Quite apart from the ‘False Flags’ and the Iranian/USA standoff in the Persian Gulf, there has been unprecedented unrest in HK against Beijing’s influence and the attempted dilution of the One Country Two systems policy.
To conclude and to add icing to the cake, we had the spectacle of the first President of the USA crossing the DMZ line between North & South Korea as Trump & Kim cordially exchanged smiles and pleasantries.
It has undoubtedly been ten momentous days of photo opportunities if nothing else. It has been an interesting, maybe even disturbing few days to reflect upon.
In a global gathering of world leaders, everyone looked to Trump’s USA to fill in the void and the lack of --- fireworks. The G20 summit was looking dull with nothing spectacular to announce, so all bets were on Trump to cause a stir – either with his usual cacophonous announcements or controversial tweets. Without disappointing, he did mention a “very big trade deal” that is bound to happen just before meeting the Indian Prime Minister. Sure enough, Trump relaxed the tariffs on over US$300Bn of Chinese imports as well as eased up on the Huawei controversy and allowed US tech companies to trade with the Chinese telecom giant once again.
It’s a different Trump at the G20 – all relaxed and friendly and ready to sweeten things up with China’s Xi. As the G20 weekend in Osaka drew to a close and the way things were developing, it looked like we are now getting a better outcome from the US-China talks with both parties wanting to keep things as they are – without escalating the trade conflict further. Everyone at the G20 has recognized that the US-China trade conflict caused a dis-balance in the world’s economic order. Germany has reiterated that ‘the trade relations between China and the United States are difficult’ and that ‘they have contributed to the slowdown of the global economy. Japan has also remarked that these ‘geopolitical tensions’ have exacerbated the downside risks to the global economy, reiterated by Christine Lagarde of the IMF.
We can only be hopeful that China and the US, two of the world’s major economies - would heed the call of the other G20 members and make everyone’s life better. We can’t be too sure what actually transpired between closed doors when Xi and Trump met, nor with Putin for that matter.
But while the world, at the heels of the G20 meeting, is waiting for the outcome of the Trump-Xi meeting, Europe has made an announcement that is poised to overshadow the US-China Trade conflict – it is Europe against the whims of America.
The more significant news came unexpectedly when Europe announced that its special trade channel, Instex (Instrument in Support of Trade Exchanges) is already operational. Instex is the trade channel that will allow European companies to avoid the SWIFT system and bypass American sanctions as they continue to do business with Iran.
As we all know, the Iranian Nuclear Deal was hanging by a thread once Trump unilaterally abrogated out of the agreement signed by his predecessor Barrack Obama. It was up to Europe to find a new financial mechanism to keep Iran at the table, even if that means maintaining limited trade just to appease Tehran. As we go to press the situation remains fraught with Iran now rescinding its agreement on Uranium enrichment and a host of unhelpful statements & actions only exacerbating a potentially disastrous conflict in the Middle East.
Meanwhile and perversely; The three principal signatories to Instex – Germany, France, and the United Kingdom, known as the E3 announced last Friday that all systems are now in place for this new financial and trade channel. It is designed primarily for European companies to trade and do business with Iranian companies without any direct financial flows, thus bypassing the dollar and the US Financial System (yes, the SWIFT). On the Iranian side, their channel that was launched last April is called the Special Trade and Financial Institute (STFI). We say perversely because on the one hand we have this initiative and on the other, we have America threatening any nation who uses it with American sanctions.
For now, the E3 (Germany, France, and the United Kingdom) maybe sustaining a ‘mirage’ of a limited roadmap to do business with Iran (and other countries sanctioned by the US) but there is a growing consensus that this will evaporate over time as geopolitical pressures mount.
Iran is the test case. If things fall through with China, we are expecting that Europe will use the same facility to continue trade relations with Beijing and bypass American sanctions.
IF it comes to pass, it's a rather welcome development when America’s historic allies are no longer so closely aligned with the self-serving interest of the US that they created their own facility to bypass the whims of Washington. Europe is unabashed with whatever will happen with the Xi-Trump meeting. It has a plan in waiting at the sidelines should Washington and Beijing’s trade war becomes ugly again.
But will Europe cast off its American shackles? That is the question.
The concern is Europe’s unexpected and emboldened attitude towards America. The INSTEX facility is in complete defiance of Washington. Moreover, the US, with its history of economic threats from trade retaliation and sanctions, may go after European banks.
It’s now going to be a global trade war with America against the rest of the world.