The Federal Reserve’s determination to crush inflation at home by raising interest rates is inflicting profound pain in other countries — pushing up prices, ballooning the size of debt payments and increasing the risk of a deep recession.
Those interest rate increases are pumping up the value of the dollar — the go-to currency for much of the world’s trade and transactions — and causing economic turmoil in both rich and poor nations. In Britain and across much of the European continent, the dollar’s acceleration is helping feed stinging inflation.
On Monday, the British pound touched a record low against the dollar as investors balked at a government tax cut and spending plan. And China, which tightly controls its currency, fixed the renminbi at its lowest level in two years while taking steps to manage its decline.
Somalia, where the risk of starvation already lurks, the strong dollar is pushing up the price of imported food, fuel and medicine. The strong dollar is nudging debt-ridden Argentina, Egypt and Kenya closer to default and threatening to discourage foreign investment in emerging markets like India and South Korea.
the International Monetary Fund.
Japanese yen has reached a decades-long high. The euro, used by 19 nations across Europe, reached 1-to-1 parity with the dollar in June for the first time since 2002. The dollar is clobbering other currencies as well, including the Brazilian real, the South Korean won and the Tunisian dinar.
the economic outlook in the United States, however cloudy, is still better than in most other regions.
loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
A fragile currency can sometimes work as “a buffering mechanism,” causing nations to import less and export more, Mr. Prasad said. But today, many “are not seeing the benefits of stronger growth.”
Still, they must pay more for essential imports like oil, wheat or pharmaceuticals as well as for loan bills due from billion-dollar debts.
debt crisis in Latin America in the 1980s.
The situation is particularly fraught because so many countries ran up above-average debts to deal with the fallout from the pandemic. And now they are facing renewed pressure to offer public support as food and energy prices soar.
Indonesia this month, thousands of protesters, angry over a 30 percent price increase on subsidized fuel, clashed with the police. In Tunisia, a shortage of subsidized food items like sugar, coffee, flour and eggs has shuttered cafes and emptied market shelves.
New research on the impact of a strong dollar on emerging nations found that it drags down economic progress across the board.
“You can see these very pronounced negative effects of a stronger dollar,” said Maurice Obstfeld, an economics professor at the University of California, Berkeley, and an author of the study.
central banks feel pressure to raise interest rates to bolster their currencies and prevent import prices from skyrocketing. Last week, Argentina, the Philippines, Brazil, Indonesia, South Africa, the United Arab Emirates, Sweden, Switzerland, Saudi Arabia, Britain and Norway raised interest rates.
World Bank warned this month that simultaneous interest rate increases are pushing the world toward a recession and developing nations toward a string of financial crises that would inflict “lasting harm.”
Clearly, the Fed’s mandate is to look after the American economy, but some economists and foreign policymakers argue it should pay more attention to the fallout its decisions have on the rest of the world.
In 1998, Alan Greenspan, a five-term Fed chair, argued that “it is just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress.”
The United States is now facing a slowing economy, but the essential dilemma is the same.
“Central banks have purely domestic mandates,” said Mr. Obstfeld, the U.C. Berkeley economist, but financial and trade globalization have made economies more interdependent than they have ever been and so closer cooperation is needed. “I don’t think central banks can have the luxury of not thinking about what’s happening abroad.”
Flávia Milhorance contributed reporting from Rio de Janeiro.
More than 90% of stocks and every sector in the benchmark index lost ground as traders wait to see how far the Fed will raise interest rates.
Stocks fell broadly in midday trading on Wall Street Tuesday ahead of a key decision on interest rates by the Federal Reserve.
The S&P 500 index fell 1% as of 11:46 a.m. Eastern. More than 90% of stocks and every sector in the benchmark index lost ground as traders wait to see how far the Fed will raise interest rates at its meeting that ends Wednesday.
The Dow Jones Industrial Average fell 312 points, or 1%, to 30,706 and the Nasdaq fell 0.5%.
U.S. crude oil prices fell 2.1% and weighed down energy stocks. Hess fell 1.7%.
Bond yields edged higher. The yield on the 2-year Treasury, which tends to follow expectations for Fed action, rose to 3.97% from 3.95% late Monday and is hovering around its highest levels since 2007.
The 10-year yield, which influences mortgage rates, rose to 3.57% from 3.52% and is trading at its highest levels since 2011.
Stocks have been slumping and Treasury yields rising as the Fed raises the cost of borrowing money in hopes of slowing down the hottest inflation in four decades. The central bank’s aggressive rate hikes have been making markets jittery, especially as Fed officials assert their determination to keep raising rates until they are sure inflation is coming under control.
Fed Chair Jerome Powell bluntly warned in a speech last month that the rate hikes would “bring some pain.”
“He has done everything he possibly can to signal that it’s going to be another aggressive move,” said Liz Young, head of investment strategy at SoFi. “He’s been clear as a bell about what they’ve been focused on.”
Related StoryPowell: Fed Could Keep Lifting Rates Sharply ‘For Some Time’
The Fed is expected to raise its key short-term rate by a substantial three-quarters of a point for the third time at its meeting on Wednesday. That would lift its benchmark rate, which affects many consumer and business loans, to a range of 3% to 3.25%, the highest level in 14 years, and up from zero at the start of the year.
Wall Street is worried that the rate hikes could go too far in slowing economic growth and push the economy into a recession. Those concerns have been heightened by data showing that the U.S. economy is already slowing and by companies warning about the impact of inflation and supply chain problems to their operations.
