TIME stocks

4 Things Alibaba’s IPO Tells Us About a Changing World Economy

An employee is seen behind a glass wall with the logo of Alibaba at the company's headquarters on the outskirts of Hangzhou, Zhejiang province
An employee is seen behind a glass wall at Alibaba's headquarters on the outskirts of Hangzhou, China, on April 23, 2014 Chance Chan—Reuters

The Chinese e-commerce giant launches one of the largest stock-market debuts in history — and points the way to our economic future

The story of Alibaba has already become legend. Fifteen years ago, Jack Ma, a former English teacher, and his co-founders set up their Internet company in an apartment in the Chinese city of Hangzhou, not far from Shanghai. Today, Alibaba’s online shopping sites in China — mainly Taobao and Tmall — handle twice as much merchandise as Amazon. The company’s initial public offering on the New York Stock Exchange will bring in a haul of some $21.8 billion — bigger than Facebook’s — and values Alibaba at $168 billion — four times more than Yahoo.

When Alibaba’s shares start trading Friday, history will be made. And not just in the world of tech or stock markets. Alibaba’s IPO represents some much bigger trends shaping the world economy. Here are four things the IPO tells us about our economic future:

1. More and more of the world’s most prominent companies will be from the developing world.
We still have this image of China as one big factory floor where millions of poor people slog away on assembly lines churning out cut-rate toys, clothes and electronics. Sure, there are still factories like that, but ever more that low-cost manufacturing center guise is becoming the Old China. The world’s most populous nation is developing so rapidly that it is already producing companies that are major players in all sorts of industries. Lenovo is now the largest PC maker in the world, while Huawei is challenging the best of the West in telecom equipment.

Alibaba takes this trend to an entirely new level — out of manufacturing and into the realm of technology and services. Ma and his executive team have created a company that can be named in the same sentence as tech titans like Facebook and eBay. And Alibaba is not unique. Shenzhen-based Tencent, which operates the popular WeChat messaging service, is yet another Chinese Internet firm with global potential. The fact is the most powerful companies in the U.S. and Europe will increasingly have to contend with Chinese companies exploding onto the world stage. And China may be in the lead among the world’s emerging economies in this trend, but it is not alone. India has produced some IT firms that can compete with the world’s best, such as TCS and Infosys.

2. Emerging markets are creating blue chips.
Ever since the idea of investing in the developing world became popular in the early 1990s, there has been a line drawn between these “emerging markets” and the more established bourses of the U.S., Europe and Japan. Emerging markets were supposed to be riskier, where only the bolder of investors would dare tread, compared with the supposedly more trustworthy and less volatile options in New York City and London. The Alibaba IPO shows how that great wall is breaking down. That a company based in a town like Hangzhou can raise more money in its IPO than one based in Menlo Park, Calif., (Facebook) shows that investors are starting to treat firms from the developing world on par with those in the developed world. Of course, the stigma staining companies from China and elsewhere won’t go away overnight — Chinese companies that have listed in New York City have had a sad history of accounting disasters. But going forward, your stock portfolio is going to hold more companies with addresses in Shanghai, Mumbai, Istanbul and São Paulo.

3. Consumers in the developing world will rule the world.
The story of the global economy since the end of World War II has gone something like this: capitalizing on better transport and communications technology, world production shifted en masse to poor countries from rich countries like the U.S. Factories replaced rice paddies in South Korea, China, Indonesia and elsewhere, which then shipped the mobile phones, computers and sneakers manufactured there to store shelves in the U.S. and Europe. The billions of people in these poorer nations couldn’t afford much of the stuff they made.

Now the global economy is “rebalancing.” Consumption in the U.S. and Europe is constrained by weaker job prospects and stagnant wages, while disposable income in China and other developing nations is increasing in leaps and bounds. That is making consumers in these countries the new engine of global economic growth. If the U.S. consumer dominated the 20th century, the Chinese and Indian consumer will control the 21st.

