05 November 2022, South Korea, Pusan: Containers are loaded from the container freighter “Alula Express” at Busan Newport International Terminal, one of the largest container ports in the world. Photo: Bernd von Jutrczenka/dpa (Photo by Bernd von Jutrczenka/picture alliance via Getty Images)
South Korea recorded a trade deficit of $47.5 billion for 2022, official data from the customs agency showed.
It marked the worst trade deficit since the agency started compiling data in 1956 and far more than the $20.6 billion trade deficit in 1996.
January exports fell $46.3 billion, or 16.6% – declining more than expectations for a drop of 11.3%. Imports fell $59 billion, or 2.6%, falling less than forecasts of a 3.6% decline.
That resulted in a deficit of $12.7 billion for January, more than the $9.27 billion expected by economists polled by Reuters.
The Korean won traded at 1,232.24 against the U.S. dollar following the report.
“There’s some expectation that the world economy won’t be facing as difficult of a situation as expected thanks to China’s reopening and unexpected growth from surrounding economies,” South Korea’s minister of economy and finance Choo Kyung-ho said in a meeting with officials on Wednesday.
South Korea Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho speaks with his staff attending the G-20 Finance Ministers Meeting in Bali, Indonesia on July 16, 2022.
Sonny Tumbelaka | AFP | Getty Images
“The widening trade deficit seen in January is widely seen to be due to seasonal factors such as an import in energy exports for the winter, as well as a sudden drop in chip prices, leading to a worsened picture,” Choo said.
This comes as global smartphone shipments dropped 18% to 296.9 million units in the final quarter of 2022 as demand fell, according to Canalys.
“Despite showing some stabilization in Q3, Asia Pacific and Europe suffered their worst Q4 performances in history in 2022,” said Canalys analyst Sanyam Chaurasia, adding shipments in Asia-Pacific fell by 8% in 2022 despite resilience throughout the year.
On Tuesday, chipmaker Samsung Electronics reported its worst quarterly profit in eight years, while SK Hynix also posted a record loss for the period.
LONDON — As nations around the world scramble to secure crucial semiconductor supply chains over fears about relations with China, the U.K. is falling behind.
The COVID-19 pandemic exposed the world’s heavy reliance on Taiwan and China for the most advanced chips, which power everything from iPhones to advanced weapons. For the past two years, and amid mounting fears China could kick off a new global security crisis by invading Taiwan, Britain’s government has been readying a plan to diversify supply chains for key components and boost domestic production.
Yet according to people close to the strategy, the U.K.’s still-unseen plan — which missed its publication deadline last fall — has suffered from internal disconnect and government disarray, setting the country behind its global allies in a crucial race to become more self-reliant.
A lack of experience and joined-up policy-making in Whitehall, a period of intense political upheaval in Downing Street, and new U.S. controls on the export of advanced chips to China, have collectively stymied the U.K.’s efforts to develop its own coherent plan.
The way the strategy has been developed so far “is a mistake,” said a former senior Downing Street official.
Falling behind
During the pandemic, demand for semiconductors outstripped supply as consumers flocked to sort their home working setups. That led to major chip shortages — soon compounded by China’s tough “zero-COVID” policy.
Since a semiconductor fabrication plant is so technologically complex — a single laser in a chip lithography system of German firm Trumpf has 457,000 component parts — concentrating manufacturing in a few companies helped the industry innovate in the past.
But everything changed when COVID-19 struck.
“Governments suddenly woke up to the fact that — ‘hang on a second, these semiconductor things are quite important, and they all seem to be concentrated in a small number of places,’” said a senior British semiconductor industry executive.
Beijing’s launch of a hypersonic missile in 2021 also sent shivers through the Pentagon over China’s increasing ability to develop advanced AI-powered weapons. And Russia’s invasion of Ukraine added to geopolitical uncertainty, upping the pressure on governments to onshore manufacturers and reduce reliance on potential conflict hotspots like Taiwan.
Against this backdrop, many of the U.K.’s allies are investing billions in domestic manufacturing.
The Biden administration’s CHIPS Act, passed last summer, offers $52 billion in subsidies for semiconductor manufacturing in the U.S. The EU has its own €43 billion plan to subsidize production — although its own stance is not without critics. Emerging producers like India, Vietnam, Singapore and Japan are also making headway in their own multi-billion-dollar efforts to foster domestic manufacturing.
US President Joe Biden | Samuel Corum/Getty Images
Now the U.K. government is under mounting pressure to show its own hand. In a letter to Prime Minister Rishi Sunak first reported by the Times and also obtained by POLITICO, Britain’s semiconductor sector said its “confidence in the government’s ability to address the vital importance of the industry is steadily declining with each month of inaction.”
That followed the leak of an early copy of the U.K.’s semiconductor strategy, reported on by Bloomberg, warning that Britain’s over-dependence on Taiwan for its semiconductor foundries makes it vulnerable to any invasion of the island nation by China.
Taiwan, which Beijing considers part of its territory, makes more than 90 percent of the world’s advanced chips, with its Taiwan Semiconductor Manufacturing Company (TSMC) vital to the manufacture of British-designed semiconductors.
U.S. and EU action has already tempted TSMC to begin building new plants and foundries in Arizona and Germany.
“We critically depend on companies like TSMC,” said the industry executive quoted above. “It would be catastrophic for Western economies if they couldn’t get access to the leading-edge semiconductors any more.”
Whitehall at war
Yet there are concerns both inside and outside the British government that key Whitehall departments whose input on the strategy could be crucial are being left out in the cold.
The Department for Digital, Culture, Media and Sport (DCMS) is preparing the U.K.’s plan and, according to observers, has fiercely maintained ownership of the project. DCMS is one of the smallest departments in Whitehall, and is nicknamed the ‘Ministry of Fun’ due to its oversight of sports and leisure, as well as issues related to tech.
“In other countries, semiconductor policies are the product of multiple players,” said Paul Triolo, a senior vice president at U.S.-based strategy firm ASG. This includes “legislative support for funding major subsidies packages, commercial and trade departments, R&D agencies, and high-level strategic policy bodies tasked with things like improving supply chain resilience,” he said.
“You need all elements of the U.K.’s capabilities. You need the diplomatic services, the security services. You need everyone working together on this,” said the former Downing Street official quoted above. “There are huge national security aspects to this.”
The same person said that relying on “a few [lower] grade officials in DCMS — officials that don’t see the wider picture, or who don’t have either capability or knowledge,” is a mistake.
For its part, DCMS rejected the suggestion it is too closely guarding the plan, with a spokesperson saying the ministry is “working closely with industry experts and other government departments … so we can protect and grow our domestic sector and ensure greater supply chain resilience.”
The spokesperson said the strategy “will be published as soon as possible.”
But businesses keen for sight of the plan remain unconvinced the U.K. has the right team in place for the job.
Key Whitehall personnel who had been involved in project have now changed, the executive cited earlier said, and few of those writing the strategy “have much of a background in the industry, or much first-hand experience.”
Progress was also sidetracked last year by lengthy deliberations over whether the U.K. should block the sale of Newport Wafer Fab, Britain’s biggest semiconductor plant, to Chinese-owned Nexperia on national security grounds, according to two people directly involved in the strategy. The government eventually announced it would block the sale in November.
And while a draft of the plan existed last year, it never progressed to the all-important ministerial “write-around” process — which gives departments across Whitehall the chance to scrutinize and comment upon proposals.
Waiting for budget day
Two people familiar with current discussions about the strategy said ministers are now aiming to make their plan public in the run-up to, or around, Chancellor Jeremy Hunt’s March 15 budget statement, although they stressed that timing could still change.
Leaked details of the strategy indicate the government will set aside £1 billion to support chip makers. Further leaks indicate this will be used as seed money for startups, and for boosting existing firms and delivering new incentives for investors.
U.K. Chancellor Jeremy Hunt | Leon Neal/Getty Images
There is wrangling with the Treasury and other departments over the size of these subsidies. Experts also say it is unlikely to be ‘new’ money but diverted from other departments’ budgets.
“We’ll just have to wait for something more substantial,” said a spokesperson from one semiconductor firm commenting on the pre-strategy leaks.
But as the U.K. procrastinates, key British-linked firms are already being hit by the United States’ own fast-evolving semiconductor strategy. U.S. rules brought in last October — and beefed up in recent days by an agreement with the Netherlands — are preventing some firms from selling the most advanced chip designs and manufacturing equipment to China.
British-headquartered, Japanese-owned firm ARM — the crown jewel of Britain’s semiconductor industry, which sells some designs to smartphone manufacturers in China — is already seeing limits on what it can export. Other British firms like Graphcore, which develops chips for AI and machine learning, are feeling the pinch too.
“The U.K. needs to — at pace — understand what it wants its role to be in the industries that will define the future economy,” said Andy Burwell, director for international trade at business lobbying group the CBI.
Where do we go from here?
There are serious doubts both inside and outside government about whether Britain’s long-awaited plan can really get to the heart of what is a complex global challenge — and opinion is divided on whether aping the U.S. and EU’s subsidy packages is either possible or even desirable for the U.K.
A former senior government figure who worked on semiconductor policy said that while the U.K. definitely needs a “more coherent worked-out plan,” publishing a formal strategy may actually just reveal how “complicated, messy and beyond our control” the issue really is.
“It’s not that it is problematic that we don’t have a strategy,” they said. “It’s problematic that whatever strategy we have is not going to be revolutionary.” They described the idea of a “boosterish” multi-billion-pound investment in Britain’s own fabricator industry as “pie in the sky.”