Ford fell 9.6% after slashing its third-quarter earnings forecast because a parts shortage will leave it with as many as 45,000 vehicles unfinished on its lots when the quarter ends Sept. 30. Last week, FedEx and General Electric warned investors about damage to their operations from inflation.
The U.S. isn’t alone in suffering from hot inflation or dealing with the impact of efforts to fight high prices.
Sweden’s central bank on Tuesday raised its key interest rate by a full percentage point to 1.75%, catching almost everyone off guard as it scrambles to bring down inflation that was measured at 9% in August.
Consumer inflation in Japan jumped in August to 3%, its highest level since November 1991 but well below the 8% plus readings in the U.S. and Europe. The Bank of Japan is set to have a two-day monetary policy meeting later this week, although analysts expect the central bank to stick to its easy monetary policy.
Min Joo Kang, senior economist, South Korea and Japan, at ING Economics noted inflation remained relatively low in Japan. Energy prices were rising, but not as much as in the U.S. or some parts of Europe. Housing prices haven’t risen and household income have remained stagnant.
Rate decisions from Norway, Switzerland and the Bank of England are next.
Markets in Europe were mostly lower, while markets in Asia gained ground
Gazprom said on Friday that it would postpone restarting the flow of natural gas through a closely watched pipeline that connects Russia and Germany, an unexpected delay that appeared to be part of a larger struggle between Moscow and the West over energy and the war in Ukraine.
The Russian-owned energy giant had been expected to resume the flow of gas through the Nord Stream 1 pipeline on Saturday after three days of maintenance. But hours before the pipeline was set to reopen, Gazprom said that problems had been found during inspections, and that the pipeline would be closed until they were eliminated. It did not give a timeline for restarting.
The announcement had the hallmarks of a tit-for-tat move. Earlier on Friday, finance ministers for the Group of 7 countries said that they had agreed to impose a price cap mechanism on Russian oil in a bid to choke off some of the energy revenue Moscow is still collecting from Europe.
Eric Mamer, a spokesman for the European Commission, said that the “fallacious pretenses” for the latest delay were “proof of Russia’s cynicism.”
Russia has, during Mr. Putin’s long tenure, used energy for geopolitical ends, often with the goal of gaining leverage over European policies toward Ukraine. Mr. Putin has taken a keen interest in the oil and natural gas industries, often negotiating deals personally with energy giants in ways that barely hide the political subtext. The Nord Stream pipelines, which are designed to bypass Ukraine by sending gas directly to Germany under the Baltic Sea, have been central to the Kremlin’s political use of energy.
In its statement Friday, Gazprom said it found oil leaks around a turbine used to pressurize the pipeline, forcing it to call off the restart. The German company Siemens Energy, the maker of the turbine, cast doubt on that account. “As the manufacturer of the turbines, we can only state that such a finding is not a technical reason for stopping operation,” the company said late Friday. Siemens also said there were additional turbines available that could be used to keep the pipeline operating.
OPEC Plus group of oil producing countries, headed by Saudi Arabia and Russia, have been hinting that they might pivot away from their gradual post-pandemic production increases and cut output to bolster falling prices. The group is expected to meet on Monday to set oil production levels.
“Putin will endeavor to demonstrate that he has not played his last card and that there are many open windows in his energy war with the West,” Helima Croft, head of commodities at RBC Capital Markets, wrote in a note to clients on Friday.
The latest action by Gazprom will raise fears of a permanent shutdown of the pipeline, which had been the key conduit for gas to Germany, a country heavily dependent on Russian natural gas. Like other European Union nations, Germany has been rushing to fill storage facilities before winter as insurance against Russian cutoffs.
since late July. Well after Russia invaded Ukraine in late February, the pipeline was typically transporting around five times that level.
Britain’s energy regulator said that fuel bills for 24 million households would rise by 80 percent beginning in October, putting pressure on the next prime minister, expected to be Liz Truss, to turn immediate attention to coming up with a massive aid package to head off a catastrophic winter.
Britain’s government is not the only one working to mitigate the energy crisis in Europe. Facing dire circumstances, lawmakers and regulators across the continent are increasingly intervening in the energy markets to protect consumers.
Read More About Oil and Gas Prices
At the same time, the European natural gas market has changed substantially over the last year as Russia crimped supplies and Europe turned to other sources. Flows from Russia to Europe have declined sharply.
imports of liquefied natural gas shipped by sea from the United States and elsewhere, and increased pipeline flows from producers including Norway and Azerbaijan. The problem is that the shifts have forced gas prices higher, as Europe vies with Asia for limited supplies of liquefied gas.
Until Friday’s announcement there was increasing optimism about the prospect for navigating the winter with less Russian gas, leading to the fall in natural gas prices in recent days.Wood Mackenzie, an energy research firm, has projected that Russian pipeline gas imports will steadily decline from supplying more than a third of European demand in recent years to around 9 percent in 2023.
Even the importance of Nord Stream has diminished. Analysts say that Gazprom has so constrained Nord Stream volumes this summer that the pipeline’s performance is no longer crucial to the overall fundamentals of the market. But news about the conduit still has a psychological impact, and some analysts expect gas prices to jump when markets open on Monday.
“A complete shutdown will obviously have implications on market sentiment given how tight the market is,” said Massimo Di Odoardo, vice president for global gas at Wood Mackenzie. Such an event, he added, would “increase the risk of further cuts via other pipelines bringing Russian gas to the E.U. via Ukraine and Turkey.”