Alibaba is a prime example of the power of these new, emerging consumers. In 2013, Chinese shoppers bought $248 billion of stuff on Alibaba’s retailing websites. Compare that to an estimated $110 billion worth of good purchased on Amazon — globally. Increasingly, it will be companies that sell to households in Beijing, New Delhi and Jakarta that will dominate global consumer industries.

4. Your next job may be at a Chinese or Indian company.
Jack Ma has said that he plans to use some of his multibillion haul from the IPO to expand Alibaba’s presence in the U.S. and Europe. This, too, is part of a trend. Companies from developing markets are becoming more important investors around the world. According to the American Enterprise Institute, Chinese companies have invested more than $500 billion around the world since 2005 — with the U.S. the top destination.

And as companies from China, India and other emerging economies become ever bigger and bigger global investors, they will become bigger and bigger global employers. Firms like Lenovo, Huawei, carmakers Geely and Tata, appliance maker Haier and a host of others already employ thousands between them around the world. Going forward, you might just find your best job opportunity is at a company like Alibaba, based in China, rather than a firm in New York City, Paris or Frankfurt.

TIME India

Why the World’s Most Powerful Leaders Really Love India

Xi Jinping, Narendra Modi
Indian Prime Minister Narendra Modi and visiting Chinese President Xi Jinping walk for a meeting in New Delhi, India, Thursday, Sept. 18, 2014. Manish Swarup—AP

Chinese President Xi Jinping’s visit to India highlights the geopolitical contest reshaping Asia

Some of the world’s most important people are wooing India’s new Prime Minister Narendra Modi like teenage boys drooling over the homecoming queen. Less than a month ago, Modi was feted in Japan on his five-day official visit, during which he even received an unexpected hug from usually stiff Japanese Prime Minister Shinzo Abe. This week, Modi is hosting China’s President Xi Jinping, who upon his arrival in the country on Wednesday, proclaimed that Beijing wishes “to forge a closer development partnership and jointly realize our great dreams of building strong and prosperous nations.”

Why has Modi become so popular? The reason can be found in how Asia is changing, politically and economically. Ever since China’s paramount leader Deng Xiaoping launched his country’s remarkable economic miracle in the early 1980s, the old Cold War divisions in the region melted away amid increasing economic integration. According to the Asian Development Bank, trade between Asian countries accounted for 50% of their total trade in 2013, up from 30% in 1985. But with China flexing the political and military muscles it has acquired from growing wealth, Asia is becoming split into two camps once again – one centered on China, the other on the U.S. and its allies, including Japan, South Korea and the Philippines. Each side is looking to bolster its support in the region in order to gain leverage on the other. Tokyo, embroiled in a tense stand-off with Beijing over disputed islands in the East China Sea, is looking to build a network of allies to “contain” a rising China. Meanwhile, Beijing is aiming to create a power bloc of its own in the region to counteract U.S. influence.

India has become a key wild card in this new geopolitical power game. As a rising power in its own right, and a huge potential source of new business in everything from espressos to expressways, whichever side manages to lure New Delhi into its orbit will tilt the scales in its favor.

Both camps are making their best pitch. Japan’s Abe took the unusual step of traveling from Tokyo to the historic city of Kyoto to personally welcome Modi to the country. Xi ventured all the way to Modi’s home state of Gujarat on this visit, even donning an Indian-style vest. Abe sent off Modi with a promise of $33 billion of new investment. Xi is reportedly planning to top that during his India visit, dangling an even bigger package of $100 billion.

On purely economic grounds, you’d think Xi has an advantage in his quest for Modi’s favor. Trade between the two has exploded, to nearly $66 billion in 2013 from a mere $1.2 billion in 1996. Their economic links will likely continue to strengthen as Chinese companies become more and more important global investors and Chinese consumers more and more important customers. The world’s two most-populous nations would appear to have many economic interests in common as well. Their companies, accustomed to operating in an emerging economy and selling to emerging consumers, are attracted to the potential of each other’s markets. China’s Xiaomi, for instance, has successfully lured Indian customers to its cut-rate smartphones as it has in China. Wouldn’t Modi be wise to hitch his country to the world’s rising power, rather than Japan, a declining one? That would bring to life the economic power of what’s been termed “Chindia.”

