EconomyEnergy, inflation and China's anger

Energy, inflation and China's anger

A week ago, the president of the United States House of Representatives, (82 years old and a Democrat, like President Joe Biden), made a working tour of several Asian countries, including Japan and Taiwan. The latter is one, which China claims as its province.

Pelosi’s visit, as the second in the succession of the president of the United States, only after the , has not only raised the spirits of public opinion and the Chinese government, but also reactivated global economic fears.

In the first place, Pelosi’s visit has given China reason to intensify its presence in the waters of the South China Sea, which is an area where, according to intelligence sources and international experts, there are more than 11,000 million barrels of oil and 190 trillion cubic feet of natural gas, or even much more than that, according to Chinese sources.

The interest of that country in expanding its presence and claiming greater control of the waters to the south and east of its continental territory is not only geopolitical, but also has a very important economic background: appropriating fossil fuel reserves at a key moment for the world.

Let’s see: on the one hand, for Europe the main risk at the moment is Russia’s war in Ukraine, in light of the fact that Russia controls a large part of the gas that allows the large European economies not only to keep homes warm when it is cold , but keeps its production and economy going.

Not only is winter approaching without the continent having resolved its gas and other energy reserves, but it – as an economic block – is precisely Europe. At this time, who controls the supply of necessary and available energy, controls the political agenda and, which accumulates more than half of international production.

However, whoever de facto controls the fossil fuel reserves in the next 30 years has the ability to dictate the international geopolitical agenda. After 2050, not anymore, because there will have been an energy transition, or because . The thing that happens first.

On the other hand, China has continued to implement a very restrictive policy of zero infections in the face of new outbreaks of COVID-19, thereby again affecting supply chains and once again delaying global economic recovery. In a post-pandemic era, where vaccines today save millions of lives every day from new strains and infections, China’s resistance to fully rejoining international trade cannot respond solely to health logic. Is it a way of manifesting that you have the pan for the magician?

An example of this is that China imposed economic sanctions on Taiwan in a matter of hours, restricting trade in food goods, such as fish and some fruits, but also in supplies for the production of microchips, such as sand.

Let’s not forget that -less than 5% is produced in China-, and to affect its production is to affect the economy of the island, of the United States and also that of Mexico… who has been excited by promises of foreign investment to relocate Taiwanese factories in our territory up to , a potential increase of almost 20% in foreign direct investment. We’ll see how much of that materializes before 2025.

Finally, for North America, including Mexico, the main challenge is the one that does not yield in the United States, nor in Mexico. It reached a record level since 2000 and the data confirm that food and beverages have the greatest incidence in the increase in the general level of prices, with more than 14% annual variation. However, at the same time we observe with the July data that both the indices of .

In the United States, the , surprising the market, and continued to be the highest in 40 years – which allowed the Biden administration to pass a law a few days ago to address the problem of inflation with a medium-term approach, but investing at par in energy and thereby guarantee sustained growth–.

Basically, what could be perceived as a political overreaction by China, making big media and military fuss, alleging great annoyance over Nancy Pelosi’s visit to Taiwan, is rather the symptom of a global economic malaise, of the race to take control of greater reserves of fossil fuels in the midst of the looming economic crisis, in addition to the Chinese government’s need to generate political traction ahead of the communist party’s internal elections in less than a month.

Something similar happened in the United States: the Democrats could not miss the opportunity to pull the trigger and gain Republican support in an action that seemed risky but necessary – they did not want to show weakness towards China – but would also bring political gains to the Democratic administration in the middle of signs of .

Editor’s note: Sofía Ramírez Aguilar ( ) is an economics teacher and director of The opinions published in this column belong exclusively to the author.

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