China Traces A New Line Through Europe

Chinese President Xi Jinping will arrive in Rome tomorrow ready to plant a flag in the heart of Europe. Italy is expected to break with most other advanced economies by formally signing onto Beijing's $1.3 trillion global Belt and Road (BRI) infrastructure initiative.


Announced in 2013, BRI aims to boost China's trade and international clout through massive new investments in roads, railways, and ports across the world. Italy's decision to sign on to the initiative – the centerpiece of Beijing's plans to overtake the US as the dominant global economic power of the 21st century – is controversial.

Brussels and Washington don't like it at all, because they fear that if Italy takes loans from China it could end up in a dangerous web of debt that exposes it to pressure from Beijing. After all, Italy is already Europe's second most indebted country, and unlike much smaller economies like Greece, a systemic crisis there could unravel the entire Eurozone.

Within Rome too there is some disagreement: Deputy Prime Minister Luigi Di Maio, of the centrist 5Star Movement, is all for closer relations with Beijing, but the far-right Interior Minister Matteo Salvini is more skeptical.

Still, Chinese cash solves a pressing problem for their populist governing coalition. Clashes with Brussels over budget parameters have forced Messrs. Di Maio and Salvini to backtrack on their campaign promises to cut taxes and boost social spending. Delivering new infrastructure with Chinese money could be a big political winner, especially after a high-profile bridge collapse last year.

More broadly, Europe is already having trouble finding consensus on how to approach China's tech investments, 5G equipment suppliers, and infrastructure investments. The smaller economies of Central and Eastern Europe welcome the cash, while most of the larger economies are concerned about the financial and security implications of Chinese capital. EU members are scheduled to meet on Friday to discuss a common approach to Chinese investment into the bloc. To which we say, in bocca al lupo!

The bottom line: The decision of the bloc's fourth largest economy to embrace Beijing has just opened up a major new fault line within Europe.

Wrecking the global economy's hopes for a relaxing late-August Friday, China and the US have taken fresh shots at each other in their deepening trade war.

First, China announced new tariffs on US goods in response to US levies on China's exports that are set to take effect next month.

Trump responded with a vintage tweet storm, lashing out at China and demanding that US firms stop doing business there. The Dow plunged as markets waited for the next shoe to drop. And drop it did: later in the day Trump announced higher tariffs on nearly everything that China exports to the United States.

Why now? Bear in mind, all of this comes right as Trump is leaving for this weekend's G7 summit in France. That gathering already promised to be a testy one – but with the global economy slowing, the impact of Trump's increasingly nasty trade war with China will add fresh tensions to the occasion.

So where are we in the trade war now? Here is an updated list of what measures each side has imposed to date, and what's next. Both sides have a lot at stake, but from the looks of it, the list isn't going to get shorter any time soon.

When Donald Trump first started talking about buying Greenland last week, we figured it was a weird story with less legs than a Harp seal.

Signal readers, we were wrong. President Trump was so serious about purchasing the autonomous Danish territory that this week he abruptly cancelled a trip to Denmark after the country's prime minister, Mette Frederiksen, labelled the idea "absurd."

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The Amazon in flames – More than 70,000 forest fires are burning in Brazil right now, most of them in the Amazon. That's up 84% over the same period last year, and it's the highest number on record. This is the dry season when farmers burn certain amounts of forest legally to clear farmland. But critics say Brazilian president Jair Bolsonaro's efforts to loosen conservation rules have encouraged farmers, loggers, and miners to set more fires, many of them illegally. Bolsonaro – a science skeptic who recently fired the head of the agency that tracks deforestation – says, without proof, that NGOs are setting the fires to embarrass his government. Meanwhile, the EU is holding up a major trade deal with Brazil unless Bolsonaro commits to higher environmental protection standards, including those that affect the Amazon.

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Over the past fifty years, the Amazon rainforest has shrunk by an area equal to the size of Turkey. In the 1960s and 1970s, the Brazilian government supported settlement of the sparsely populated region for security reasons. Since then, huge swaths of the forest -- which is crucial for limiting the world's greenhouse gasses -- have been cleared for farmland used to feed Brazil's population and support its massive agricultural exports. Greater awareness of the environmental impacts in the 1990s produced tighter conservation regulations, though plenty of illegal clearing continues. In recent years, the annual deforestation rate has begun to rise again, and Brazil's new president Jair Bolsonaro has pledged to weaken regulations further in order to support businesses.