But China-India relations are more complicated than that. After India’s independence in 1947, Prime Minister Jawaharlal Nehru thought his new nation would find a friend in newly communist China. The spirit of the times was captured in the phrase Hindi Chini bhai-bhai, or “Indians and Chinese are brothers.” That hope was dashed, however. India has incensed China by allowing Tibet’s Dalai Lama, who Beijing considers a dangerous separatist, to reside in exile in India. Modi, in fact, invited Tibet’s prime minister-in-exile to his inauguration in May. Relations are also continually roiled by border disputes. In 1962, the two fought a nasty border war, and the causes of that conflict linger to this day. The two countries contest land along their border in India’s far north in Ladakh, while China claims India’s eastern province of Arunachal Pradesh. China perennially irritates India over these unresolved issues. Just last week, only days before Xi’s much-heralded visit, India charged that Chinese troops are building a road in the contested territory in Ladakh. In talks with Xi on Thursday, Modi urged the Chinese President to finally resolve their border disagreements.

Such tensions are clearly weighing on Modi’s mind. He has apparently embarked on a mission to upgrade India’s military capabilities and relationships. Abe and Modi during their recent summit agreed to strengthen military ties, and in August, New Delhi and Washington pledged to do the same during U.S. Defense Secretary Chuck Hagel’s visit to India. One of the first economic reforms Modi announced after becoming Prime Minister was easing restrictions on foreign investment into India’s defense sector, a move aimed at bolstering its technology and production capacities. It is an open secret who is the target of all these military moves. While in Japan, Modi took a swipe at an assertive China when he told business leaders in Tokyo that “everywhere around us, we see an 18th century expansionist mind-set: encroaching on another country, intruding in others’ waters, invading other countries and capturing territory.”

Modi, then, is attempting to have his halwa and eat it, too — playing off both sides to win as many goodies as he can. In his quest to restart India’s economic miracle by building much-needed infrastructure and boosting manufacturing, Modi will need all the money he can get — from China, the U.S., Japan and anyone else who is offering. India has always been wary of trying itself too tightly into any one political camp — during the Cold War Nehru was the leading figure behind what was known as the “nonaligned movement.” The question is how long Modi can play one side off the other. We may find out soon enough. Later this month, Modi will travel to Washington to meet with President Barack Obama. Let’s see what goodies he picks up there.

TIME India

Why India’s Modi and Japan’s Abe Need Each Other — Badly

India's PM Modi shakes hands with Japan's PM Abe during a signing ceremony at the state guest house in Tokyo
India's Prime Minister Narendra Modi, left, shakes hands with Japan's Prime Minister Shinzo Abe during a signing ceremony in Tokyo on Sept. 1, 2014 Shizuo Kambayashi—Reuters

The two Asian leaders are looking to strengthen ties during their meetings in Japan to counter a rising China

Cuddly is not an adjective that comes to mind when describing the Prime Ministers of either Japan or India. Shinzo Abe, like most Japanese politicians, often appears overly formal, while Narendra Modi has a reputation for being demanding and stern. But apparently the two feel warm and fuzzy about each other. Abe made the unusual gesture of welcoming Modi on his five-day official visit to Japan with an uncharacteristic hug. After that, the duo chatted over an informal dinner and strolled through a temple in the historic cultural center of Kyoto.

The leaders of Asia’s two most prominent democracies have good reasons to cozy up. Greater cooperation between India and Japan could prove critical in helping Abe and Modi achieve their economic goals at home and their strategic aims in the region — which means countering an aggressive China. That’s why the two have gushed about the importance of the India-Japan relationship. Modi said in a statement that his visit would “write a new chapter” in relations, while Abe in a Monday press conference said that their bilateral ties have the “most potential in the world.”

