for vehicles Americans buy.


What’s more, Trump has threatened to kick Canada out of a North American trade bloc if it doesn’t cave in to pressure to open its dairy market, among other things.


Trump is running into resistance in pockets across the country. American farmers who rely on exports are facing retaliation from U.S. trading partners, which depresses export sales and prices of agricultural commodities. Manufacturers that buy steel and aluminum are being hurt by higher prices and supply shortages resulting from the tariffs on imported metals.


Corporations fear that Trump’s drive to rewrite the North American Free Trade Agreement will disrupt the supply chains that they’ve spent the past 24 years building across the United States, Canada and Mexico. If the trade war with China further escalates, consumers would face higher prices at the mall and online. The affected imports would range from handbags, luggage and textiles to a range of consumer electronics, including the Apple Watch and adapters, cables and chargers.


On the basis of public opinion surveys, at least, the president’s approach poses political risks. A poll released Aug. 24 by The Associated Press-NORC Center for Public Affairs Research found that 61 percent of Americans disapproved of the president’s handling of trade negotiations.


“The Trump administration has handed Democrats in the midterms at least a talking point, not just with farmers but with consumers,” said Mickey Kantor, the top American trade negotiator under President Bill Clinton.


Missouri’s embattled Democratic senator, Claire McCaskill, is trying to link her Republican challenger, Trump ally Josh Hawley, to a nail manufacturing plant that says it might have to close because the Trump steel tariffs have driven up its costs.

Likewise in North Dakota, Democratic Sen. Heidi Heitkamp is running ads tying her Republican challenger, Rep. Kevin Cramer, to Trump’s “reckless trade war.”


Besides unveiling $12 billion in aid to farmers hurt by the conflicts, Trump is seeking to reach trade deals to show that his brass-knuckles approach will succeed in the end. He has said he expects to sign a deal with South Korea later this month during the United Nations General Assembly. Earlier this month, he announced an agreement with Mexico to replace NAFTA — a move intended to pressure Canada to embrace a new North American accord on terms favorable to the United States.


Plans are underway for a delegation from China to resume trade discussions with the Trump team as early as this week. In addition, Trump says his team has started trade discussions with Japan and has received interest from India.


For the president, the bet is that America’s trading partners will capitulate promptly to his demands, rather than delay negotiations in the hope that Democrats will take control of the House and possibly the Senate and leave the president in a weaker bargaining position.


“There is some pressure to get results,” said Philip Levy, senior fellow at the Chicago Council on Global Affairs and a White House economist under President George W. Bush. “They need to do something where they can say, `Hey, this different approach actually works.'”


Trump is also relying on the loyalty of his supporters in rural America. He has called farmers “patriots” who are willing to absorb economic pain in the short run to buy time for him to negotiate trade deals more advantageous to the United States.


Approval for Trump’s performance is still running at 53 percent in rural areas, compared with 39 percent overall, according to an NPR/Marist poll released last week. Even if they’re worried about the trade disputes, many rural Americans support Trump’s stands on social issues such as immigration — a sign that the president may have enough political leeway to drive forward with his hard line on trade.


“Trump,” said chief global strategist Greg Valliere of Horizon Investments, “has a lot of Teflon in the farm belt.”

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Cuban Agriculture Faces Another Hard Year as Produce Sales Drop

Cuba moved nearly 15 percent less produce through domestic markets during the first six months of the year, compared with the same period in 2017, signaling another bad year for its agricultural sector, according to a government report.

The market sales in the report, issued over the weekend, account for 10 percent to 15 percent of agricultural output, according to a local expert, who requested anonymity due to restrictions on talking with journalists.

The remainder of food production is earmarked for processing plants, tourism, exports, a rationing system and meals at workplaces, hospitals, schools and other social uses, he said.

The country is dotted with outdoor markets and kiosks, more than 70 percent of which are state-run and have fixed prices for many items.

The report is the first this year on agriculture and indicates Hurricane Irma, which devastated the country a year ago, and unseasonable rainfall during the first months of 2018 took a toll on the sector, which has stagnated for a decade.

More than 60 percent of Cuban produce is harvested from January through June.

The National Statistics Office report said 237,000 tons of produce such as potatoes, plantains, tomatoes, mangos, rice and beans moved through the markets, compared with 277,000 tons during the same period in 2017.

Sales of pork and other meats were up nearly 6 percent to 7,400 tons, but the availability of eggs, a critical source of protein in the country, fell dramatically, according to the report.

Irma destroyed numerous chicken farms.

Cuba imports more than 60 percent of the food it consumes at a cost of around $2 billion annually.