At the Saku beer factory in Estonia, the mammoth copper brew kettles sit side by side like household sink plungers stored on a shelf in a manor house for giants. The brewery has been around for 200 years, but this is the first time in memory that the company has planned two price rises — of 10 percent each — in a single year.
And even that double-barreled increase won’t be enough to cover the brewery’s skyrocketing costs, said Jaan Harms, a board member at Saku.
“We are in an environment of increasing inflation, and, of course, energy is by far the main driver,” Mr. Harms said. When its energy contracts run out at the end of the summer, the company’s gas costs will rise 400 percent and the electricity bills will double, he said. And because the providers of every product and service they buy are also dealing with soaring fuel prices, those costs are rising as well.
estimates released Wednesday by the European Commission’s statistical office.
3 percent — a level that at the time set off alarms for reaching a decade-long high, but that would now be greeted with relief.
European Central Bank is scheduled to meet, is likely to reinforce the view that interest rates need to be raised again to curb inflation, despite the risk of recession.
Speaking at an economic summit near Jackson, Wyo., over the weekend, Isabel Schnabel, a member of the bank’s executive board, warned that inflation was more persistent than expected and said the bank needed to act “forcefully.”
“Inflation volatility has surged beyond the levels seen during the 1970s,” Ms. Schnabel said, a result of the coronavirus pandemic, the war in Ukraine and climate change that is causing widespread drought, wildfires and other extreme weather.
nearly double in October, making it difficult for millions of people to heat their homes this winter.
inflation hit 8.5 percent in July, still high but a decline from the 9.1 percent registered in June as prices for gas, airfares, used cars and hotel rooms fell.
agreement with the European Union to temporarily cap electricity prices at €40 per megawatt-hour. Professors at the Instituto Superior de Engenharia in Lisbon and at Complutense University in Madrid calculated that prices were 15 to 18 percent lower than they would have been without the cap.
Elsewhere in Europe, prices for electricity in August set eye-popping records, according to Rystad Energy, a consultancy in Norway, with an average price of €547 per megawatt-hour.
glass bottles from its Russian supplier after the outbreak of the war in Ukraine. Since then, wholesale bottle prices have shot up 20 to 80 percent.
solar panels atop its warehouses and brewery this summer, and it now boasts the country’s largest industrial rooftop solar park. In addition, the thermostats in offices will be lowered by 2 degrees this winter.
The energy crisis has also spurred the brewery to reconsider a proposal it had shelved as too expensive: the construction of a water treatment plant. The energy savings previously were not large enough to justify the cost. “But we are now thinking of doing this because the rules of the game have changed so much,” Mr. Harms said.
Saku’s initial price increase has gone through, but so far, there has not been a drop in sales. Summer vacation is prime season, Mr. Harms said, and when the weather is warm in this northern European country, people spend and drink.
But like the rest of Europe, Estonia is preparing for a dark winter.
The execution of the four activists prompted immediate calls from around the world for a moratorium on carrying out any further sentences.
International outrage over Myanmar’s execution of four political prisoners intensified Tuesday with grassroots protests and strong condemnation from world governments, as well as fears the hangings could derail nascent attempts to bring an end to the violence and unrest that has beset the Southeast Asian nation since the military seized power last year.
Myanmar’s military-led government that seized power from elected leader Aung San Suu Kyi in February 2021 has been accused of thousands of extrajudicial killings since then, but the hangings announced Monday were the country’s first official executions in decades.
“We feel that this is a crime against humanity,” said Malaysian Foreign Minister Saifuddin Abdullah, speaking at the side of the United Nations’ Special Envoy on Myanmar Noeleen Heyzer at a press conference in Kuala Lumpur.
He said the executions would be a focus of the upcoming meetings of the Association of Southeast Asian Nations foreign ministers, which begin in Cambodia in a week.
Myanmar is a member of the influential ASEAN group, which has been trying to implement a five-point consensus it reached on Myanmar last year calling for dialogue among all concerned parties, provision of humanitarian assistance, an immediate cessation of violence and a visit by a special envoy to meet all parties.
With the executions, he said, “we look at it as if the junta is making a mockery of the five point process.”
Heyzer said that the U.N. sees the executions as a “blatant violation” of a person’s “right to life, liberty and security.”
In Bangkok, hundreds of pro-democracy demonstrators protested outside neighboring Myanmar’s embassy, waving flags and chanting slogans amid a heavy downpour.
“The dictators used their power arbitrarily,” yelled a young man through a bullhorn to the crowd, some of whom waved pictures of Suu Kyi or the four executed men. “We can’t tolerate this any more.”
Myanmar’s government spokesperson, Maj. Gen. Zaw Min Tun, firmly rejected the criticism, saying the executions were carried out in line with the country’s law and not for “personal” reasons.
“We knew that there may be criticism when the death penalties were handed down and conducted in line with domestic law,” he told reporters. “However, we did it for reasons of domestic stability, for the rule of law and order, and security.”
He said the executed men were convicted of crimes involving supporting violent “terrorists” and acts — allegations denied by their defenders — and said their punishment was “appropriate.”
“If we considered leniency for those who committed such crimes it would have been cruel and without sympathy for the victims,” he said.
Among the four executed was Phyo Zeya Thaw, a 41-year-old former lawmaker from Suu Kyi’s party, and Kyaw Min Yu, a 53-year-old democracy activist better known as Ko Jimmy. All were tried, convicted and sentenced by a military tribunal with no possibility of appeal.
The executions were carried out over the weekend, and came as a surprise even to family members.