The former Downing Street official said Britain should instead be seeking to work “in collaboration” with EU and U.S. partners, and must be “careful to avoid” a subsidy war with allies.
The opposition Labour Party, hot favorites to form the next government after an expected 2024 election, takes a similar view. “It’s not the case that the U.K. can do this on its own,” Shadow Foreign Secretary David Lammy said recently, urging ministers to team up with the EU to secure its supply of semiconductors.
One area where some experts believe the U.K. may be able to carve out a competitive advantage, however, is in the design of advanced semiconductors.
“The U.K. would probably be best placed to pursue support for start-up semiconductor design firms such as Graphcore,” said ASG’s Triolo, “and provide support for expansion of capacity at the existing small number of companies manufacturing at more mature nodes” such as Nexperia’s Newport Wafer Fab.
Ministers launched a research project in December aimed at tapping into the U.K. semiconductor sector’s existing strength in design. The government has so far poured £800 million into compound semiconductor research through universities, according to a recent report by the House of Commons business committee.
But the same group of MPs wants more action to support advanced chip design. Burwell at the CBI business group said the U.K. government must start “working alongside industry, rather than the government basically developing a strategy and then coming to industry afterwards.”
Right now the government is “out there a bit struggling to see what levers they have to pull,” said the senior semiconductor executive quoted earlier.
Under World Trade Organization rules, governments are allowed to subsidize their semiconductor manufacturing capabilities, the executive pointed out. “The U.S. is doing it. Europe’s doing it. Taiwan does it. We should do it too.”
This story has been updated. Cristina Gallardo contributed reporting.
LONDON — Public sector workers on strike, the cost-of-living climbing, and a government on the ropes.
“It’s hard to miss the parallels” between the infamous ‘Winter of Discontent’ of 1978-79 and Britain in 2023, says Robert Saunders, historian of modern Britain at Queen Mary, University of London.
Admittedly, the comparison only goes so far. In the 1970s it was a Labour government facing down staunchly socialist trade unions in a wave of strikes affecting everything from food deliveries to grave-digging, while Margaret Thatcher’s Conservatives sat in opposition and awaited their chance.
But a mass walkout fixed for Wednesday could yet mark a staging post in the downward trajectory of Rishi Sunak’s Conservatives, just as it did for Callaghan’s Labour.
Britain is braced for widespread strike action Wednesday, as an estimated 100,000 civil servants from government departments, ports, airports and driving test centers walk out alongside hundreds of thousands of teachers across England and Wales, train drivers from 14 national operators and staff at 150 U.K. universities.
It follows rolling action by train and postal workers, ambulance drivers, paramedics, and nurses in recent months. In a further headache for Sunak, firefighters on Monday night voted to walk out for the first time in two decades.
While each sector has its own reasons for taking action, many of those on strike are united by the common cause of stagnant pay, with inflation still stubbornly high. And that makes it harder for Sunak to pin the blame on the usual suspects within the trade union movement.
Mr Reasonable
Industrial action has in the past been wielded as a political weapon by the Conservative Party, which could count on a significant number of ordinary voters being infuriated by the withdrawal of public services.
Tories have consequently often used strikes as a stick with which to beat their Labour opponents, branding the left-wing party as beholden to its trade union donors.
Sunak has so far attempted to cast himself as Mr Reasonable, stressing that his “door is always open” to workers but warning that the right to strike must be “balanced” with the provision of services. To this end, he is pressing ahead with long-promised legislation to enforce minimum service standards in sectors hit by industrial action.
Sunak has made tackling inflation the raison d’etre of his government, and his backbenchers are reasonably content to rally behind that banner | POOL photo by Oli Scarff/Getty Images
Unions are enraged by the anti-strike legislation, yet Sunak’s soft-ish rhetoric is still in sharp relief to the famously bellicose Thatcher, who pledged during the 1979 strikes that “if someone is confronting our essential liberties … then, by God, I will confront them.”
Sunak’s careful approach is chosen at least in part because the political ground has shifted beneath him since the coronavirus pandemic struck in 2020.
Public sympathy for frontline medical staff, consistently high in the U.K., has been further embedded by the extreme demands placed upon nurses and other hospital staff during the pandemic. And inflation is hitting workers across the economy — not just in the public sector — helping to create a broader reservoir of sympathy for strikers than has often been found in the past.
James Frayne, a former government adviser who co-founded polling consultancy Public First, observes: “Because of the cost-of-living crisis, what you [as prime minister] can’t do, as you might be able to do in the past, is just portray this as being an ideologically-driven strike.”
Starmer’s sleight of hand
At the same time, strikes are not the political headache for the opposition Labour Party they once were.
Thatcher was able to portray Callaghan as weak when he resisted the use of emergency powers against the unions. David Cameron was never happier than when inviting then-Labour leader Ed Miliband to disown his “union paymasters,” particularly during the last mass public sector strike in 2011.
Crucially, trade union votes had played a key role in Miliband’s election as party leader — something the Tories would never let him forget. But when Sunak attempts to reprise Cameron’s refrains against Miliband, few seem convinced.
QMUL’s Saunders argues that the Conservatives are trying to rerun “a 1980s-style campaign” depicting Labour MPs as being in the pocket of the unions. But “I just don’t think this resonates with the public,” he added.
Labour’s current leader, Keir Starmer, has actively sought to weaken the left’s influence in the party, attracting criticism from senior trade unionists. Most eye-catchingly, Starmer sacked one of his own shadow ministers, Sam Tarry, after he defied an order last summer that the Labour front bench should not appear on picket lines.
Starmer has been “given cover,” as one shadow minister put it, by Sunak’s decision to push ahead with the minimum-service legislation. It means Labour MPs can please trade unionists by fighting the new restrictions in parliament — without having to actually stand on the picket line.
So far it seems to be working. Paul Nowak, general secretary of the Trades Union Congress, an umbrella group representing millions of U.K. trade unionists, told POLITICO: “Frankly, I’m less concerned about Labour frontbenchers standing up on picket lines for selfies than I am about the stuff that really matters to our union” — namely the government’s intention to “further restrict the right to strike.”
The TUC is planning a day of action against the new legislation on Wednesday, coinciding with the latest wave of strikes.
Sticking to their guns
For now, Sunak’s approach appears to be hitting the right notes with his famously restless pack of Conservative MPs.
Sunak has made tackling inflation the raison d’etre of his government, and his backbenchers are reasonably content to rally behind that banner.
As one Tory MP for an economically-deprived marginal seat put it: “We have to hold our nerve. There’s a strong sense of the corner (just about) being turned on inflation rising, so we need to be as tough as possible … We can’t now enable wage increases that feed inflation.”
Another agreed: “Rishi should hold his ground. My guess is that eventually people will get fed up with the strikers — especially rail workers.”
Furthermore, Public First’s Frayne says his polling has picked up the first signs of an erosion of support for strikes since they kicked off last summer, particularly among working-class voters.
“We’re at the point now where people are feeling like ‘well, I haven’t had a pay rise, and I’m not going to get a pay rise, and can we all just accept that it’s tough for everybody and we’ve got to get on with it,’” he said.
More than half (59 percent) of people back strike action by nurses, according to new research by Public First, while for teachers the figure is 43 percent, postal workers 41 percent and rail workers 36 percent.
‘Everything is broken’
But the broader concern for Sunak’s Conservatives is that, regardless of whatever individual pay deals are eventually hammered out, the wave of strikes could tap into a deeper sense of malaise in the U.K.
Inflation remains high, and the government’s independent forecaster predicted in December that the U.K. will fall into a recession lasting more than a year.
More than half (59 percent) of people back strike action by nurses, according to new research by Public First, while for teachers the figure is 43 percent, postal workers 41 percent and rail workers 36 percent | Joseph Prezioso/AFP via Getty Images
Strikes by ambulance workers only drew more attention to an ongoing crisis in the National Health Service, with patients suffering heart attacks and strokes already facing waits of more than 90 minutes at the end of 2022.
Moving around the country has been made difficult not only by strikes, but by multiple failures by rail providers on key routes.
One long-serving Conservative MP said they feared a sense of fatalism was setting in among the public — “the idea that everything is broken and there’s no point asking this government to fix it.”
A former Cabinet minister said the most pressing issue in their constituency is the state of public services, and strike action signaled political danger for the government. They cautioned that the public are not blaming striking workers, but ministers, for the disruption.
Those at the top of government are aware of the risk of such a narrative taking hold, with the chancellor, Jeremy Hunt, taking aim at “declinism about Britain” in a keynote speech Friday.
Whether the government can do much to change the story, however, is less clear.
Saunders harks back to Callaghan’s example, noting that public sector workers were initially willing to give the Labour government the benefit of the doubt, but that by 1979 the mood had fatally hardened.
This is because strikes are not only about falling living standards, he argues. “It’s also driven by a loss of faith in government that things are going to get better.”
With an election looming next year, Rishi Sunak is running out of time to turn the public mood around.
Annabelle Dickson and Graham Lanktree contributed reporting.
A Boeing 747-8F operated by AirBridgeCargo takes off from Leipzig/Halle Airport.
Jan Woitas | Picture Alliance | Getty Images
Boeing posted a $663 million loss for the fourth quarter as supply chain issues weighed on results despite a rebound in aircraft sales and deliveries that drove up revenue.
Airlines and aircraft manufacturers have benefited from a sharp recovery in air travel, one of the most affected industries from the Covid pandemic. But Boeing’s leaders have been hesitant to ramp up aircraft production until the supply chain has stabilized.