They have a lot of catching up to do. For economies of such size — Japan and India are the second and third largest in Asia, respectively — their exchange is still relatively small. Trade between the two reached only $15.8 billion in 2013 — a mere quarter of India’s trade with China. Japanese direct investment into India totaled $21 billion between 2007 and 2013, making Japan an extremely important investor for the country. But recently, the inflows have tapered off amid India’s economic slowdown. Over the past three years, Japanese firms have invested more in Vietnam and Indonesia than India.

That may be about to change. The fact is that the economic interests of the two nations dovetail nicely. Modi is looking to restart India’s slumbering economic growth by upgrading its woeful infrastructure, strengthening its manufacturing base and constructing a network of new “smart” cities across the nation — all of which Japanese money, technology and investment can help make a reality. Abe on Monday pledged $33 billion of financing and investment for India from public and private sources over the next five years. “Japanese trade and investment ties with India are set to strengthen significantly over the next decade and beyond,” Rajiv Biswas, Asia-Pacific chief economist for consulting firm IHS, predicted in a recent report.

Meanwhile, Abe is trying to jump-start a Japanese economy that has been stalled for two decades, and badly needs new sources of exports and revenue for ailing Japan Inc. India, with its 1.2 billion increasingly wealthy consumers and bottomless investment opportunities, can provide just what Japan requires. That is especially the case due to Tokyo’s souring relations with that other Asian giant, China. As tensions have risen over disputed islands in the East China Sea, investment and trade between China and Japan has deteriorated.

China is pressing Tokyo and New Delhi closer together for other reasons as well. Abe is trying to forge ties with countries across the region to contain a rising and increasingly assertive China. Meanwhile, Modi, who has his own territorial disputes with Beijing on India’s borders in the far east and north, is aiming to enhance the country’s military capabilities. Much of a joint declaration signed by the Prime Ministers dealt with strategic cooperation. The two pledged to “upgrade and strengthen” their partnership in defense by regularizing joint maritime exercises and collaborating on military technology.

China wasn’t specifically mentioned in the declaration, but which country Abe and Modi have in mind is no secret. Modi, in fact, took a clear swipe at Beijing in a speech to businessmen on Monday. “Everywhere around us, we see an 18th century expansionist mind-set: encroaching on another country, intruding in others’ waters, invading other countries and capturing territory,” Modi said.

None of this has gone unnoticed in the Middle Kingdom. An editorial in the state-run Global Times written in response to Modi’s comments attempted to downplay the friendly Abe-Modi summit. “The increasing intimacy between Tokyo and New Delhi will bring at most psychological comfort to the two countries,” the newspaper contended. “If Japan attempts to form a united front centered on India, it will be a crazy fantasy generated by Tokyo’s anxiety of facing a rising Beijing.”

Whether closer India-Japan ties are a fantasy will become apparent quickly. China’s President Xi Jinping is due to visit Modi in India later in September. Let’s see if he gets a hug.

TIME trade

It’s Time for Europe to Get Tough With Russia

European Union Foreign Ministers Meet On Ukraine Crisis
Flags of the European Union seen in front of the headquarters of the European Commission on March 03, 2014 in Brussels, Belgium. Michael Gottschalk—Photothek/Getty Images

Europe has a history of coming together in good times but not in bad. Think about the creation of the Eurozone, and the launch of the single currency, juxtaposed with the piecemeal policy reaction over the last few years to the Eurozone financial crisis. This tendency has been on tragic display recently, with the shooting down of a Malaysia Airlines jet that carried numerous European passengers. This event should have strengthened European resolve to put more and tougher sanctions on Russia. Instead, it’s led to half-hearted measures doled out on a country-by-country basis. France is even going ahead with big deal to supply warships to Russia.

The key issue, of course, is that Europe is in very deep with the Russians economically, much deeper than the U.S. Or China, for that matter; The recent Russia-China gas deal was small potatoes compared to the business that the Europeans do. Europeans get about 30 percent of their gas from Russia, and are dependent on other natural resources, like oil and minerals, from Russia too. Indeed, the Netherlands, which lost more people than any European country in the crash, took in the largest share of those exports from Russia last year. They aren’t alone—German banks and multinationals do lots of business with Russia, and countries like the UK are a big destination for oligarchs looking to stash cash outside their home country.