The communist-run country is currently squeezed for cash and has slashed imports by 25 percent since 2015.

The state owns 80 percent of the land and leases most of that to farmers and cooperatives. The remainder is owned by family farmers.

The government often blames bad weather and the U.S. trade embargo for poor production, while critics charge it is due to a lack of private property and foreign investment, rickety infrastructure and a Soviet-style command economy.

Cuba’s government under former President Raul Castro began leasing land, decentralizing decision-making and introducing market mechanisms into the sector a decade ago. But the state has backtracked on the reforms, once more assigning resources, setting prices and controlling most distribution.

President Miguel Diaz-Canel, who took office this year, has not changed that policy.

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Report: UN Poverty Targets Remain Off Course

Aid money urgently needs to be redirected to the poorest countries in order to reach the United Nations’ goal of ending extreme poverty by 2030, according to a report.

The London-based Overseas Development Institute (ODI) says middle-income countries receive more aid than the 30 poorest nations. It also warns that at least 400 million people will still be living on less than $1.90 a day, despite government pledges to eliminate all extreme poverty.

In northern Ethiopia, teams of workers dig irrigation channels through orchards and grain fields. Such projects have turned arid plains into fertile farmland, which has quadrupled agricultural production.

The report from the ODI credits Ethiopia’s “Productive Safety Net Program,” launched in 2005, with lifting 1.4 million people out of extreme poverty. It also enabled Ethiopia to avoid another famine during severe droughts in 2010 and 2015.

In contrast, neighboring Uganda has seen extreme poverty levels rise recently, after a rapid reduction in previous years.

“One of the reasons is because climate change is starting to have an impact in that country,” said Marcus Manuel, author of the ODI report. “Now in Ethiopia, they’ve managed, with a lot of support partly from the U.S., to have programs that support farmers when a sudden climate or weather event happens. In Uganda, they didn’t. So when they had a drought, that led to a real increase in poverty. So it’s a matter of having the right systems in place.”

Ethiopia’s program, the largest of any low-income country, pays beneficiaries to work on public works projects such as irrigation, roads, schools and health clinics, which helps to create long-term poverty relief.

Such programs are vital in ending extreme poverty, according to the ODI report. The report says there is an annual funding shortfall of $125 billion in the three core sectors of education, health and what it terms social protection transfers, or welfare.

“You need to do economic growth to do part of things, and you also need investment in the social sectors,” Manuel said. “You need to have both sides of the coin to make this work. Donors are investing both in growth and in social sectors, but they’re not investing it in the right countries to nearly the extent that’s needed. And, in particular, in this report we’ve identified 29 countries which can’t afford the investment needed in the social sectors and donors are not giving enough money to that group of countries.”

The statistics show middle-income countries receive more aid than poorer countries, whose share of global aid has fallen over the past six years from 30 percent to 24 percent.

In addition to better aid allocation, the report says more donor nations need to reach the U.N. goal of allocating at least 0.7 percent of gross domestic product to aid budgets. Without urgent action, the authors warn the goal of eliminating extreme poverty by 2030 will remain out of reach.

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Trump Tells Aides to Proceed With More Tariffs on Chinese Goods

U.S. media reports said Friday that President Donald Trump has instructed aides to proceed with tariffs on $200 billion more in Chinese products.

Citing sources familiar with the matter, Bloomberg and Reuters said the president wanted to move forward with the additional duties even though Treasury Secretary Steven Mnuchin is trying to restart trade talks with Beijing.

The reports sent stocks falling Friday and led to a drop in the Chinese yuan.

The White House did not immediately comment on the reports.

Bloomberg reported that Trump met Thursday with his top trade advisers to discuss the tariffs, including Mnuchin, Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer. The meeting was not on Trump’s public schedule.

Before Thursday’s meeting, Trump said on Twitter that he felt “no pressure” to make a deal with Beijing, saying “they are under pressure to make a deal with us.” He also raised questions about whether new talks between the United States and China would happen, saying the U.S. “will soon be taking in Billions in Tariffs & making products at home. If we meet, we meet?”

A public comment period for the proposed new tariffs ended last week. The U.S. trade representative’s office received nearly 6,000 comments on the proposal.

Even more tariffs

Last week, Trump threatened even more tariffs on Chinese items — duties on another $267 worth of goods, which when combined with the others would cover virtually all the products that China sends to the United States.

“That changes the equation,” he told reporters.

The Untied States has already imposed tariffs on $50 billion worth of Chinese goods, leading China to retaliate on an equal amount of U.S. goods. 

