The Roundup: week ending 7/3/2020

The Roundup: week ending 7/3/2020

Three things your business should be watching this week:

1. Hong Kong’s new law shows that Beijing is willing to put politics over business

2. India’s ban on TikTok shows businesses continue to be a target in political conflicts, an ominous sign

3. US COVID treatment acquisition shows that multilateral cooperation is a thing of the past

4. Continued military conflicts in the Middle East are revealing a worrying paradigm

 

 

1. The world watched on this week as Hong Kong’s new National Security Law came into effect.

 

 

The Takeaway: On July 1st, the new National Security Law went into effect in Hong Kong, a broad piece of legislation meant to subdue pro-democracy activities in the city. The new law has initiated another wave of public protests this week as pro-democracy leaders flee underground to escape potential imprisonment as the law goes into effect.

 

 

The U.S. Congress has already unanimously signed a bill to criticize this move by China by imposing sanctions on any officials involved in the national security law with ties to Chinese banks and a disruption of trade exports of sensitive technology to Hong Kong from the US. It is widely accepted that this is just one facet of a beginning of decline as Hong Kong as a major hub for financial and economic activity in the region.

 

 

In the past – economic concerns generally stood in the way for governments to take actions that might be politically expedient, but that would harm the private sector and industry. To a degree, this move signals Hong Kong’s decreasing economic importance for China as a whole, but it is also a sign of our times that governments increasingly accept an economic price in exchange for gains that are political in nature. The “flat world” of the 2000’s is a thing of the past – companies should take note.

 

 

 

2. The India-China border dispute goes digital as India bans TikTok and 58 other apps made by Chinese developers.

 

 

The Takeaway: TikTok’s developer, ByteDance, complied with Indian authorities after they requested the app to be taken down from the domestic market, citing concerns over data privacy and national security. India was the app’s biggest overseas market, with over 200 million users in the country alone.

 

 

This is another indicator that competition is growing complicated and headed towards trade war tactics and retaliation that include outright company bans. We are seeing increasing instances of business becoming entangled in geopolitical conflicts that they thought was unrelated to their business. A growing concern there is that the location of the HQ sits becomes a problem they cannot maneuver around. Banning products and businesses by country of origin as a tactic in political conflicts is a bad trend that companies should hope does not become normalized any further.

 

 

3. The USMCA went into effect Wednesday and hardly anyone paid attention.

 

 

The Takeaway: The U.S.-Mexico-Canada Agreement is as a bullet dodged rather than a step forward for free trade.  Back in 2016 there were two negative trade scenarios for the US – 1 high tariffs on Chinese goods and 2 a dissolution of NAFTA. At the time, few people took either of them seriously. Four years later, we can conclude that businesses got lucky that only one of two of Trump’s presidential campaign promises were fulfilled: the trade-war with China rages on while the total rip-up of NAFTA is now off the table. Meanwhile, the USMCA is not doing much to fulfill its promises on easing trade disputes between the U.S., Mexico, and Canada. Trade experts are still anticipating potential conflicts Mexico on labor, biotech, and intellectual property, as well as disputes with the Canadian-side on aluminum exports.

 

 

4. In a true “America First” move, the U.S. government buys up nearly the entire stock of COVID-19 drug from Gilead.

 

 

The Takeaway: On Tuesday, the US Department of Health announced that the government managed a deal to purchase nearly the entire available stock of remdesivir, a drug capable of reducing recovery time in patients with COVID-19. This move to outbid other countries emphasizes this new non-multilateral world, where national self-interest is taking precedence over international cooperation. Critics observe that the US may face karmic retribution should the vaccine be developed by a non-US manufacturer, even as the US continues to top the world in the total number of recorded cases. This bar set by American self-interest is sure to be emulated by other countries in the near future.

 

 

5. Continued conflict in Libya refuses to go away or escalate. Conflicts in the Middle East is nothing new, but the way they are waged shows a new and worrying paradigm.

 

 

The Takeaway: Growing tensions between the role of French and Turkish forces in Libya has resulted in France halting its NATO operations in the area this week. This takes these conflicts to a new era where mid-sized countries continue to run military campaigns in the region without fearing much pressure or retribution. In Libya, forces from Russia, UAE, Turkey, and Syrian military forces are actively engaged. This new paradigm is a worrying trend for global volatility as military conflicts with multiple state armies involved are now messier, more likely to escalate, and increasingly military involvement by Western forces does little to stop others from getting involved with impunity.

 

03.07.2020

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