That’s why it’s so crucial that European foreign ministers come together at their meeting over the Ukraine situation and Russian sanctions in Brussels. Until they are on board with more serious sanctions, particularly in the energy sector, it’s unlikely that the current rounds are going to make a serious dent in the Russian economy, which, as a recently Capital Economics report pointed out, still has a strong international investment position.

The bottom line is that Europe needs a much smarter and less Russia-centric energy strategy. As I’ve explained before, that’s a need that’s unlikely to filled by the gas rich US anytime soon. Rather it’s something that will have to be driven internally within Europe. It’s an opportunity not only for Europe to become more secure, but to prove to the rest of the world that it can work together and live up to the promise of the EU itself—in both good times and bad.

TIME China

The U.S. Has Good Reason to Be Fed Up With China’s Economic Policy

U.S. Treasury Secretary Jacob Lew listens during a panel discussion at the North American Energy Summit in the Manhattan borough of New York
U.S. Treasury Secretary Jacob Lew listens during a panel discussion at the North American Energy Summit in the Manhattan borough of New York, June 10, 2014. Adam Hunger—Reuters

Talks in Beijing between American and Chinese officials made little progress on key economic issues

No one expected big breakthroughs from the latest round of the annual U.S.-China Strategic and Economic Dialogue, held this week in Beijing. But the results didn’t even meet those lowly expectations. After two days of talks with Chinese officials, U.S. Treasury Secretary Jacob Lew left empty-handed. A much-coveted but long-discussed treaty to boost investment between the two countries only inched forward. Nor did China offer firm commitments to further liberalize its currency — an issue of great importance to Washington. That apparently left Lew searching for something positive to say to his Chinese hosts. “The commitments China has made here in Beijing over the past two days reflect the economic reform goals set forth” previously, Lew said on Thursday, “and we look forward to future progress.”

Washington has been waiting for progress for quite a while. U.S. officials have been repeatedly pressing Beijing to open markets wider to American companies, improve the protection of intellectual property, and make the economy more transparent and market-oriented. But in return, Washington just gets vague pledges and expressions of caution. Meanwhile, the two continue to bicker over trade practices — most notably these days, Washington’s punitive tariffs on Chinese solar panels. The stalemate in economic ties between the U.S. and China is symbolic of the greater strain between the two nations. China has responded angrily to U.S. charges that its military cyberspies on American companies, while officials from both sides have exchanged hostile barbs over China’s territorial disputes with Japan and other neighbors. Relations between the U.S. and China are arguably at their lowest point in years.

That’s bad news. What happens between the world’s two largest economies has ripple effects around the world. Each country, furthermore, needs the other for its own economic growth. U.S. companies require access to Chinese consumers to keep their profits growing, while China badly needs advanced U.S. technology to upgrade its industry. Still, the two sides often look upon each other warily. As China’s clout increases, the U.S. is frustrated that Beijing is not making the Chinese economy more open or playing by the perceived rules of international commerce. Beijing’s policymakers get upset when Washington badgers them on reforms they consider none of America’s business.

But the U.S. has good reason to be annoyed. Many of the issues that matter to Washington have been dragging on interminably with no resolution in sight. Take, for instance, the sticky issue of China’s currency, the yuan. Washington has complained for many years that Beijing manipulates the value of the yuan to promote its own exports, and during this week’s meetings, Lew again pressed his Chinese counterparts to make the process by which it is valued more market-driven. Though I have written on many occasions that the U.S. has exaggerated the impact the yuan’s value has had on the country’s trade deficit with China, Lew has a right to be fed up with the slow pace of change. The Chinese have been blabbering about allowing market forces to determine the yuan’s exchange rate for ages, and the reform is considered an integral part of China’s greater goal of liberalizing capital flows in and out of the country. But the government still wields tremendous influence over the direction of the yuan — a degree of control is has been reluctant to relinquish, promises aside. In this week’s meetings, China offered only more excuses. “If we move too fast, we will be tripped by the demons of details,” Chinese Vice Premier Wang Yang cryptically responded to Lew. Instead, Wang said Beijing was looking for “balance.”