Phyo Zeya Thaw’s mother Khin Win May told The Associated Press she had just spoken with her son via video conference on Friday and he had asked her for reading glasses, books and some spending money.
“I was a little shocked when I heard about the execution, I think it will take some time,” she said.
She said she hoped her son and the others would be seen as martyrs for their cause.
“I’m proud of all of them as they sacrificed their lives for the country,” she said.
The execution of the four activists prompted immediate calls from around the world for a moratorium on carrying out any further sentences, and condemnation for what was broadly seen as a politically motivated move.
Myanmar, formerly known as Burma, announced in June that it was going to resume executing prisoners and has 113 others who have been sentenced to death, although 41 of those were convicted in absentia, according to the Assistance Association for Political Prisoners, a non-governmental organization that tracks killing and arrests. At the same time, 2,120 civilians have been killed by security forces since the military takeover.
“This was a barbaric act by Myanmar’s military regime,” said New Zealand’s Foreign Minister Nanaia Mahuta of the four executions carried out. “New Zealand condemns these actions in the strongest possible terms.”
Australia’s Foreign Minister Penny Wong said she was “appalled” by the executions.
“Australia opposes the death penalty in all circumstances for all people,” she said.
Earlier, Australia and New Zealand had joined the European Union, Japan, the United Kingdom, the United States, Canada, Norway and South Korea in a joint statement condemning the executions.
ASEAN denounced the executions as “highly reprehensible.”
It said the move represented a setback to the group’s efforts to facilitate a dialogue between the military leadership and opponents.
“We strongly and urgently call on all parties concerned to desist from taking actions that would only further aggravate the crisis, hinder peaceful dialogue among all parties concerned, and endanger peace, security and stability, not only in Myanmar, but the whole region,” the group said in a statement.
The military’s seizure of power from Suu Kyi’s elected government triggered peaceful protests that soon escalated to armed resistance and then to widespread fighting that some U.N. experts characterize as a civil war.
Some resistance groups have engaged in assassinations, drive-by shootings and bombings in urban areas. Mainstream opposition organizations generally disavow such activities, while supporting armed resistance in rural areas that are more often subject to brutal military attacks.
News of the executions prompted a flash-demonstration Monday in Myanmar’s largest city, Yangon, where about a dozen protesters took to the streets marching behind a banner saying “we are never afraid,” then quickly slipping away before authorities could confront them.
Similar demonstrations broke out in more rural areas across Myanmar on both Monday and Tuesday.
The last judicial execution to be carried out in Myanmar is generally believed to have been of another political offender, student leader Salai Tin Maung Oo, in 1976 under a previous military government led by dictator Ne Win.
This past week brought home the magnitude of the overlapping crises assailing the global economy, intensifying fears of recession, job losses, hunger and a plunge on stock markets.
At the root of this torment is a force so elemental that it has almost ceased to warrant mention — the pandemic. That force is far from spent, confronting policymakers with grave uncertainty. Their policy tools are better suited for more typical downturns, not a rare combination of diminishing economic growth and soaring prices.
Major economies including the United States and France reported their latest data on inflation, revealing that prices on a vast range of goods rose faster in June than anytime in four decades.
China reported that its economy, the world’s second-largest, expanded by a mere 0.4 percent from April through June compared with the same period last year. That performance — astonishingly anemic by the standards of recent decades — endangered prospects for scores of countries that trade heavily with China, including the United States. It reinforced the realization that the global economy has lost a vital engine.
The specter of slowing economic growth combined with rising prices has even revived a dreaded word that was a regular part of the vernacular in the 1970s, the last time the world suffered similar problems: stagflation.
Most of the challenges tearing at the global economy were set in motion by the world’s reaction to the spread of Covid-19 and its attendant economic shock, even as they have been worsened by the latest upheaval — Russia’s disastrous attack on Ukraine, which has diminished the supply of food, fertilizer and energy.
“The pandemic itself disrupted not only the production and transportation of goods, which was the original front of inflation, but also how and where we work, how and where we educate our children, global migration patterns,” said Julia Coronado, an economist at the University of Texas at Austin, speaking this past week during a discussion convened by the Brookings Institution in Washington. “Pretty much everything in our lives has been disrupted by the pandemic, and then we layer on to that a war in Ukraine.”
Great Supply Chain Disruption.
meat production to shipping exploited their market dominance to rack up record profits.
The pandemic prompted governments from the United States to Europe to unleash trillions of dollars in emergency spending to limit joblessness and bankruptcy. Many economists now argue that they did too much, stimulating spending power to the point of stoking inflation, while the Federal Reserve waited too long to raise interest rates.
8 Signs That the Economy Is Losing Steam
Card 1 of 9
Worrying outlook. Amid persistently high inflation, rising consumer prices and declining spending, the American economy is showing clear signs of slowing down, fueling concerns about a potential recession. Here are other eight measures signaling trouble ahead:
Consumer confidence. In June, the University of Michigan’s survey of consumer sentiment hit its lowest level in its 70-year history, with nearly half of respondents saying inflation is eroding their standard of living.
The housing market. Demand for real estate has decreased, and construction of new homes is slowing. These trends could continue as interest rates rise, and real estate companies, including Compass and Redfin, have laid off employees in anticipation of a downturn in the housing market.
Copper. A commodity seen by analysts as a measure of sentiment about the global economy — because of its widespread use in buildings, cars and other products — copper is down more than 20 percent since January, hitting a 17-month low on July 1.
Oil. Crude prices are up this year, in part because of supply constraints resulting from Russia’s invasion of Ukraine, but they have recently started to waver as investors worry about growth.