The company is producing 31 of its 737 jets a month and plans to increase that to about 50 per month in 2025 or 2026. It said it would raise what has been low production rate of the 787 Dreamliners to five each month toward the end of the year and to 10 per month in 2025 or 2026. Deliveries of those wide-body planes had been paused for around two years until this summer due to production flaws.
For the full year, Boeing had a loss of $5 billion despite a 7% increase in revenue to $66.6 billion.
Here’s how the company performed in the fourth quarter compared with analysts’ estimates complied by Refinitiv:
Adjusted loss per share: $1.75 vs. expected earnings per share of 26 cents.
Revenue: $19.98 billion vs. $20.38 billion expected.
Boeing generated $3.1 billion in cash flow in the fourth quarter, higher than analyst forecasts, and $2.3 billion for the year, the most since 2018, before the second of two fatal 737 Max crashes that sparked a yearslong crisis for the company.
Its commercial aircraft unit generated $9.2 billion in sales in the fourth quarter, up 94% from a year earlier as deliveries jumped, but it still produced a loss due to abnormal costs and other expenses such as research and development, the company said.
Boeing reiterated its expectation to generate between $3 billion and $5 billion in free cash flow this year.
“We’re proud of how we closed out 2022, and despite the hurdles in front of us, we’re confident in our path ahead,” CEO Dave Calhoun said Wednesday in a memo to employees. “We have a robust pipeline of development programs, we’re innovating for the future and we’re increasing investments to prepare for our next generation of products.”
In the European bubble in Brussels, diamonds aren’t anyone’s best friend anymore.
The Belgian government’s reluctance to ban imports of Russian diamonds, which would hurt the city of Antwerp, a global hub for the precious stones, has outraged Ukraine and its supporters within the EU.
Ukraine has been pushing to stop the import of Russian rough diamonds because the trade enriches Alrosa, a partially state-owned Russian enterprise.
While such a crackdown wouldn’t inflict the same damage on Vladimir Putin’s economy as a prohibition on all fossil fuels, for example, the continuing flow of Russian diamonds has become a symbol of Western countries putting their national interests above those of Ukraine.
New plans for a fresh round of sanctions against Putin have now reignited the debate over the morality of Europe’s trade in diamonds from Russia.
Belgium is fed up with being scapegoated. According to Prime Minister Alexander De Croo, Putin’s ability to sell diamonds to all western markets now needs to be shut off.
“Russian diamonds are blood diamonds,” De Croo said in a statement to POLITICO. “The revenue for Russia from diamonds can only stop if the access of Russian diamonds to Western markets is no longer possible. On forging that solid front, Belgium is working with its partners.”
The West’s economic war against Russia has already had an impact. Partly because of U.S. sanctions, the Russian diamond trade in Antwerp has already been severely hit. But those rough Russian diamonds are diverted to other diamond markets, and often find their way back to the West, cut and polished.
That’s why Belgium is working with partners to introduce a “watertight” traceability system for diamonds, a Belgian official said. If it works, this could hurt Moscow more than if Washington or Brussels are flying solo.
“Europe and North America together represent 70 percent of the world market for natural diamonds,” the official said. “Based on this market power, we can ensure the necessary transparency in the global diamond sector and structurally ban blood diamonds from the global market. The war in Ukraine provides for a strong momentum.”
Sanctions at last?
Belgium’s offensive comes just when its position on sanctioning Russian diamonds is under renewed attack — not just from other EU countries and Belgian opposition parties, but also within De Croo’s own government.
According to Belgian Prime Minister Alexander De Croo, Putin’s ability to sell diamonds to all western markets now needs to be shut off | Laurie Dieffembacq/Belga Mag/AFP via Getty Images
The EU is preparing a new round of sanctions against Russia ahead of the first anniversary of Putin’s invasion of Ukraine on February 24. Countries such as Poland and Lithuania are again urging the EU to include diamonds. However, one EU diplomat said the discussion is now more an “intra-Belgian fight than a European one.”
De Croo leads a coalition of seven ideologically diverse parties. The greens and socialists within his government are pushing him to actively lobby for hitting diamonds in the next EU sanctions round.
In particular, Vooruit, the Dutch-speaking socialist party, is making a renewed push. Belgian MP Vicky Reynaert will be introducing a new resolution in the Belgian Parliament proposing an import ban.
“It’s becoming impossible to explain that Belgium is not open to blocking Russian diamonds,” Reynaert said. “We want Belgium to actively engage with the European Commission to take action.” Belgian socialist MEP Kathleen Van Brempt is pushing the same idea at the European level.
But the initiative from the socialists isn’t likely to deliver an import ban, or even import quotas, four officials from other Belgian political parties said. De Croo is now set on an international solution instead. No one expects the socialists to destabilize De Croo’s fragile Belgian coalition government over the issue of diamonds.
Even if all seven parties in the Belgian government did agree to hit Russian diamonds, there would be another key obstacle.
In the complicated Belgian political system, the regional governments would have a say as well. The government of the northern region of Flanders is against an import ban. That government is led by the Flemish nationalists, whose party president, Bart De Wever, is also the mayor of Antwerp. “Nothing will change their minds on this,” one of the Belgian officials said of the nationalists’ position.
Blood diamonds
Belgium hopes that by building an international coalition to trace Russia’s “blood diamonds” it will finally stop being seen as a roadblock to action.
The industry agrees. “Sanctions are not the solution,” said Tom Neys of the Antwerp World Diamond Centre. “An international framework of complete transparency, with the same standards of compliance as Antwerp, can be that solution,” he said.
Such a transatlantic plan would have a huge impact, according to Hans Merket, a researcher with the International Peace Information Service, a human rights nonprofit organization. “That would have much more effect than the current U.S. sanctions, which are being circumvented,” said Merket.
But the devil will be in the details. Will Belgium succeed in building a transatlantic coalition? Are consumers willing to pay more for their diamonds, or does it still risk diverting the goods to other markets where traders are less diligent?
One of the Belgian officials was doubtful of Belgium’s chances of success. If the international alliance falters, Belgium and the EU should consider moving ahead on their own to convince the rest of the world to act. “But let’s give De Croo a shot at this,” the official said.
When you’re feeling under the weather, the last thing you want to do is trek from pharmacy to pharmacy searching for basic medicines like cough syrup and antibiotics. Yet many people across Europe — faced with a particularly harsh winter bug season— are having to do just that.
Since late 2022, EU countries have been reporting serious problems trying to source certain important drugs, with a majority now experiencing shortages. So just how bad is the situation and, crucially, what’s being done about it? POLITICO walks you through the main points.
How bad are the shortages?
In a survey of groups representing pharmacies in 29 European countries, including EU members as well as Turkey, Kosovo, Norway and North Macedonia, almost a quarter of countries reported more than 600 drugs in short supply, and 20 percent reported 200-300 drug shortages. Three-quarters of the countries said shortages were worse this winter than a year ago. Groups in four countries said that shortages had been linked to deaths.
It’s a portrait backed by data from regulators. Belgian authorities report nearly 300 medicines in short supply. In Germany that number is 408, while in Austria more than 600 medicines can’t be bought in pharmacies at the moment. Italy’s list is even longer — with over 3,000 drugs included, though many are different formulations of the same medicine.
Which medicines are affected?
Antibiotics — particularly amoxicillin, which is used to treat respiratory infections — are in short supply. Other classes of drugs, including cough syrup, children’s paracetamol, and blood pressure medicine, are also scarce.
Why is this happening?
It’s a mix of increased demand and reduced supply.
Seasonal infections — influenza and respiratory syncytial virus (RSV)first and foremost — started early and are stronger than usual. There’s also an unusual outbreak of throat disease Strep A in children. Experts think the unusually high level of disease activity is linked to weaker immune systems that are no longer familiar with the soup of germs surrounding us in daily life, due to lockdowns. This difficult winter, after a couple of quiet years (with the exception of COVID-19), caught drugmakers unprepared.
Inflation and the energy crisis have also been weighing on pharmaceutical companies, affecting supply.
Last year, Centrient Pharmaceuticals, a Dutch producer of active pharmaceutical ingredients, said its plant was producing a quarter lessoutput than in 2021 due to high energy costs. In December, InnoGenerics, another manufacturer from the Netherlands, was bailed out by the government after declaring bankruptcy to keep its factory open.
Commissioner Stella Kyriakides wrote to Greece’s health minister asking him to take into consideration the effects of bans on third countries | Stephanie Lecocq/EPA-EFE
The result, according to Sandoz, one of the largest producers on the European generics market, is an especially “tight supply situation.” A spokesperson told POLITICO that other culprits include scarcity of raw materials and manufacturing capacity constraints.They added that Sandoz is able to meet demand at the moment, but is “facing challenges.”
How are governments reacting?
Some countries are slamming the brakes on exports to protect domestic supplies. In November, Greece’s drugs regulator expanded the list of medicine whose resale to other countries — known as parallel trade — is banned. Romania has temporarily stopped exports of certain antibiotics and kids’ painkillers. Earlier in January, Belgium published a decree that allows the authorities to halt exports in case of a crisis.
These freezes can have knock-on effects. A letter from European Health Commissioner Stella Kyriakides addressed to Greece’s Health Minister Thanos Plevris asked him to take into consideration the effects of bans on third countries. “Member States must refrain from taking national measures that could affect the EU internal market and prevent access to medicines for those in need in other Member States,” wrote Kyriakides.
