Pelosi’s Taiwan trip could have major implications for global economy | Larry Eliot

RSentiment between the US and China was low even before the House Speaker’s visit to Taiwan. Now they have the potential to actually become very evil – with major consequences for the global economy.

At the moment things look manageable. The financial markets reacted relatively calmly to Nancy Pelosi’s visit and the subsequent military exercises ordered by Beijing. The assumption is that China will deliver a tour de force and leave it at that.

However, its President Xi Jinping also has economic and financial weapons and can choose to use them. On the milder end of the spectrum, China could make it more difficult for US companies to enter its market. For example, there will be no rush for Boeing to resume sales of its 737 Max aircraft.

This would accelerate the decoupling of the world’s two largest economies – a trend that began when Donald Trump was in the White House and will continue under Joe Biden. Hostility toward Beijing is one of the few things Republicans and Democrats agree on.

However, there is a risk that China could go further and exploit Taiwan’s dependence on imported fuel by imposing a blockade on the island. As Mark Williams, chief analyst for Asia at Capital Economics, notes, this would soon cripple Taiwan’s industry and cause “major global economic disruption.”

That’s because the island produces about half of all the world’s semiconductors, which are used in everything from cell phones to cars, and are already becoming scarce. Restricting chip exports would lead to supply shortages, higher inflation and weaker growth. Inevitably, there would also be pressure on the US not only to impose economic sanctions and asset freezes, but also to intervene militarily.

Financial markets are likely underestimating the risks posed by Taiwan. At the very least, business confidence will take a fresh hit. The chances of trade restrictions against each other have increased. There will be more pressure on national self-sufficiency to reduce dependence on global supply chains.

And that’s a relatively optimistic reading of events. There is clearly a risk – small but not negligible – that this increasingly tense Cold War will heat up.

Oil prices appear bound to fall further

There was a time when Opec oil cartel meetings made headlines. When Sheikh Ahmed Yamani died last year, the obituaries drew much attention to the fact that, as Saudi Arabia’s oil minister, he was a central figure in setting the global price of crude oil.

But that was all a long time ago. Opec is now Opec+ thanks to the addition of a few new members, including Russia, but it no longer exerts the impact on global energy markets that it did in the 1970s and 80s.

Oil prices are now well below the level they reached in the immediate aftermath of the Russian invasion of Ukraine and are likely to fall further in the coming months. This has nothing to do with Opec+’s meaningless decision on Wednesday to increase crude supply by 100,000 barrels a day, it has everything to do with global demand.

As the International Monetary Fund noted last week, all three of the world’s major economies — the US, the eurozone and China — are faltering. Oil is trading at around $100 a barrel — a price more consistent with strong global growth than the recession looming this winter.

Whether or not Opec+ amplifies downward pressure from output increases, oil prices are likely to continue falling. That’s good news for UK motorists, provided of course that the lower costs are passed on to them by the forecourt dealers.

Why regional pay for public sector employees is a stupid idea

Establishing regional wage councils to match public sector pay with local labor market conditions is the sort of proposal Liz Truss may have dreamed up when she was cutting her political teeth as deputy director of centre-right think tank Reform.

There’s nothing wrong with that. Think tanks are there to make radically new proposals. However, politicians must separate the good ideas from the bad, and regional salaries for public sector workers fall squarely into the latter category.

There are reasons for that. One is that cutting public sector salaries would reduce purchasing power in parts of the country suffering from low demand. Another reason is the need to incentivize the brightest and best to take jobs outside of London and the South East. The proposal is bad economics and bad politics, which contradicts the government’s leveling agenda. No wonder Truss dropped the idea within 24 hours of announcing it.