The bond market. Long-term interest rates in government bonds have fallen below short-term rates, an unusual occurrence that traders call a yield-curve inversion. It suggests that bond investors are expecting an economic slowdown.
Now playing catch-up, central banks like the Fed have moved assertively, lifting rates at a rapid clip to try to snuff out inflation, even while fueling worries that they could set off a recession.
Given the mishmash of conflicting indicators found in the American economy, the severity of any slowdown is difficult to predict. The unemployment rate — 3.6 percent in June — is at its lowest point in almost half a century.
American consumers have enhanced fears of a downturn. This past week, the International Monetary Fund cited weaker consumer spending in slashing expectations for economic growth this year in the United States, from 2.9 percent to 2.3 percent. Avoiding recession will be “increasingly challenging,” the fund warned.
Orwellian lockdowns that have constrained business and life in general. The government expresses resolve in maintaining lockdowns, now affecting 247 million people in 31 cities that collectively produce $4.3 trillion in annual economic activity, according to a recent estimate from Nomura, the Japanese securities firm.
But the endurance of Beijing’s stance — its willingness to continue riding out the economic damage and public anger — constitutes one of the more consequential variables in a world brimming with uncertainty.
sanctions have restricted sales of Russia’s enormous stocks of oil and natural gas in an effort to pressure the country’s strongman leader, Vladimir V. Putin, to relent. The resulting hit to the global supply has sent energy prices soaring.
The price of a barrel of Brent crude oil rose by nearly a third in the first three months after the invasion, though recent weeks have seen a reversal on the assumption that weaker economic growth will translate into less demand.
major pipeline carrying gas from Russia to Germany cut the supply sharply last month, that heightened fears that Berlin could soon ration energy consumption. That would have a chilling effect on German industry just as it contends with supply chain problems and the loss of exports to China.
euro, which has surrendered more than 10 percent of its value against the dollar this year. That has increased the cost of Europe’s imports, another driver of inflation.
ports from the United States to Europe to China.
“Everyone following the economic situation right now, including central banks, we do not have a clear answer on how to deal with this situation,” said Kjersti Haugland, chief economist at DNB Markets, an investment bank in Norway. “You have a lot of things going on at the same time.”
Understand Inflation and How It Impacts You
The most profound danger is bearing down on poor and middle-income countries, especially those grappling with large debt burdens, like Pakistan, Ghana and El Salvador.
As central banks have tightened credit in wealthy nations, they have spurred investors to abandon developing countries, where risks are greater, instead taking refuge in rock-solid assets like U.S. and German government bonds, now paying slightly higher rates of interest.
This exodus of cash has increased borrowing costs for countries from sub-Saharan Africa to South Asia. Their governments face pressure to cut spending as they send debt payments to creditors in New York, London and Beijing — even as poverty increases.
U.N. World Food Program declared this month.
Among the biggest variables that will determine what comes next is the one that started all the trouble — the pandemic.
The return of colder weather in northern countries could bring another wave of contagion, especially given the lopsided distribution of Covid vaccines, which has left much of humanity vulnerable, risking the emergence of new variants.
So long as Covid-19 remains a threat, it will discourage some people from working in offices and dining in nearby restaurants. It will dissuade some from getting on airplanes, sleeping in hotel rooms, or sitting in theaters.
Since the world was first seized by the public health catastrophe more than two years ago, it has been a truism that the ultimate threat to the economy is the pandemic itself. Even as policymakers now focus on inflation, malnutrition, recession and a war with no end in sight, that observation retains currency.
“We are still struggling with the pandemic,” said Ms. Haugland, the DNB Markets economist. “We cannot afford to just look away from that being a risk factor.”
FRANKFURT — The name MG used to be synonymous with spirited but finicky sports cars from Britain. Nowadays the iconic octagonal badge serves a different kind of motoring ambition: China’s push to become a big player in the global auto market.
SAIC Motor, one of China’s Big Four automakers, bought the MG brand in 2007 and is stamping it on a line of electric sport utility vehicles on sale in Germany and other European markets. MG is an example of how Chinese carmakers are exploiting the shift to electric cars to challenge the American, European and Japanese carmakers that have long dominated the industry.
The Chinese automakers are arriving as electric cars surge in popularity, accounting for almost 10 percent of new car sales in Western Europe, and consumers are in a mood to buy, with savings built up during the pandemic. At the same time, car manufacturers are cutting back production because of shortages of microprocessors.
MG already has 350 dealers in 16 European countries and is still expanding. Two other Chinese automakers, Nio and BYD, are moving into Europe by way of Norway, the world’s most electrified large car market.
Nio, based in Shanghai, opened a dealership in Oslo at the end of September, the company’s first outlet outside China. BYD, based in Shenzhen, delivered an electric S.U.V. called the Tang, to the first Norwegian customer in August.
Polestar, which is based in Sweden but belongs to Geely Holding of China, has been selling a Chinese-made battery-powered model in Europe and the United States since 2020. And many of the Teslas on European roads were imported from the company’s factory in Shanghai. (That will change once the company finishes building a factory near Berlin.)
Foreign automakers like Volkswagen, Mercedes-Benz or General Motors sell millions of cars in China, so they can hardly complain when Chinese automakers encroach on their turf. Even though China is the world’s largest car market, its brands have only a sliver of the international market. Even buyers in China prefer foreign brands, although local carmakers are growing quickly and have captured more than 40 percent of the domestic market.
global semiconductor shortage. The wait time for an MG hybrid is only four weeks, and three months for an all-electric model, “which is pretty much OK compared to other brands right now,” Mr. Stark said.