Germany’s government is considering changing the law to ease procurement requirements, which currently force health insurers to buy medicines where they are cheapest, concentrating the supply into the hands of a few of the most price-competitive producers. The new law would have buyers purchase medicines from multiple suppliers, including more expensive ones, to make supply more reliable. The Netherlands recently introduced a law requiring vendors to keep six weeks of stockpiles to bridge shortages, and in Sweden the government is proposing similar rules.
At a more granular level, a committee led by the EU’s drugs regulator, the European Medicines Agency (EMA), has recommended that rules be loosened to allow pharmacies to dispense pills or medicine doses individually, among other measures. In Germany, the president of the German Medical Association went so far as to call for the creation of informal “flea markets” for medicines, where people could give their unused drugs to patients who needed them. And in France and Germany, pharmacists have started producing their own medicines — though this is unlikely to make a big difference, given the extent of the shortfall.
Can the EU fix it?
In theory, the EU should be more ready thanever to tackle a bloc-wide crisis. It has recently upgraded its legislation to deal with health threats, including a lack of pharmaceuticals. The EMA has been given expanded powers to monitor drug shortages. And a whole new body, the Health Emergency Preparedness and Response Authority (HERA) has been set up, with the power to go on the market and purchase drugs for the entire bloc.
But not everyone agrees that it’s that bad yet.
Last Thursday, the EMA decided not to ask the Commission to declare the amoxycillin shortage a “major event” — an official label that would have triggered some (limited) EU-wide action— saying that current measures are improving the situation.
A European Medicines Agency’s working group on shortages could decide on Thursday whether to recommend that the Commission declares the drug shortages a“major event” — an official label that would trigger some (limited) EU-wide action. An EMA steering group for shortages would have the power to request data on drug stocks of the drugs and production capacity from suppliers, and issue recommendations on how to mitigate shortages.
At an appearance before the European Parliament’s health committee, the Commission’s top health official, Sandra Gallina, said she wanted to “dismiss a bit the idea that there is a huge shortage,” and said that alternative medications are available to use.
And others believe the situation will get better with time. “I think it will sort itself out, but that depends on the peak of infections,” said Adrian van den Hoven, director general of generics medicines lobby Medicines for Europe. “If we have reached the peak, supply will catch up quickly. If not, probably not a good scenario.”
Helen Collis and Sarah-Taïssir Bencharif contributed reporting.
PARIS — German Chancellor Olaf Scholz raised optimism on Sunday that the EU and the U.S. can reach a trade truce in the coming months to prevent discrimination against European companies due to American subsidies.
Speaking at a press conference with French President Emmanuel Macron following a joint Franco-German Cabinet meeting in Paris, Scholz said he was “confident” that the EU and the U.S. could reach an agreement “within the first quarter of this year” to address measures under the U.S. Inflation Reduction Act that Europe fears would siphon investments in key technologies away the Continent.
“My impression is that there is a great understanding in the U.S. [of the concerns raised in the EU],” the chancellor said.
Macron told reporters that he and Scholz supported attempts by the European Commission to negotiate exemptions from the U.S. law to avoid discrimination against EU companies.
The fresh optimism came as both leaders adopted a joint statement in which they called for loosening EU state aid rules to boost home-grown green industries — in a response to the U.S. law. The text said the EU needed “ambitious” measures to increase the bloc’s economic competitiveness, such as “simplified and streamlined procedures for state aid” that would allow pumping more money into strategic industries.
The joint statement also stressed the need to create “sufficient funding.” But in a win for Berlin, which has been reluctant to talk about new EU debt, the text says that the bloc should first make “full use of the available funding and financial instruments.” The statement also includes an unspecific reference about the need to create “solidarity measures.”
EU leaders will meet early next month to discuss Europe’s response to the Inflation Reduction Act, including the Franco-German proposal to soften state aid rules.
The relationship between Scholz and Macron hit a low in recent months when the French president canceled a planned joint Cabinet meeting in October over disagreements on energy, finance and defense. But the two leaders have since found common ground over responding to the green subsidies in Washington’s Inflation Reduction Act. Macron said that Paris and Berlin had worked in recent weeks to “synchronize” their visions for Europe.
“We need the greatest convergence possible to help Europe to move forward,” he said.
But there was little convergence on how to respond to Ukraine’s repeated requests for Germany and France to deliver battle tanks amid fears there could be a renewed Russian offensive in the spring.
Asked whether France would send Leclerc tanks to Ukraine, Macron said the request was being considered and there was work to be done on this issue in the “days and weeks to come.”
Scholz evaded a question on whether Germany would send Leopard 2 tanks, stressing that Berlin had never ceased supporting Ukraine with weapons deliveries and took its decisions in cooperation with its allies.
“We have to fear that this war will go on for a very long time,” the chancellor said.
Reconciliation, for past and present
The German chancellor and his Cabinet were in Paris on Sunday to celebrate the 60th anniversary of the Elysée treaty, which marked a reconciliation between France and Germany after World War II. The celebrations, first at the Sorbonne University and later at the Elysée Palace, were also a moment for the two leaders to put their recent disagreements aside.
Paris and Berlin have been at odds in recent months not only over defense, energy and finance policy, but also Scholz’s controversial €200 billion package for energy price relief, which was announced last fall without previously involving the French government. These tensions culminated in Macron snubbing Scholz by canceling, in an unprecedented manner, a planned press conference with the German leader in October.
At the Sorbonne, Scholz admitted relations between the two countries were often turbulent.
“The Franco-German engine isn’t always an engine that purrs softly; it’s also a well-oiled machine that can be noisy when it is looking for compromises,” he said.
Macron said France and Germany needed to show “fresh ambition” at a time when “history is becoming unhinged again,” in a reference to Russia’s aggression against Ukraine.
“Because we have cleared a path towards reconciliation, France and Germany must become pioneers for the relaunch of Europe” in areas such as energy, innovation, technology, artificial intelligence and diplomacy, he said.
On defense, Paris and Berlin announced that Franco-German battalions would be deployed to Romania and Lithuania to reinforce NATO’s eastern front.
The leaders also welcomed “with satisfaction” recent progress on their joint fighter jet project, FCAS, and said they wanted to progress on their Franco-German tank project, according to the joint statement.
The joint declaration also said that both countries are open to the long-term project of EU treaty changes, and that in the shorter term they want to overcome “deadlocks” in the Council of the EU by switching to qualified majority voting on foreign policy and taxation.
International Monetary Fund (IMF) Managing Director Kristalina Georgieva attends a session at the World Economic Forum (WEF) annual meeting in Davos on January 17, 2023.
Fabrice Coffrini | Afp | Getty Images
The global economic outlook is not as bad as feared a couple of months ago — “but less bad doesn’t quite yet mean good,” according to the managing director of the International Monetary Fund.
“We have to be cautious,” Kristalina Georgieva told a closing panel at the World Economic Forum in Davos moderated by CNBC.
She said headline inflation was heading down and China’s reopening was expected to boost global growth, with the IMF forecasting its economy will outpace global growth of 2.7% this year, at 4.4%, after slipping below it for the first time in four decades last year.
“Also what has changed in the positive is we have seen demonstrably the strength of labor markets translating into consumers spending and keeping the economy up,” she said.
However, she also highlighted ongoing risks, including China’s growth resulting in higher oil and gas prices and the “horrible” war in Ukraine harming global confidence, particularly in Europe.
And 2.7% global growth was still “not fabulous,” she added.
But Georgieva said her biggest note of caution was that labor markets could lose some of their current tightness, with interest rates yet to significantly bite.
“If they bite more severely, then we can see unemployment going up. And it is very different for a consumer to have a cost-of-living crisis and a job, than to have cost-of-living crisis and no job,” she said.
“So we have to be thinking of possibly unemployment going up at a time when fiscal space in governments is very tight, there isn’t that much they can do to help people. And yet they would be pressed to do it.”
Turning to European Central Bank head Christine Lagarde, a speaker on the same panel, she said: “All power to you. If fiscal policy works against purpose with monetary policy, then you may have to tighten even further.”
Her message to business and policymakers was to “be careful not to get on the other side of the spectrum from being too pessimistic to being too optimistic. Stay in the middle of realism that seems to serve the world well.”
She then called on Davos attendees to “keep the global economy integrated for the benefit of all of us.”
“If we look at medium-term growth prospects, how we handle security of supply chains will matter tremendously on our future prospects of growth,” she said.
“If we diversify rationally, the cost of this adjustment will be low. We put it down to 0.2% of GDP. If we are like an elephant in a china shop and we trash the trade that has been an engine for growth for so many decades, the cost can go up to 7% loss of GDP, $7 trillion.”
“So a great deal of whether we can lift optimism depends on the people in this room. Be pragmatic, collaborate, do the right thing, keep the global economy integrated for the benefit of all of us.”
PARIS — France is bracing for a day of severe disruptions and strikes on Thursday as trade unions and opposition parties vow to force the government to abandon French President Emmanuel Macron’s flagship pensions reform.
Schools, universities andpublic administrations are expected to close, public transport will be severely affected and demonstrations are planned in major cities across the country.
“It’s going to be a [day] of hassles… It’ll be a Thursday of great disruption of public services,” warned Transport Minister Clément Beaune.
Workers are protesting the government’s decision to raise the legal retirement age to 64 from 62. As part of the proposed overhaul, the number of years of contributions needed for a full pension will also rise faster than previously planned and will be set at 43 years from 2027.