“Balance,” however, has become Beijing-speak for “do nothing.” Currency reform is only one of many changes Chinese policymakers have promised, but never seem to implement. President Xi Jinping and his team have pledged to liberalize markets, fix the financial sector and allow private businessmen a bigger role in the economy. Economists swooned over a bold policy document released in November that committed the leadership to a sweeping reformation of China’s economic system. No one should expect such major changes to happen overnight, of course. But the fact is we’re still waiting for the process to really get started. Meanwhile, the Chinese economy is facing a host of unresolved problems that threaten its future. Growth has slowed, debt has mounted to dizzying levels, the financial sector is fundamentally flawed, and a property bubble appears to be bursting.

What Lew wants to see from China is a true effort to overhaul an economic model that is badly broken. That would be good for China, the U.S., and everybody else.

TIME Eurasian Economic Union

Russia, Kazakhstan, Belarus Sign Treaty Creating Huge Economic Bloc

Citizens of the three countries will have the right to work freely throughout the member states without any special work permits

Russia, Kazakhstan and Belarus signed a treaty Thursday forming a massive new trading bloc known as the Eurasian Economic Union, Reuters reports.

The treaty will come into effect on January 1, 2015 as long as it’s approved by the countries’ respective parliaments. It will create the largest common market across ex-Soviet states, which its signatories hope will challenge the might of the European Union, the U.S. and China.

Russian President Vladimir Putin said shortly before signing the treaty that their meeting was of “epoch-making significance,” but that it was no attempt to recreate the Soviet Union. Kazakh President Nursultan Nazarbayev said the treaty represented “a bridge between the East and the West.”

Ukraine refused to join the treaty considering the conflict currently shaking the country and Russia’s recent annexation of Crimea. Armenia and Kyrgyzstan are considering joining the bloc, but other countries have turned down the opportunity to do so.

The new treaty unites three countries which have a combined population of 170 million people and a gross domestic product of 2.7 trillion dollars. Two of those countries, Kazakhstan and Russia, are oil producers. The deal will guarantee free transit of goods, services, capital and workers.

[Reuters]

TIME trade

What Chinese Cyber-Espionage Says about the Chinese (and U.S.) Economy

The Obama Administration's outrage over Chinese hacking has its roots in conflicting views of the government's role in private business. So don't expect a meeting of the minds anytime soon.

Imitation is the sincerest form of flattery, but that’s probably cold comfort to firms like Westinghouse and U.S. Steel, which the U.S. Justice Department says have been hacked by Chinese cyber-espionage teams. By indicting the Shanghai-based team allegedly responsible for the attacks, which are largely conducted in order to give the Chinese an edge in the global economy, Attorney General Eric H. Holder Jr. is trying to draw a line between the sort of snooping that the U.S. National Security Agency does for strategic security purposes, and the kind that the Chinese do, which often involves intellectual property theft or the culling of business secrets for competitive advantage.

The problem is that the Chinese don’t recognize that difference, because in China, the state is the economy. I was actually in China as the Edward Snowden story was breaking in 2013, and I remember the Chinese being indignant about what they perceived as U.S. hypocrisy around cyber-snooping.

The importance of the Chinese state in the Middle Kingdom’s economy, which has been growing over the last 15 years or so, is crucial to understanding the hacking affairs. During the period of China’s highest growth, in the years leading up to 1995, the country was all about unleashing the private sector, and paring back the public. A lot of public sector workers were laid off, Beijing liberalized various sectors of the economy, and the private sector took off. But since the mid 1990s, that trend has been shifting.

State-owned enterprises, or “SOEs” have been sucking up more of the countries financial resources (they get about 80% of all debt financing, while providing only 20% of employment), which is one of the reasons that the Chinese economy is slowing. That makes it harder for the country to move up the economic food chain, from lower-end manufacturing to higher-end products and services, which is what it needs to do to move from being a poor country to one in which most of its citizens are middle class. It’s telling that some of the highest levels of unemployment in China are amongst new white-collar college graduates; the country just isn’t creating enough high-level companies, or jobs.