Waits for many European brands can be much longer, especially for lower-priced models. Carmakers like Renault are allocating scarce chips to higher-end vehicles, which generate more profit.
While the market may be ripe for Chinese electric cars, the political timing may not be so ideal. Many European leaders share their American counterparts’ concern about Chinese trade practices, accusing Beijing of subsidizing companies to give them an unfair advantage in international competition.
are negotiating to form a government that is likely to include the Green Party, which favors a harder line against China than Angela Merkel, the departing chancellor. MG may be particularly vulnerable to concerns about the mingling of government and corporate interests because its parent company, SAIC, is majority owned by the state.
international car show in Munich in September. “Car brands, wherever they are located, have export business.”
ZHAOQING, China — Xpeng Motors, a Chinese electric car start-up, recently opened a large assembly plant in southeastern China and is building a matching factory nearby. It has announced plans for a third.
Another Chinese electric car company, Nio, has opened one large factory in central China and is preparing to build a second a few miles away.
Zhejiang Geely, owner of Volvo, showed off an enormous new electric car factory in eastern China last month rivaling in size some of the world’s largest assembly plants. Evergrande, a troubled Chinese real estate giant, has just built electric car factories in the cities of Shanghai and Guangzhou and hopes to be making almost as many fully electric cars by 2025 as all of North America.
China is erecting factories for electric cars almost as fast as the rest of the world combined. Chinese manufacturers are using the billions they have raised from international investors and sympathetic local leaders to beat established carmakers to the market.
Europe is on track to make 5.7 million fully electric cars by then.
have plans to catch up. In April, President Biden called for the United States to step up its electric vehicle efforts. During a virtual visit to an electric bus factory in South Carolina, he warned, “Right now, we’re running way behind China.”
North American automakers are on track to build only 1.4 million electric cars a year by 2028, according to LMC, compared with 410,000 last year.
eliminate gasoline and diesel engines entirely in the next 15 years.
For the new Chinese cars, name recognition will be a major challenge. The brands are mostly unfamiliar even to Chinese drivers. On roads filled with Buicks, Volkswagens and Mercedes-Benzes, they could struggle to stand out.
Alibaba, the e-commerce company, and two state-backed firms have set up an electric car joint venture under the name IM Motors, which plans to begin delivering cars early next year.
Evergrande named its brand Hengchi, pronounced “Hung-cheh.” A stock market mania for electric cars has propelled the Hong Kong-traded shares of the company’s electric car unit, Evergrande New Energy Vehicle, to almost the same market capitalization as G.M.
Evergrande plans to make and sell a million fully electric cars a year by 2025. So far, it has sold none.
Geely, an industry veteran with recognized brands in China, has named its electric brand Zeekr, which rhymes with “seeker.” It plans to begin delivering cars in October.
The Zeekr is being made in a new electric car factory near Ningbo, on China’s eastern coast. The factory is a cavernous space with miles of white conveyor belts and rows of 15-foot cream-colored robots made by ABB of Sweden. It has an initial capacity of 300,000 cars a year, larger than most car factories in Detroit, and floor space for expansion.
“What is the most important thing is, China has the market,” said Zhao Chunlin, the factory’s general manager.
Mr. He named Xpeng, pronounced “X-pung,” after himself. Xpeng’s niche feature is a cooing, Siri-like voice assistant that guides the car’s internet services, like directions and music, and its computer-assisted highway driving. Xpeng plans to have the capacity to make 300,000 cars a year by 2024; last year it sold fewer than one-tenth that many.
Mr. He made his first fortune developing a mobile phone browser company, UCWeb. He sold it to Alibaba in 2014 and became president of Alibaba’s mobile business services unit. The same year he helped bankroll two former executives from state-owned Guangzhou Auto to start Xpeng.
Three years later, Mr. He took direct control of Xpeng and left Alibaba, which also acquired a small stake in the automaker. Mr. He said that his second child had been born, and that he wanted to be able to tell his son that he led a car company. Mr. He holds 23 percent of Xpeng’s shares, while Alibaba holds 12 percent.
Chinese government officials have helped along the way. A state-owned enterprise in Zhaoqing, a 1,000-year-old jade-carving town near Guangzhou, lent $233 million to Xpeng in 2017 for the construction of its initial factory with annual capacity of about 100,000 cars. The city has been subsidizing the company’s interest payments since then, according to Xpeng’s regulatory filings.
The city of Wuhan helped Xpeng buy land and borrow money at low interest rates for a new plant there. The Guangzhou government also helped Xpeng start building its factory in that city, said Brian Gu, vice chairman and president of Xpeng.
Last year, after weathering the pandemic, Xpeng cashed in on Wall Street, where Tesla’s rise whetted investor appetite for the industry. The Chinese company raised $5 billion in an initial public offering and subsequent share sales. It is spending part of the money on new factories and part of it on research and development, particularly in autonomous driving.
Xpeng’s deep pockets are visible in costly automation at its Zhaoqing factory. Robots lift 44-pound car roofs of dark tinted glass, apply aerospace-strength glue and press them into place. Waist-high robots glide across the gray concrete floor, carrying instrument panels while playing an instrumental version of Celine Dion’s “My Heart Will Go On.” (The robots came programmed that way, company officials explained.)
The factory took only 15 months to build, considerably faster than assembly plants in the West. Yan Hui, the general manager of the factory’s final assembly area, said decisions were made more quickly than at the German auto parts manufacturer where he used to work.