This is one of the biggest tests for Macron since losing outright majority in parliament in June. Macron was reelected last year on promises he would reform France’s public pension system and bring it in line with European neighbors such as Spain and Germany where the legal age of retirement is 65 to 67 years old. According to projections from France’s Council of Pensions Planning, the finances of the pensions system are balanced in the short term but will go into deficit in the long term.
“Whatever pension projection you look at, the system will be go into the red within 15 years… it is difficult to deny the funding issues … The level of expenditure has stabilized but it’s simply higher than the revenues,” said Antoine Bozio, director of the Institute of Public Policy in Paris.
French polls suggest that the French are opposed to the reform but are aware of the need to overhaul state pensions. There is, however, deep disagreement on how to achieve that. Both the far-right National Rally party and the leftwing NUPES coalition staunchly oppose pushing back the age of retirement to 64 and argue that it will unfairly hit French working classes. Both groups vow to fight the government and stall debates as the pensions bill goes through parliament.
“The Macron-Borne reform is a serious step back for French welfare,” tweeted Jean-Luc Mélenchon, leader of the far-left France unbowed party — which is planning a second day of protests on Sunday.
Macron is hoping to get the votes of the conservative Les Républicains to get the reforms passed in parliament, where he does not have absolute majority.
In the battle to win over public opinion, French Prime Minister Elisabeth Borne, who unveiled the reform last week, has repeatedly maintained that the changes include several measures that benefit the poorest. The government plans to increase the minimum monthly pension by close to 10 percent to €1,200 for low-income earners, and vows to improve access to early retirement schemes for employees who work in difficult professions.
According to Bozio, while the government’s aim is primarily to balance the books amid increased funding needs for health, education and support for businesses, there are legitimate questions over the fairness of the reform.
“Pushing back the retirement age will not hit the poorest in France, so in that sense the reform is fair,” said Bozio referring to precarious workers who have checkered careers and often leave the workforce later at 67 years old.
In the battle to win over public opinion, French Prime Minister Elisabeth Borne has repeatedly maintained that the changes include several measures that benefit the poorest | Pool photo by bertrand Guay/AFP via Getty Images
However, lower-income groups, who start work early, will be disadvantaged compared to higher-income groups who have later careers.
“Those hit by the reform will be qualified factory workers, less qualified office workers … Senior managers, the intellectual classes who have done long studies, will be less affected,” he said.
There were other options on the table. In 2020, Macron’s government worked on a more balanced reform, which had the backing of one of France’s main trade unions the CFDT, but was forced to shelve it following months of strikes along with the COVID-19 pandemic which brought the country to a halt.
France has a long history of showdowns between government-led pension reforms and the public backlash on the street in the form of mass protests and walking off the job. In his second term, Macron has settled for a less aggressive, more topical reform focused on raising the legal age of retirement in the hope that it would be easier to pass through parliament. The breadth of Thursday’s protests will be a first test of that choice.
BERLIN — News this month that the number of German soldiers declaring themselves conscientious objectors rose fivefold in the wake of Russia’s full-scale invasion of Ukraine created little more than a ripple in Germany.
For many Germans it’s perfectly natural for members of the Bundeswehr, the army, to renege on the pledge they made to defend their country; if Germans themselves don’t want to fight, why should their troops?
Indeed, in Germany, a soldier isn’t a soldier but a “citizen in uniform.” It’s an apposite euphemism for a populace that has lived comfortably under the U.S. security umbrella for more than seven decades and goes a long way toward explaining how Germany became NATO’s problem child since the war in Ukraine began, delaying and frustrating the Western effort to get Ukraine the weaponry it needs to defend itself against an unprovoked Russian onslaught.
The latest installment in this saga (it began just hours after the February invasion when Germany’s finance minister told Ukraine’s ambassador there was no point in sending aid because his country would only survive for a few hours anyway) concerns the question of delivering main battle tanks to Ukraine. Germany, one of the largest producers of such tanks alongside the U.S., has steadfastly refused to do so for months, arguing that providing Ukraine with Western tanks could trigger a broader war.
Chancellor Olaf Scholz has also tried to hide behind the U.S., noting that Washington has also not sent any tanks. (Scholz has conveniently ignored the detail that the U.S. has provided Ukraine with $25 billion in military aid so far, more than 10 times what Germany has.)
Germany’s allies, including Washington, often ascribe German recalcitrance to a knee-jerk pacifism born of the lessons learned from its “dark past.”
In other words, the German strategy — do nothing, blame the Nazis — is working.
Of course, Germany’s conscience doesn’t really drive its foreign policy, its corporations do. While it hangs back from supporting Ukraine in a fight to defend its democracy from invasion by a tyrant, it has no qualms about selling to authoritarian regimes, like those in the Middle East, where it does brisk business selling weapons to countries such as Egypt and Qatar.
Despite everything that’s happened over the past year, Berlin is still holding out hope that Ukraine can somehow patch things up with Russia so that Germany can resume business as usual and switch the gas back on. Even if Germany ends up sending tanks to Ukraine — as many now anticipate — it will deliver as few as it can get away with and only after exhausting every possible option to delay.
Much attention in recent years has focused on Nord Stream 2, the ill-fated Russo-German natural gas project. Yet tensions between the U.S. and Germany over the latter’s entanglement with Russian energy interests date back to the late 1950s, when it first began supplying the Soviet Union with large-diameter piping.
Throughout the Cold War, Germany’s involvement with NATO was driven by a strategy to take advantage of the protection the alliance afforded, delivering no more than the absolute minimum, while also expanding commercial relations with the Soviets.
In 1955, the weekly Die Zeit described what it called the “fireside fantasy of West German industry” to normalize trade relations with the Soviet Union. Within years, that dream became a reality, driven in large measure by Chancellor Willy Brandt’s détente policies, known as Ostpolitik.
Joe Biden, eager to reverse the diplomatic damage inflicted during the Trump years, reversed course and has gone out of his way to show his appreciation for all things German | Thomas Lohnes/Getty Images
That’s one reason the Germans so feared U.S. President Ronald Reagan and his hard line against the Soviets. Far from welcoming his “Mr. Gorbachev, tear down this wall” demand, both the German public and industry were terrified by it, worried that Reagan would upset the apple cart and destroy their business in the east.
By the time the Berlin Wall fell a couple of years later, West German exports to the Soviet Union had reached nearly 12 billion deutsche mark, a record.
That’s why Germany’s handling of Ukraine isn’t a departure from the norm; it is the norm.
Germany’s dithering over aid to Ukraine is a logical extension of a strategy that has served its economy well from the Cold War to the decision to block Ukraine’s NATO accession in 2008 to Nord Stream.
Just last week, as the Russians were raining terror on Dnipro, the minister president of Saxony, Michael Kretschmer, called for the repair of the Nord Stream 1 pipeline, which was blown up by unknown saboteurs last year, so that Germany “keeps the option” to purchase Russian gas after war ends.
One can’t blame him for trying. If one accepts that German policy is driven by economic logic rather than moral imperative, the fickleness of its political leaders makes complete sense — all the more so considering how well it has worked.
The money Germany has saved on defense has enabled it to finance one of the world’s most generous welfare states. When Germany was under pressure from allies a few years ago to finally meet NATO’s 2 percent of GDP spending target, then-Vice Chancellor Sigmar Gabriel called the goal “absurd.” And from a German perspective, he was right; why buy the cow when you can get the milk for free?
Of course, the Germans have had a lot of help milking, especially from the U.S.
American presidents have been chastising Germany over its lackluster contribution to the Western alliance going as far back as Dwight D. Eisenhower, only to do nothing about it.
The exception that proves the rule is Donald Trump, whose plan to withdraw most U.S. troops from Germany was thwarted by his election loss.
Joe Biden, eager to reverse the diplomatic damage inflicted during the Trump years, reversed course and has gone out of his way to show his appreciation for all things German.
Biden’s decision to court the Germans instead of castigating them for failing to meet their commitments taught Berlin that it merely needs to wait out crises in the transatlantic relationship and the problems will fix themselves. Under pressure from Trump to buy American liquefied natural gas, then-Chancellor Angela Merkel agreed in 2018 to support the construction of the necessary infrastructure. After Trump, those plans were put on ice, only to revive them amid the current energy crisis.
By virtue of its size and geographical position at the center of Europe, Germany will always be important for the U.S., if not as a true ally, at least as an erstwhile partner and staging ground for the American military.
Who cares that the Bundeswehr has become a punchline or that Germany remains years away from meeting its NATO spending targets?
In Washington’s view, Germany might be a bad ally, but at least it’s America’s bad ally.
And no one understands the benefits of that status better than the Germans themselves.
It might be a “mild” one, as Moynihan predicts, but from the world of global trade, there are several indicators backing up the bank chiefs’ view of the macroeconomic landscape, flashing warning signals of continued consumer weakness for the first quarter.
The flow of trade is a real-time and forward-looking indicator of consumer spending and the economy because it shows supply, demand, and consumption. Here are four indicators to watch and what they are currently showing.
Indicator No. 1: Warehouse inventory and rates
Warehouse inventory is a good indicator of the health of the consumer because it gauges how much product is sitting in storage. The more product sitting in storage, the more it takes up valuable space and increases the price of storage. According to WarehouseQuote’s Warehouse Pricing Index report for Q1 2023, warehouse rates remain at high levels as a result of warehouse inventories not coming down significantly in November and December.
This is significant because holiday items were brought in early in 2022 to avoid any delays as shippers saw in 2021. Holiday products were shipped from China to the U.S. between March and May of 2022, leading to increased storage in a warehouse, and that resulted in some massive inventory pileups during the summer from the biggest retailers including Walmart and Target. During the holiday season, it took hefty markdowns from retailers to move products. Where products were being moved more successfully was through internet-based sales.