Which goes right to the heart of the hacking indictments. Despite all the hoopla recently over the fact that the World Bank expects China to surpass the U.S. as the world’s largest economy this year, there’s a big difference between being big, and being rich. Average U.S. worker wages are between 6 and ten times what they are in China because U.S. companies produce higher end goods and services. The Chinese economy is still largely a copycat economy—albeit a very good one. Chinese companies tend to take ideas from developed country firms (either legally or otherwise) and try to tweak them slightly to make them cheaper, more suited to local markets, etc. That’s why Chinese hackers were searching for intellectual property secrets at Westinghouse, and probably countless other Western firms. It’s something that American firms in China complain constantly about, and have largely taken as a cost of doing business there.

What’s more interesting, though, are reports that Chinese hackers were also looking for things like the trade deals and strategies of U.S. steel firms. This may speak to one reason that the Obama administration decided to make a big deal of Chinese hacking now. In an age of slower global growth, when all boats are not rising, issues like intellectual property theft and trade tensions become more fractious. The U.S. has been complaining for some time now that China won’t play by the existing rules of the global economy, and that given its size and economic heft, this can’t be allowed to continue. Since the financial crisis and recession of 2008, analysts have been predicting that the U.S. and China would eventually come to blows over trade issues—and it’s interesting that many of the firms being hacked were also those that had approached the WTO about Chinese trade violations.

It will also be interesting to see how the Chinese respond to the Justice Department indictments; needless to say there’s no way they’ll be handing over any hackers and they’ve already pulled the plug on a cyber-espionage working group with the U.S. that was supposed to address some of the tensions between the two countries. One thing you can count on, says Conference Board China economist Andrew Polk, is that the slow growth, increasingly nationalistic environment in the Middle Kingdom is going to “make it tougher for foreign firms to do business there.” As if it was ever easy.

 

TIME Economy

Globalization in Reverse

What the world’s trade slowdown means for growth in the U.S.—and abroad

Recent conflicts everywhere from Ukraine to the Middle East and the South China Sea remind us (as Robert D. Kaplan wrote in TIME’s March 31 cover story) that geography still matters, even in a globalized age. Politically, the world is certainly not flat. New economic figures show how increasingly rocky our world is becoming economically too. Globalization is often defined as the free movement of goods, people and money across borders. Lately, all of those have come under threat–and not just because of sanctions limiting travel and the flow of money among Russia, the U.S. and Europe. Over the past two years, global trade growth has been lower than global GDP growth. It’s the first time that has happened since World War II, and it marks a turning point in the global economy, with sweeping implications for countries, companies and consumers.

There are many reasons global trade is growing more slowly than it has in the past. Europe is still struggling to end its debt crisis, and emerging markets are expanding more slowly than they were. But one of the biggest factors is that the American economy is going through a profound shift: the U.S. is no longer the global consumer of last resort. As HSBC’s chief economist, Stephen King, pointed out in a recent research note, during postwar recoveries past, “the U.S. economy acted as a giant sponge,” absorbing excess goods and services produced by the rest of the world. Booms would bust; markets would crash and recover. And whenever they did, you could be sure that Americans would start spending again, and eventually our trade deficit–the level by which imports exceed exports–would grow. That’s now changing. After nearly five years of recovery, the U.S. trade deficit isn’t growing but shrinking. In fact, it was down by about 12% from 2012 to 2013.

That’s not necessarily a bad thing for us. Part of the reason the deficit is shrinking is that our shale-oil and gas boom means we are buying less foreign fossil fuel, and our manufacturing sector is growing. But part of it is that wages haven’t come up since the crisis, and consumer spending is still sluggish. In order for the U.S. and the world economy to keep growing, somebody has to shell out for the electronics, cars and other goods we used to buy more of.