“Any design change took a long time — sign, sign, even sign in German,” he said. “But at Xpeng, we can just make the change.”
Even though many of the electric car brands are new to China, their owners already have ambitions abroad. Xpeng is starting to export cars to Europe, beginning with Norway. Chery, a big state-owned automaker in central China, announced last week that it would start exporting gasoline-powered cars to the United States next year and follow with electric cars.
The United States will be a difficult market. The Trump administration imposed 25 percent taxes in 2018 on cars imported from China, which has slowed exports. Many electric car parts are covered by the same tariffs. That makes it harder, but not impossible, for Chinese companies to start shipping electric cars in kits to the United States for assembly.
For now, Chinese companies see huge potential to build their brands.
Michael Dunne, the chief executive of ZoZo Go, a consulting firm specializing in the electric car industry in Asia, said the industry’s outlook was becoming clear: “China is going to be the global dominator when it comes to making electric cars.”
This story was produced in partnership with the Pulitzer Center’s Rainforest Investigations Network.
RIO DE JANEIRO — As the Biden administration rallies the international community to curb global warming in a climate change summit this week, Brazil is pledging to play a critical role, going as far as promising to end illegal deforestation by 2030.
There’s a catch: Brazil’s president, Jair Bolsonaro, wants the international community to pledge billions of dollars to pay for the conservation initiatives.
And donors are reluctant to provide the money, since Brazil under the Bolsonaro administration has been busy doing the opposite of conservation, gutting the country’s environmental protection system, undermining Indigenous rights and championing industries driving the destruction of the rainforest.
Mr. Bolsonaro’s watch, deforestation in the Amazon rainforest, by far the largest in the world, has risen to the highest level in over a decade. The destruction, which has been driven by loggers clearing land for cattle grazing and for illegal mining operations, sparked global outrage in 2019 as huge wildfires raged for weeks.
European Union, Norway and others in warning that its worsening reputation hampers the country’s economic potential.
that Norway and Germany froze in 2019 after Mr. Bolsonaro’s government criticized some of the projects and dismantled safeguards to ensure the money was used effectively.
“The shamelessness of the government to ask for resources abroad is striking,” Ms. Araújo said. “Why won’t he use the money that’s there?”
Environmental and Indigenous organizations have expressed deep skepticism about Mr. Bolsonaro’s professed willingness to fight deforestation and they have warned international donors to refrain from giving the Brazilian government money they fear could be used to undermine environmental protection.
In recent weeks, environmentalists have raised the alarm, and celebrities — including the Brazilian singer Caetano Veloso and the American actor Leonardo DiCaprio — signed a letter that conveyed “profound concern” about the talks.
There is no sign that the Biden administration is considering offering to fund deforestation efforts on a significant scale, which would require support from Congress.
Jen Psaki, the White House press secretary, said last week that the United States does not expect to announce a bilateral agreement with Brazil at this week’s climate summit.
“We do want to see a clear commitment to ending illegal deforestation, tangible steps to increase effective enforcement of illegal deforestation, and a political signal that illegal deforestation and encroachment will not be tolerated,” she told reporters last week.
an analysis by Climate Observatory.
After the country’s vice president, Hamilton Mourão, announced the government’s first target for deforestation reduction earlier this month, experts pointed out that reaching the goal would leave Brazil by the end of 2022 with a level of deforestation 16 percent higher than the one Mr. Bolsonaro inherited in 2019.
The Bolsonaro administration is backing a bill that would give land grabbers amnesty, a move that would open up a swath of the Amazon at least the size of France to largely unregulated development. Another initiative it is pressing in Congress would make it easier for companies to get environmental licenses and would pave the way for legal mining operations in Indigenous territories.
And there is deep distrust toward Mr. Salles among environmentalists and public servants in the field. A senior federal police official in the Amazon recently accused the minister of obstructing a law enforcement operation against illegal loggers.
Private sector leaders are among the most concerned over the government’s record on the environment. Though China buys almost a third of Brazil’s exports, Americans are crucial investors in companies whose supply chains are vulnerable to deforestation.
In an open letter, the heads of dozens of major Brazilian companies, including the meatpacker JBS and the Itaú bank, urged the government to set more ambitious carbon emission reduction targets.
“Any work that reduces illegal deforestation benefits the private sector,” said Marcello Brito, the president of the Brazilian Agribusiness Association, which was among the signatories. “What I fear is a boycott by the market.”
That’s a prospect Mr. Chapman, the American ambassador, has underscored.
“If things don’t go well, it’s not about what happens with the American government, it’s about what happens with the world,” he said. “Many companies in the United States now, their shareholders are demanding an answer.”
WASHINGTON — President Biden has repeatedly pledged to work with China on issues like climate change while challenging Beijing on human rights and unfair trade practices.
But those goals are now coming into conflict in the global solar sector, presenting the Biden administration with a tough choice as it looks to expand the use of solar power domestically to reduce the United States’ carbon dioxide emissions.
The dilemma stems from an uncomfortable reality: China dominates the global supply chain for solar power, producing the vast majority of the materials and parts for solar panels that the United States relies on for clean energy. And there is emerging evidence that some of China’s biggest solar companies have worked with the Chinese government to absorb minority workers in the far western region of Xinjiang, programs often seen as a red flag for potential forced labor and human rights abuses.