“Based on the inventory, we see more consumers purchased online rather than in-store,” said Jordan Brunk, chief marketing officer of WarehouseQuote.com. “We had more e-commerce inventory from the warehouse than inventory heading to the brick-and-mortar stores.”
Overall, it expects the lack of warehouse capacity, combined with the lack of new square footage coming online due to the rising cost of capital and slower economy, to keep prices elevated even in a weaker consumer environment.
In Maersk‘s TransPacific Report at the end of December, it said weak demand was “expected to continue into 2023 due to a combination of high inventory levels and the likelihood of a global recession that could already be underway.”
Indicator No. 2: Manufacturing orders
The first indicator is manufacturing orders. Orders continue to be down, based on CNBC reporting, with the high inventories and a lack of consumer demand.
“We are still seeing a 40% drop in current manufacturing orders,” said Alan Baer, CEO of OL USA. “The first quarter is going to be challenging.”
The decrease in orders is based on what the factories normally receive from companies.
Indicator No. 3: Ocean freight bookings
As a result of the decrease in factory orders, there is less demand to book freight on a vessel. The SONAR Freightwaves chart below shows the steady decrease in global ocean orders.
The health of the U.S. consumer and the state of inventories for U.S. companies can be tracked by the amount of global product being brought in by ocean carriers. Ninety percent of all U.S. trade is moved on the ocean. The following chart from SONAR FreightWaves shows the diminished volumes on a global basis.
Indicator No. 4: Blank (cancelled) sailings
Blank sailings are a tool used by ocean carriers as a way to artificially constrict available vessel capacity which influences ocean freight rates. As a result of the drop in manufacturing orders and ocean orders, there are too many ships. Because of the lack of demand for the movement of ocean freight, due to the reduced manufacturing orders, ocean rates have precipitously dropped in all trade routes.
According to Xeneta and Sea-Intelligence, ocean carriers canceled more than six times the number of sailings on Asia to the U.S. West Coast trade route ahead of the Chinese New Year than they did during the same time frame in 2019.
“In a normal year, we tend to see very few blanked sailings in the run-up to this major Chinese holiday as shippers stock up on their inventories,” said Peter Sand, chief analyst at Xeneta. “So, this is a worrying development for carriers and, no doubt, a bad omen of what’s to come for the year ahead.”
Canceled sailings on the other leading trade routes also are elevated. The Far East to the U.S. East Coast skyrocketed by 340% over the same time period. Asia to North Europe has had a 715% increase in blanked sailings.
“This really demonstrates the low level of demand gripping the industry,” Sand said.
LONDON — Japan increasingly sees the U.K. as a key defense and trade ally in its pushback against China in the Indo-Pacific, say senior Japanese officials, as the country makes a diplomatic push to rally G7 nations this week.
Tokyo has opened its G7 presidency with a diplomatic offensive amid concern about both China and Russia. Prime Minister Fumio Kishida visited Italy and France this week before landing in London — and plans to cap the week with visits to Canada and Washington.
Kishida is “a strong believer” that “security in Europe and the Indo-Pacific region are inseparable,” the Japanese prime minister’s press secretary, Hikariko Ono, told reporters Wednesday.
On the same day, U.K. Prime Minister Rishi Sunak and Kishida signed a Reciprocal Access Agreement, the most significant defense pact between the two nations since 1902. The two will ramp up joint military drills and smooth the ability of U.K. forces to be deployed to Japan and vice versa.
The agreement “cements our commitment to the Indo-Pacific,” Sunak said ahead of the signing, “and underlines our joint efforts to bolster economic security, accelerate our defense cooperation and drive innovation that creates highly skilled jobs.”
“Collaboration across defense and security would not only benefit Japan and the United Kingdom, but broader global stability, the leaders agreed,” said a Downing Street spokeswoman after the signing ceremony at the Tower of London Wednesday evening.
Japan is increasingly concerned about security in its backyard. Last December, China and Russia conducted joint live-fire military drills near Japan. And Beijing launched live-fire exercises near Taiwan last summer following Moscow’s invasion of Ukraine. This prompted Tokyo to update its own national security strategy in December, vowing to increase its defense budget to 2 percent of its GDP — a 20 percent increase.
Japan’s security environment has become “really severe so that we have no choice but to think about whether or not our current defense capability can really defend the life of the Japanese people,” said Ono, the Japanese prime minister’s spokesperson.
Last month, London and Tokyo also announced they are teaming up with Italy to develop the Tempest, a new fighter jet kitted out with the latest technology.
During his meeting with Sunak, Kashida urged Britain to agree to further bilateral meetings between the foreign and defense ministers from both countries in a bid to further bolster defense ties.
“We are ready to strengthen our security alliances,” Ono said, and “would like to explore further collaboration” with the U.K.
As part of this, Tokyo is working to help Britain join the 11-nation Asia-Pacific CPTPP trade bloc. Japan is a founding member and the deal is “not a mere trade agreement, but a strategic agreement,” the spokesperson said, with negotiations with the U.K. “now at the final stage.”
Kishida and Sunak plan to “jointly tackle the remaining issues regarding the accession,” they said, “so the earliest possible conclusion can be reached.”
Japan is keen “to promote a free and open Indo-Pacific,” they said, and “fully support” the British government’s engagement in the region.
The EU’s green ambitions are, for its trading partners, turning into a case of the road to hell being paved with good intentions.
Developing nations, especially, worry that Brussels is throwing up trade barriers in its pursuit of climate neutrality and sustainable food production. To them, it looks like all the EU can export is rules that will hold back their own economic progress.
Indonesia, for example, has warned the EU should not attempt to dictate its green standards to countries in Southeast Asia. “There must be no coercion, no more parties who always dictate and assume that my standards are better than yours,” Indonesian President Joko Widodo told European leaders at the EU-ASEAN summit last month.
In another striking example of the anger provoked by the EU’s green agenda, Malaysia has threatened to stop exports of palm oil to the bloc over new rules aimed at fighting deforestation.
The EU’s ambitions to become climate neutral by 2050 — its so-called Green Deal — herald a huge economic transformation for the world’s largest trading bloc.
Now that the Green Deal is being translated into actual legislation, developing nations are waking up with a hangover of its effects.
One diplomat from a third country said Brussels is mishandling the power of the EU’s single market instead of respecting the sovereignty of its trading partners.
“We see a regulatory imperialism by the EU whereby Brussels sees itself as an exporter of rules to third countries — as the legislators of the world,” said Philippe De Baere, managing partner at law firm Van Bael & Bellis.
The Green Deal goes beyond the so-called Brussels effect, in which multinational companies use EU rules as global standards. De Baere said Brussels had gotten “drunk on its success” and started exporting environmental objectives to developing nations, “which are unable to comply economically, or if they comply, it is with an enormous economic cost.”
Imposing new taxes
The EU’s carbon border levy is the latest, and most symbolic, measure to upset the EU’s trade partners. The idea is that producers importing carbon-intensive products into the bloc will have to buy permits to account for the difference between their domestic carbon price and the price paid by EU producers.
“There must be no coercion, no more parties who always dictate and assume that my standards are better than yours,” Indonesian President Joko Widodo told European leaders | Lauren DeCicca/Getty Images
The goal of the levy, called the Carbon Border Adjustment Mechanism (CBAM), was to level the playing field for EU producers and avoid companies moving their production over lower climate standards — so-called carbon leakage. For Brussels, the sense of climate urgency is too high to wait for others to follow suit, or to reach a deal at the multilateral or global level.
But there is a difference between the intent and real-word outcomes, said Milan Elkerbout of the Centre for European Policy Studies: “If you’re not in the internal logic of the European debate, this will just look like the perfect example of the EU having a protectionist intent.”
Brazil, South Africa, India and China have jointly expressed their “grave concern regarding the proposal for introducing trade barriers, such as unilateral carbon border adjustment, that are discriminatory.” The measure is likely to be challenged at the World Trade Organization.
Mohammed Chahim, a Dutch MEP who helped craft the CBAM, said the measure should be offset by the delivery of tens of billions in annual public financing promised for climate projects in the developing world.
“I think they are absolutely right in their complaints about the EU (and other developed countries) not fulfilling their pledges,” he said of these emerging economies. But it would be impossible for the EU to end protections for heavy industry at home while granting exemptions to other countries.
Even for the poorest countries, Chahim said, an exemption “would be the wrong signal, they also have to decarbonize their industry to make it futureproof.” But under the newly minted regulation, those countries were eligible for support to comply, he added.
Making imports harder
The carbon border levy is far from the only measure to make exporting to the world’s biggest trading bloc harder.
Brussels’ Farm to Fork strategy seeks to prioritize sustainability in agriculture by slashing pesticide risk and use in half by 2030. A plan announced last September to ban imports of products containing residues of harmful neonicotinoid insecticides from 2026 has drawn “unprecedented” criticism from other countries, according to a senior European Commission official.
As the Green Deal tightens rules on pesticide use in the EU, new trade barriers are going up, said Koen Dekeyser of the European Centre for Development Policy Management (ECDPM). “Certain farmers can make those investments. Other, more small-scale farmers are likely to seek other markets, for example in Asia,” said Dekeyser.
The EU’s effort to stop deforestation is likely to have similar results.
Under new rules, it will be illegal to sell or export certain commodities if they’ve been produced on deforested land.
