July-August 2019


        Meeting in Japan in late June, world leaders could only note their inability to resolve the issues and disputes that poison the world’s political and economic relations.


       The Iranian situation continues to evolve on the verge of an abyss: at the last minute Donald Trump renounced a retaliatory strike following the destruction of an American drone. But Iran has crossed the boundaries of the 2015 nuclear deal. And while an Iranian oil tanker was being boarded off Gibraltar by the British navy, China took delivery of Iranian oil… In this regard, the oil market has remained ‘calm’, still around $65 a barrel of Brent, the almost official objective of the Saudi Arabia-Russia duopoly which – de facto – has taken control of OPEC+. In early summer 2019, in any case, it is unclear what might be the honourable way out for the United States and Iran that would promote a de-escalation of tensions, which ‘hawks’ on either side do not want. In any case, the chances of European mediation are very low.


         The United States-China situation seems more reasonable from this point of view. A ‘truce’ has been decided in Japan and discussions will resume. The hypothesis of a “peace of the braves” remains the most probable. The United States has eased its position on the Huawei case by allowing US Chinese suppliers to resume their ‘non-strategic’ trade relations. And symbolically, Chinese purchases of US soy have resumed even as, due to African swine fever, the needs of China are decreasing. The two sides need an agreement, but cannot lose face and all the more for China as Xi Jinping has suffered a humiliating setback in Hong Kong.


         But the United States has other irons in the fire: though the last obstacles to the USMCA seem to have been lifted in North America after a final skirmish with Mexico, India on the other hand has opened a new front by implementing taxes on some symbolic American products such as almonds and hazelnuts. France has gone further with its now famous tax on GAFA, which has resulted in an immediate reaction from the United States under ‘section 301’ of the Trade Act. This is a first that should not be treated lightly, as though it were nothing more than a vulgar presidential tweet.


         Europe must in any case prepare for US ‘solicitude’ in the coming months of a presidential campaign, wherein for the moment Donald Trump remains the immense favourite, supported by economic growth that remains strong as shown by job creations again in May and June. In Europe, the ‘mercato’ has been very difficult, giving surprising results whose effectiveness remains to be tested both with regard to a Brexit that now seems inevitable (with Boris Johnson?) specifically against the United States. The ultimate ‘gift’ of the Juncker Commission will have been an EU-Mercosur agreement where agriculture has once again been the unfortunate adjustment variable. In order to obtain, in extremis, the South American agreement, Brussels has manifestly given in on several agricultural concessions that may call into question the fragile balance of some European markets. It will in any case be remembered in the autumn when the issue of the Common Agricultural Policy will come back, for which, the environmental constraints should be further increased.


        The next meeting of the powerful of this world will take place in Biarritz at the end of August. In truth, the G7 only brings together the leaders of a somewhat besieged western world. Neither Putin, who pulls a lot of strings in the Middle East, nor Modi and Xi are invited and it will take all the art of the French diplomats to obtain a final communique with American initials on it (in 2018, it was not the case in Canada).


         In the meantime, the summer will most likely offer a lot of surprises and summer crises. In 2018, we had Argentina and Turkey. For 2019, Brazil could be a good candidate. On the market side, the uncertainty around oil persists, as it does around certain agricultural concerns in North America and then of course, the pig situation in China and more broadly in Asia. The ores and metals markets are more chaotic with two ‘indicators’, iron ore and gold, to be monitored at the extremes of the value chain: iron ore at its highest which, beyond the problems of production in Brazil and Australia, is a good indicator of the health of the Chinese economy, and then gold, the ‘barbarous relic’, which feeds on global tensions.


         Our next rendezvous is in a few weeks in Biarritz, which will be the centre of the world for a few days, just as it was in the 19th century when Bismarck and Queen Victoria went there on holiday.


Philippe Chalmin


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