This week, Mr. Biden is inviting world leaders to a climate summit in Washington, where he is expected to unveil an ambitious plan for cutting America’s emissions over the next decade. The administration is already eyeing a goal of generating 100 percent of the nation’s electricity from carbon-free sources such as solar, wind or nuclear power by 2035, up from only 40 percent last year. To meet that target, the United States may need to more than double its annual pace of solar installations.
many of which are imported from Chinese-owned factories in Vietnam, Malaysia and Thailand.
China also supplies many of the key components in solar panels, including more than 80 percent of the world’s polysilicon, a raw material that most solar panels use to absorb energy from sunlight. Nearly half of the global supply comes from Xinjiang alone. In 2019, less than 5 percent of the world’s polysilicon came from U.S.-owned companies.
“It’s put the Democrats in a hard position,” said Francine Sullivan, the vice president for business development at REC Silicon, a polysilicon maker based in Norway with factories in the United States. “Do you want to stand up to human rights in China, or do you want cheap solar panels?”
The administration is increasingly under pressure from influential supporters not to turn a blind eye to potential human rights abuses in order to achieve its climate goals.
“As the U.S. seeks to address climate change, we must not allow the Chinese Communist Party to use forced labor to meet our nation’s needs,” Richard L. Trumka, the president of the A.F.L.-C.I.O., wrote in a letter on March 12 urging the Biden administration to block imports of solar products containing polysilicon from the Xinjiang region.
Xinjiang is now notorious as the site of a vast program of detention and surveillance that the Chinese government has carried out against Muslim Uyghurs and other minority groups. Human rights groups say the Chinese authorities may have detained a million or more minorities in camps and other sites where they face torture, indoctrination and coerced labor.
In a report last year, Horizon Advisory, a consultancy in Washington, cited Chinese news reports and government announcements suggesting that major Chinese solar companies including GCL-Poly, East Hope Group, Daqo New Energy, Xinte Energy and Jinko Solar had accepted workers transferred with the help of the Chinese government from impoverished parts of Xinjiang.
Jinko Solar denied those allegations, as did the Chinese government. Zhang Longgen, a vice chairman of Xinjiang Daqo — a unit of one of the companies cited by Horizon Advisory — said that the polysilicon plants were not labor intensive, and that the company’s workers were freely employed and could quit if they wanted, according to Global Times, a Chinese Communist Party-owned newspaper. The report said that only 18 of the 1,934 workers at Xinjiang Daqo belonged to ethnic minorities, and that none were Uyghur.
a sweeping ban on cotton and tomatoes from the region. Those restrictions have forced a reorganization of global supply chains, especially in the apparel sector.
The Biden administration has said it is still reviewing the Trump administration’s policies, and it has not yet signaled whether it will pursue other bans on products or companies. But both Mr. Biden and his advisers have insisted that the United States plans to confront China on human rights abuses in Xinjiang.
A spokeswoman for the National Security Council said that the draconian treatment of Uyghurs “cannot be ignored,” and that the administration was “studying ways to effectively ensure that we are not importing products made from forced labor,” including solar products.
a pledge of 236 companies to oppose forced labor and encouraged companies to sever any ties with Xinjiang by June.
Some Chinese companies have responded by reshuffling their supply chains, funneling polysilicon and other solar products they manufacture outside Xinjiang to American buyers, and then directing their Xinjiang-made products to China and other markets.
Analysts say this kind of reorganization is, in theory, feasible. About 35 percent of the world’s polysilicon comes from regions in China other than Xinjiang, while the United States and the European Union together make up around 30 percent of global solar panel demand, according to Johannes Bernreuter, a polysilicon market analyst at Bernreuter Research.
John Smirnow, the general counsel for the Solar Energy Industries Association, said most solar companies were already well on their way toward extricating supply chains from Xinjiang.
also been reported in Chinese facilities outside Xinjiang where Uyghurs and other minorities have been transferred to work. And restrictions on products from Xinjiang could spread to markets including Canada, Britain and Australia, which are debating new rules and guidelines.
Human rights advocates have argued that allowing Chinese companies to cleave their supply chains to serve American and non-American buyers may do little to improve conditions in Xinjiang and have pressed the Biden administration for stronger action.
“The message has to be clear to the Chinese government that this economic model is not going to be supported by governments or businesses,” said Cathy Feingold, the director of the A.F.L.-C.I.O.’s International Department.
Chinese companies are also facing pressure from Beijing not to accede to American demands, since that could be seen as a tacit criticism of the government’s activities in Xinjiang.
In a statement in January, the China Photovoltaic Industry Association and China Nonferrous Metals Industry Association condemned “irresponsible statements” from U.S. industries, which they said were directed at curbing Xinjiang’s development and “meddling in Chinese domestic affairs.”
“It is widely known that the ‘forced labor’ issue is in its entirety the lie of the century that the United States and certain other Western countries have concocted from nothing,” they said.
mothballed a new $1.2 billion facility in Tennessee in 2014, while REC Silicon shut its polysilicon facility in Washington in 2019.
China has promised to carry out large purchases of American polysilicon as part of a trade deal signed last year, but those transactions have not materialized.
In the near term, tensions over Xinjiang could be a boon for the few remaining U.S. suppliers. Ms. Sullivan said some small U.S. solar developers had reached out to REC Silicon in recent months to inquire about non-Chinese products.
But American companies need the promise of reliable, long-term orders to scale up, she said, adding that when she explains the limited supply of solar products that do not touch China, people become “visibly ill.”
“This is the big lesson,” Ms. Sullivan added. “You become dependent on China, and what does it mean? We have to swallow our values in order to do solar.”
Powell: Fed Could Keep Lifting Rates Sharply ‘For Some Time’