Brussels’ Farm to Fork strategy seeks to prioritize sustainability in agriculture by slashing pesticide risk and use in half by 2030 | Jean-François Monier/AFP via Getty Images
One third-country diplomat said it was easy for the EU to take a stand on deforestation in the developing world, having already deforested its own land in the past.
Countries in Latin America, Africa and Southeast Asia have lobbied hard against the proposal, calling it “discriminatory and punitive in nature” and arguing in a letter to Commission President Ursula von der Leyen that it will result in “trade distortion and diplomatic tensions, without benefits to the environment.”
In technology, where the 27-country bloc has passed a series of rules to promote its standards on privacy, online competition and social media to the wider world, other countries, too, have chafed at what they see as overly bureaucratic rules that favor well-resourced regulators within the EU. These can be difficult to implement in developing countries with less expertise and money at their disposal.
More far-reaching legislation is still underway. The EU is also preparing a sustainable production law for companies to police their supply chains against forced labor and environmental damage. Brussels wants to hold companies responsible for abuses throughout their supply chains.
Same goal, different roads
In their deforestation letter, the group of developing countries touch on a sensitive point. While they agree with the EU’s climate goals, they regret that Brussels is imposing its own measures instead of forging an international deal.
The Paris climate agreement is based on the logic of common, but differentiated, responsibilities. At least, that allows countries to move at their own speed and determine their policies toward the same goal.
“Now, not only is the EU telling them what to do, but a lot of developing countries also feel they are now prohibited to do what Western countries have done for decades: industrialize without thinking about pollution and subsidizing infant industries,” said Ferdi De Ville, a professor in European political economy at the University of Ghent.
The unilateral character of a lot of these measures is creating resentment, argues De Ville, especially given the bloc’s huge market power.
“In Brussels, everyone looks at these measures separately,” said another diplomat from a third country. “But who looks at it together and thinks about what it means to us? CBAM, deforestation, the Farm to Fork strategy. These are all unilateral measures which are making things harder for our exporters.”
European officials stress, however, that Brussels is not inflicting its Green Deal on the rest of the world.
But Brussels is also being pushed by NGOs to lead by example. “Europe is one of the major contributors to the current crises related to climate, biodiversity, energy and human rights violations around the world. Therefore we consider it the responsibility of the European Union and other countries in the Global North to urgently start tackling these crises through lawmaking,” said Jill McArdle from the NGO Friends of the Earth.
Agreeing on new rules on the multilateral front remains the EU’s first best option. But, in the absence of a well-functioning World Trade Organization, Brussels has little choice but to go at it alone, EU officials and diplomats argue. “If we want to achieve the Paris targets, there is no time to wait,” one EU official said.
Mark Scott contributed reporting. This story has been updated.
BELFAST — A top-level British diplomatic mission designed to soothe tensions over the Northern Ireland trade protocol instead opened new divisions Wednesday when the leader of Sinn Féin was unexpectedly barred.
U.K. government officials offered conflicting explanations for blocking Mary Lou McDonald from the Northern Ireland Office meeting with Foreign Secretary James Cleverly. He had traveled to Belfast to brief local party leaders on Monday’s breakthrough with the European Commission on making post-Brexit trade arrangements work better in what remains the most bitterly divided corner of the U.K.
McDonald’s exclusion triggered a boycott of the meeting by Sinn Féin, the largest party in the mothballed Northern Ireland Assembly, as well as its moderate competitor for Irish nationalist votes, the Social Democratic and Labour Party (SDLP). It propelled the Belfast talks to the top of an Irish news agenda bored stiff by the long-running Brexit protocol dispute — and played straight into the hands of Sinn Féin, which lost no time in denouncing perfidious Albion.
“Apart from this being utterly bizarre, I mean beyond bizarre, it’s extremely unhelpful,” McDonald said nearby the Northern Ireland Office headquarters in central Belfast, where Cleverly hosted the talks attended by only three of the five parties from Northern Ireland’s collapsed power-sharing government.
“It’s a bad message and a bad signal if the British Tories are now behaving in this petulant fashion and saying that they would seek to exclude people from the very necessary work that needs now to be done,” McDonald said.
British government officials initially defended McDonald’s exclusion on the grounds that she is not an elected member of the Stormont assembly — a condition not cited or enforced on many similar political gatherings dating back to McDonald’s February 2018 elevation to the Sinn Féin leadership.
McDonald represents central Dublin in the Republic of Ireland parliament, reflecting Sinn Féin’s status as the only major political party contesting elections in both parts of Ireland. Since 2020 she has led the parliamentary opposition to the coalition government of Prime Minister Leo Varadkar and Foreign Minister Micheál Martin.
An explanation circulated by the Northern Ireland Office to journalists said its meeting invite had specified attendance by Michelle O’Neill, McDonald’s party deputy and the senior Sinn Féin politician north of the border.
O’Neill and McDonald had planned to attend together, as has been common. Both similarly plan to meet Varadkar and Labour Party leader Keir Starmer when they make separate visits Thursday to Belfast.
“The leader of Sinn Féin in the [Northern Ireland] Assembly was invited and remains invited. Her attendance is a matter for Sinn Féin. But she was not excluded,” the U.K. government said, referring to O’Neill.
Others quickly pointed out an evident contradiction. Leaders of two other parties — the Democratic Unionists’ Jeffrey Donaldson and the SDLP’s Colum Eastwood — had been invited, even though they, just like McDonald, have no role at Stormont.
Cleverly’s office circulated a second explanation citing a different protocol — diplomatic protocol — as the real reason not to permit McDonald through the door.
Those officials cited Ireland’s December 17 Cabinet reshuffle in which Martin replaced Simon Coveney as foreign minister. This meant, they said, Cleverly needed to hold a face-to-face meeting with Martin before he could do the same with opposition leader McDonald.
Irish nationalist and center-ground politicians dismissed both explanations. They noted that U.K. government leaders already have met dozens of times with Martin, who served as prime minister for the first half of Ireland’s planned five-year government.
In Dublin, senior officials also questioned the U.K.’s stated rationale.
“I’d like to think we wouldn’t be quite so stupid as to offer this insult up on a plate to Sinn Féin. It seems such an obvious point to make, but the parties in Northern Ireland should be free to choose who represents them at any table. This is normally never an issue. This shouldn’t be made an issue,” one official told POLITICO. “Citing the rules of diplomacy for this move boggles the mind.”
Cleverly and Chris Heaton-Harris, the secretary of state for Northern Ireland who also took part in Wednesday’s meeting, declined comment.
Donaldson — whose party is blocking the operation of the Stormont assembly and formation of a new cross-community government in protest against the trade protocol — said he wouldn’t comment on whether it had been right or wrong to exclude McDonald.
But he said Cleverly and Heaton-Harris had reassured him in the behind-closed-doors meeting that any agreement on reforming the trade protocol must meet his party’s core demands. These include an end to any EU controls on British goods arriving at local ports that are destined to remain within Northern Ireland.
“They recognize that a deal with the EU that doesn’t work for unionists just isn’t going to fly,” Donaldson said.
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DUBLIN — U.S. President Joe Biden on Monday appointed the late Robert Kennedy’s grandson Joe to be the next U.S. envoy to Northern Ireland, setting the stage for an increased American focus on the divided U.K. region in the run-up to the 25th anniversary of its troubled Good Friday peace agreement.
After the news of his appointment — first reported by POLITICO — Joe Kennedy III pledged to “reaffirm U.S. commitment to Northern Ireland and to promote economic prosperity and opportunity for all its people.”
Kennedy previously served as a Massachusetts congressman before losing a Senate bid in 2020. In his new role, he will have, in historical terms, big shoes to fill. The 1998 Good Friday deal was overseen by former U.S. Senate Majority Leader George Mitchell, the first and by far most important U.S. envoy to Northern Ireland. Mitchell was appointed by Bill Clinton, the only U.S. president to adopt a hands-on interest in ending a three-decade conflict that left more than 3,600 dead.
American envoys have wielded progressively less influence since the days of President George W. Bush, when his State Department appointees Richard Haass and Mitchell Reiss focused on pushing the outlawed Irish Republican Army to disarm and renounce violence and its allied Sinn Féin party to accept the lawful authority of Northern Ireland’s police force.
Those once unthinkable moves, achieved in 2005 and 2007 respectively, paved the way for the revival of a power-sharing government uniting British unionists and Irish nationalists — a core goal of the Good Friday accord that once again has collapsed amid Brexit-driven divisions.
But Barack Obama’s envoy, former Senator Gary Hart, and Donald Trump’s man, former White House chief of staff Mick Mulvaney, both came and went without recording any tangible gains. The position has been idle for nearly two years, during which the breakdown-prone Northern Ireland Executive has fallen apart again.
U.S. officials briefed that Kennedy would avoid the political stalemate and focus on economic matters, particularly the prospect of wooing more U.S. corporate investment and jobs to Northern Ireland.
That was also the initial line taken when Clinton — facing British opposition to any direct U.S. intervention within a part of the United Kingdom — first appointed Mitchell to a Belfast role in December 1994. Gradually, Mitchell won enough cross-community trust to become the chairman of the talks, a role that required disciplined and patient diplomacy, including for years after the Good Friday breakthrough.
Officially, all sides welcomed the much-leaked news of Kennedy’s appointment, which is widely seen in Washington circles as a Biden effort to give Kennedy a new political platform following his failed Senate bid.