The Trump administration has argued that tariffs on Chinese goods would force China to trade on more favorable terms with the United States.

It has demanded that China better protect American intellectual property, including ending cybertheft. The Trump administration has also called on China to allow U.S. companies greater access to Chinese markets and to cut its U.S. trade surplus.

China has threatened to retaliate against any potential new tariffs. However, China’s imports from the United States are worth $200 billion a year less than American imports from China, so it would run out of room to match U.S. sanctions.

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Turkey’s Central Bank Defies Erdogan, Hikes Rates

The Turkish central bank caught international markets by surprise Thursday as it aggressively hiked interest rates in an effort to strengthen consumer confidence, stem inflation and rein in the currency crisis. 

Interest rates were increased to 24 percent from 17.75 percent, which is more than double the median of investor predictions of a 3 percent hike. The Turkish lira surged above 5 percent in response, although the gains subsequently were pared back.

International investors broadly welcomed the move. “TCMB [Turkish Republic Central Bank] did show resolve in hiking the one-week repo rate substantially and going back to orthodoxy,” chief economist Inan Demir of Nomura International said.

The central bank had drawn sharp criticism for failing to substantially raise interest rates to rein in double-digit inflation and an ailing currency. The lira had fallen by more than 40 percent this year.

The rate hike is an apparent rebuke to Turkish President Recep Tayyip Erdogan, who has been opposed to such a move.

Only hours before the central bank decision, Erdogan again voiced his opposition to increasing interest rates. The Turkish president reiterated his stance of challenging orthodox economic thinking, arguing that inflation is caused by high rates, although that runs contrary to conventional economic theory. Erdogan also issued a presidential decree banning all businesses and leasing and rental agreements from using foreign currency denominations.

The central bank indicated further rate hikes could be in the offing. “Tight stance monetary policy will be maintained decisively until inflation outlook displays a significant improvement,” the central bank statement reads.

The strong commitment to challenge inflation was welcomed by investors. “Most importantly, the CBT seemed to be vocal about price stability risks,” wrote chief economist Muhammet Mercan of Ing bank.

‘Crazy’ spending

Fueled by August’s sharp fall in the lira, which drove up import costs, inflation is on a rapid upward trajectory. Some predictions warn inflation could approach 30 percent in the coming months.

While international markets are broadly welcoming the central bank’s interest rate hike, economist Demir warns more action is needed.

“This rate hike does not undo the damage inflicted on corporate balance sheet, and market concerns about geopolitics will remain in place. So this is not the hike to end all problems,” said Demir.

The World Bank and IMF repeatedly have called on Ankara to rein in spending, which they say is fueling inflation. Perhaps in response, Erdogan has announced a freeze on new state construction projects.

In the past few years, he has embarked on an unprecedented construction boom, including building one of the world’s largest airports and a multibillion-dollar canal project in Istanbul, which the president himself described as “crazy.”

Trade tariffs

Investors also remain concerned about ongoing diplomatic tensions between Ankara and Washington. The two NATO allies remain at loggerheads over the detention on terrorism charges of American pastor Andrew Brunson.

Brunson’s detention saw U.S. President Donald Trump impose trade tariffs on Turkey, which triggered August’s collapse in the lira. Trump has warned of further sanctions.

“If we somehow sort out our problems with the United States and adopt an orthodox austerity program, we may find a way out of this mess,” said political analyst Atilla Yesilada of Global Source Partners.  “Turkey is a country that has a net foreign debt of over $400 billion, and where 40 percent of [Turkish] deposits are in foreign currency, so the game could be over in a day.”

Turkey has a long tradition of carrying out business in foreign currencies to mitigate the threat of inflation and a falling lira. The growing danger of the so-called “dollarization” of the economy and the public abandonment of the lira are significant risks to the currency.

Turkish companies are paying the cost for the depreciation of the lira. Analysts estimate about $100 billion in foreign currency loans have to be repaid by the private sector in the coming year. Companies and individuals borrowing in local currency, however, will be facing higher repayments. And most analysts predict the Turkish economy is heading into a recession.

Economist Demir says, though, that the situation could have been far worse.

“In the absence of an [interest rate] hike, the rollover pressures on banks would get even worse, damage on corporate balance sheets would intensify, and local deposit holders’ confidence would have weakened further. So this hike, although it doesn’t eliminate other risks, eliminates some of the worst outcomes for the Turkish economy,” he said.

Thursday’s rate hike appears to have bought time for the Turkish economy and the nation’s besieged currency. Analysts say investors are watching to see if Turkey’s decision-makers use that time wisely.

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