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China's Confidence Game

China's Confidence Game

Nearly a year ago, we warned of what might happen if a crisis of confidence strikes China's economy. Recent economic numbers return this worry to the spotlight.

In 2018, China's economy grew at its slowest pace in nearly 30 years. In response, the country's central bank moved earlier this month to boost bank lending and then pumped a record $84 billion into the banking system.



Then we got a warning that excessive lending itself has become a problem with news that bad debt has reached its highest level in a generation. The International Monetary Fund warned recently that the biggest current threats to global economic growth are a "no-deal Brexit" and a sharp slowdown of China's economy. At the World Economic Forum in Davos last week, Kenneth Rogoff, a widely respected expert on debt crises, warned that China may be forced to rescue large parts of its financial and economic system.

China's economy has been cooling for several years, and there's no sign yet the country's leaders have lost confidence in their ability to manage. The government's latest moves signal concern, but not panic, about the current strength of the economy and its ability to weather the storm created by the trade war with Washington. A speech by President Xi Jinping last week at a special meeting of central and provincial-level leaders focused on other risks to China's future.

But China's leaders can't control how markets see their country and its economy. Particularly since, as I wrote last February, all of China's big political and economic decisions are made behind closed doors by seven men — the Politburo Standing Committee of China's Communist Party.

The day is coming when doubts about China's economic resilience will abruptly begin to grow, and it won't be easy for state officials, even if they're telling the absolute truth about what they believe, to calm markets. Today, there is confidence in the stats that China's government produces mainly because growth is believed to be relatively strong. That makes it easy for investors to ignore stories about Chinese provincial governments admitting they've faked their GDP data.

But here's the key question: During a Chinese market meltdown, when the government tries to ease fears with a release of reassuring numbers, will investors believe them?

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Back in 2016, presidential candidate Donald Trump presented his vision for an "America First" foreign policy, which symbolized a radical departure from the US' longtime approach to international politics and diplomacy.

In electing Donald Trump, a political outsider, to the top job, American voters essentially gave him a mandate to follow through on these promises. So, has he?

Trade

"A continuing rape of our country."

On the 2016 campaign trail, candidate Trump said that the Trans Pacific Partnership (TPP) — a 12 country trade deal pushed by the Obama administration — would "rape" America's economy by imperiling the manufacturing sector, closing factories, and taking more jobs overseas.

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In an op-ed titled "Iran Arms Embargo Reckoning," the Wall Street Journal editorial board argues that ending the UN arms embargo on Iran was a major flaw of the 2015 nuclear deal and questions whether Biden could do anything to contain Iran at this point. Ian Bremmer and Eurasia Group's Henry Rome take out the Red Pen to explain why this discussion misrepresents the importance of the embargo and the consequences for its expiration.

So, the US presidential election is now just days away, and today's selection is focusing on a specific aspect of foreign policy that will certainly change depending on who wins in the presidential contest—namely America's approach to Iran.

You've heard me talk before about the many similarities between Trump and Biden on some international policies, like on China or on Afghanistan. But Iran is definitely not one of those. Trump hated the JCPOA, the 2015 Iranian nuclear deal, put together under the Obama administration, and he walked away from it unilaterally. Joe Biden, if he were to become president, would try to bring it back.

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It almost didn't happen — but here we are again. President Donald Trump and his Democratic challenger Joe Biden face off tonight in the final presidential debate of the 2020 US election campaign.

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Following the terrorist attacks of September 11, 2001, US President George W. Bush demanded that Afghanistan's Taliban government surrender Osama bin Laden and end support for al-Qaeda. The Taliban refused.

On October 7, US bombs began falling on Taliban forces. NATO allies quickly pledged support for the US, and US boots hit the ground in Afghanistan two weeks later.

Thus began a war, now the longest in US history, that has killed more than 3,500 coalition soldiers and 110,000 Afghans. It has cost the American taxpayer nearly $3 trillion. US allies have also made human and material sacrifices.

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