“The U.S. has been pivotal in supporting peace, stability and prosperity for Northern Ireland. We will continue working together to make Northern Ireland a great place to live, work and do business,” said Chris Heaton-Harris, Britain’s secretary of state for Northern Ireland. “I look forward to welcoming Joe to Belfast in the near future.”
Behind the scenes, some in unionist and British government circles said the Biden administration hadn’t learned a key lesson from the high-profile triumph of Mitchell and low-key effectiveness of the Bush-era envoys — to avoid appointing figures firmly rooted in Irish America and the Catholic side of the traditional divide.
“We seem to be getting one of these classic Irish-American envoys who has no idea what we’re about — that we’re British, not Irish,” one unionist politician involved in the Good Friday negotiations told POLITICO. “We will be polite, even if we have to grit our teeth at times.”
Northern Ireland’s main pro-Brexit party, the Democratic Unionists, offered no comment. The party, which spent a decade opposing the Good Friday deal, has refused to revive power-sharing since May’s Northern Ireland Assembly election, which left them trailing Sinn Féin for the first time.
DUP leaders insist their veto on cooperation has nothing to do with this election setback and everything to do with the post-Brexit trade protocol, which keeps Northern Ireland subject to EU goods rules and makes it harder to receive shipments from Britain. The party recently denounced a visiting U.S. congressional delegation as biased against them.
Unsurprisingly, Sinn Féin and the Irish government offered fulsome praise for Biden’s appointment of a Kennedy.
“I want to thank President Biden and his administration for this appointment. It is a clear demonstration of the president’s direct engagement with Ireland as well as the enduring U.S. commitment to supporting peace in, and building the prosperity of, Northern Ireland,” said Micheál Martin who, until this past weekend, was Ireland’s prime minister. He has just been appointed foreign minister — responsible for leading diplomatic efforts in Northern Ireland — as part of his government’s coalition agreement in Dublin.
“Joe Kennedy has a strong record in promoting the interests of the north and I look forward to working with him,” said Sinn Féin’s would-be first minister of Northern Ireland, Michelle O’Neill.
The DUP’s moderate rival for unionist votes, Ulster Unionist Party leader Doug Beattie, said his community needed to keep an open mind and see Kennedy’s arrival as an opportunity, not a threat.
“Unionism has suffered from not engaging fully with the U.S.A. and this has been something my party has been keen to rebalance,” said Beattie, who welcomed Kennedy’s stated “focus on economic ties.”
LONDON — Elon Musk’s controversial Twitter firing spree is sending workers into the arms of organized labor, according to the new head of Britain’s Trades Union Congress.
“Elon Musk is a perfect recruitment tool for the trade union movement,” Paul Nowak told POLITICO. Since the Tesla billionaire took over the social media platform in October, Prospect, one of the trade union federation’s 48 affiliates, “has seen its membership in Twitter go up tenfold,” he said.
The influx is “precisely in response” to Musk, argued Nowak, who “thinks he can issue a directive from San Francisco that somehow just happens all around the world with no regard to employment law.”
Musk has fired roughly 3,700 employees — nearly half of Twitter’s workforce — in a round of mass layoffs since buying the company.
U.K. Twitter employees earmarked for an exit received an email saying their job would be “potentially” impacted or “at risk,” because, under British law, firms are required to consult with staff over mass redundancies.
In November, Musk meanwhile gave staff an email ultimatum to either go “extremely hardcore” by “working long hours at high intensity” or quit the company.
Musk’s behavior is, Nowak said, “a great recruiting tool for us.”
“If I was a young worker in tech, I’d be thinking that being a union member might be a good investment at the moment,” he said. “If it can happen at Twitter, it can happen anywhere.”
Unions have in recent years ramped up their activity in another part of the tech world: the gig economy. Uber and food delivery service Deliveroo recently signed agreements with unions, while some Apple stores have voted for union recognition. Last year also saw the first-ever industrial action ballots at a U.K. Amazon warehouse.
Organized labor is “beginning to make inroads” in tech, Nowak said — but it still needs “to step up that work.” Twitter had not responded to a request for comment by the time of publication.
Strikes
Nowak takes the helm at the TUC at a time of major industrial unrest in the U.K, as employees in a host of sectors rail against stagnant wages amid soaring inflation.
U.K. Twitter employees earmarked for an exit received an email saying their job would be “potentially” impacted or “at risk” | Justin Sullivan/Getty Images
“It doesn’t matter whether it’s railway workers, postal workers, nurses, paramedics, our members aren’t on strike for the sake of it,” he said.
Since the financial crisis in 2008, the median income in Britain has fallen behind neighboring countries in Europe. An analysis by the TUC shows workers are £20,000 poorer, on average, since 2008 because pay has failed to keep up with inflation. By 2025 the union group expects that gap to increase to £24,000, with even larger gulfs for frontline healthcare staff who are striking.
Britain’s Retail Price Index measure inflation reached 14 percent last year, and economists forecast inflation — in part spurred by the pandemic and Russia’s invasion of Ukraine — will persist longer in the U.K. than among its G7 partners.
“Households can’t afford as much as they have been able to in the past,” said Josie Dent, managing economist at the Centre for Economics and Business Research. “Naturally that creates weaker demand.”
Against that backdrop, Novak said he wants the British government to stimulate domestic demand by putting more pay in workers’ pockets. The government argues boosting public sector pay will further fuel inflation and push its already shaky public finances further into the red.
“What do our members do when our members get paid and get decent pay rises? They go and spend that money in local shops, hotels, restaurants,” said Nowak, and “they don’t squirrel it away in offshore bank accounts, or save it away for a rainy day.”
“You have to create demand internally in the economy as well,” he added. “We’ve had the government sort of turn that common sense on its head.”
As China’s dramatic U-turn on its zero-COVID measures continues, Beijing has shut down or suspended more than a 1,000 social media accounts in a clampdown on critics of its pandemic policies.
Sina Weibo, a Chinese equivalent of Twitter, said it had issued temporary or permanent bans on 1,120 accounts after addressing more than 12,800 violations, including attacks on experts, scholars and medical workers, the Associated Press reported.
China in December abandoned its strict zero-COVID policy, which included months-long lockdowns, after a wave of protests against the draconian measures spread to several cities and university campuses across the country, with demonstrators in Shanghai calling for President Xi Jinping to step down. Since then, the country has seen a new surge in cases, overwhelming Chinese health services and alarmingthe rest of the world.
The anti-lockdown protests, some of which were organized through social media, were the first major show of resistance from the public under Xi’s rule. Freedom of speech is limited under China’s authoritarian government and criticism of the Communist Party often brings punishments.
Sina Weibo “will continue to increase the investigation and cleanup of all kinds of illegal content, and create a harmonious and friendly community environment for the majority of users,” the company said in a statement dated Thursday, according to the AP.
China is bracing for the outbreak to spread further as people travel en masse from the country’s cities for the Lunar New Year later this month. Nonetheless, as of January 8, travelers arriving in China will no longer face coronavirus quarantine measures.
The skyrocketing number of patients has already led to overcrowded hospitals and empty pharmacy shelves, with people hoarding medicines like paracetamol, a common medicine to treat pain and fever.
A forecast by health analytics company Airfinity estimated in November that China risks between 1.3 million and 2.1 million deaths by lifting its zero-COVID policy, due to low vaccination rates, the use of less effective vaccines, and a lack of hybrid immunity.
The EU has struggled to mount a coordinated response to COVID risk from arrivals from China since travel bans from the country were lifted. Italy was the first to break from the pack, announcing its own border control measures, with France, Germany, Spain and Sweden following suit — drawing a rebuke from Beijing.
The U.S. has brought in sweeping measures to cut China off from high-tech semiconductors, hobbling the chip industry in the world’s second-largest economy. China has hit back against the measures, beginning an official complaints procedure against the U.S. through the World Trade Organization.
William_potter | Istock | Getty Images
China initiated a dispute against the U.S. at the World Trade Organization over Washington’s sweeping semiconductor export curbs that look to cut the world’s second-largest economy off from high-tech components.
In October, the U.S. introduced rules that restricted chips made using American tools from being exported to China as well as any semiconductors designed for artificial intelligence applications. The move has effectively kneecapped China’s semiconductor industry.
The Chinese Ministry of Commerce confirmed the trade dispute in a statement Monday and accused the U.S. of abusing export control measures and obstructing normal international trade in chips and other products.
It said that the WTO dispute is a way to address China’s concerns through legal means.
Washington has maintained that its export restrictions are in the interest of national security.
China’s dispute on chips comes days after the WTO ruled that tariffs imposed by former President Donald Trump steel and aluminum imports violated global trade rules. China was among the countries that brought action against the U.S.
Trade disputes via the WTO can take years to resolve. China has taken the first step known as a request for consultations. The WTO also has provisions in its rules that allow countries to impose restrictions in the interest of national security. This could make it difficult for China to win this particular dispute.
“If this is the response to the export controls, it suggests that China has limited options,” Pranay Kotasthane, chairperson of the high tech geopolitics program at the Takshashila Institution, tweeted on Tuesday.
“Given that WTO has exceptions for national security concerns, which can be defined broadly, it’s unlikely to result in any policy changes.”
A spokesperson for the U.S. Trade Representative was not immediately available for comment when contacted by CNBC.
But spokesperson Adam Hodge told Reuters on Monday that the U.S. has received the request for consultations from China in regards to the semiconductor export restrictions.
“As we have already communicated to the PRC (People’s Republic of China), these targeted actions relate to national security, and the WTO is not the appropriate forum to discuss issues related to national security,” Hodge said.