Unfortunately, no one is doing that. Europeans, still stuck in a debt crisis, probably won’t spend again for another five years. Emerging-economy countries, in various levels of turmoil, are growing at roughly half the rate they did precrisis. The Chinese, who picked up a lot of the global-spending slack after the financial reckoning of 2008, are now in the midst of a financial crisis of their own. Japan did its bit last year, but Abenomics–the government’s plan to encourage spending, named for Prime Minister Shinzo Abe–is running out of steam. Everywhere, says Mohamed El-Erian, chief economic adviser to insurance giant Allianz, “there is a mismatch between the will and the wallet to spend.”

With global economic integration seemingly in reverse, at least for the moment, many economists and trade experts are beginning to talk about a new era of deglobalization, during which countries turn inward. Some of the implications are worrisome. Complaints to the World Trade Organization about protectionism, intellectual-property theft and new trade barriers are rising. Trade talks themselves are no longer global but regional and local, threatening to create a destructive so-called spaghetti bowl of competing economic alliances.

Yet deglobalization isn’t necessarily all bad. As U.S. Trade Representative Michael Froman said at an economic summit in Washington recently, it also “means companies are looking at their extended value chains, supply chains, and deciding whether they want to move some production back to their home country.” That’s already happened in the U.S. A study by the Boston Consulting Group found that 21% of all manufacturing firms in the U.S. with $1 billion or more in sales are actively reshoring, and 54% say they are considering it.

Whether or not those jobs will help boost wages is something the Federal Reserve will be watching carefully. One of the hallmarks of the past 30 years of globalization was an easy-money environment. As Fed Chair Janet Yellen indicated at her latest press conference, we are coming to the end of that era. In this new economic age, not all boats will rise equally or smoothly. Markets, which had more or less converged for the past 30 years, will start diverging along national and sectoral lines. Our economic landscape, like our political one, will become more volatile and less predictable. Get ready for a bumpy ride.

TIME Food

Europe’s War on American Cheese

Feta cheese is seen on display in a delicatessen store in Sa
Graham Barclay—Bloomberg/Getty Images

The E.U. has Wisconsin feta in its crosshairs

Blessed are the geographically accurate cheese makers. In an attempt to defend and expand its piece of the growing global cheese market, the European Union wants the United States to ban the use of certain cheese names that have become ubiquitous for consumers.

The proposal, part of ongoing E.U./U.S. trade talks, would ban American cheese makers from using terms like parmesan, asiago, feta, gruyere, gorgonzola, fontina, romano and others that refer to European regions from which those cheeses originate. Domestic cheese producers would be forced to drop those names and rebrand their products, potentially ceding a major edge to their European competitors in booming international markets like Asia.

“It’s a clever trade barrier,” says John Umhoefer, executive director of the Wisconsin Cheese Makers Association. “There would be a lot of uphill work to do for cheese makers to convince consumers that their ‘salty white cheese in brine’ is feta. They would have to market it all over again.”

The widespread usage of European names has been an issue since the mid-1990s, when the E.U. released its geographical indication registry, which sought to restrict some category names to the regions most associated with them, like Scotland and Scotch whisky or France’s Champagne region for the eponymous sparkling wine. In 2012 the E.U. further shored up its exclusive claim to certain foods when it signed a free trade agreement with South Korea that blocked feta cheese made outside of Greece and asiago, fontina and gorgonzola made outside of Italy from being sold in South Korea.

“That was certainly a big wake-up call for us,” says Shawna Morris, senior director for the Consortium for Common Food Names, a Washington lobbying group formed by U.S. milk producers and dairy exporters to fight the E.U. proposals. Morris says her group is focused on what she believes is E.U. overreach against U.S. suppliers and products they’ve been making for decades. “We simply think it’s ridiculous to decide after so many years that they can no longer use these names.”

The stakes aren’t paltry. Last year, the U.S. cheese industry brought in $22 billion and produced 11 billion pounds of cheese, according to the Wisconsin Cheese Makers Association. ($10 billion of that is in Wisconsin alone.) Barring U.S. cheese makers from exporting feta or parmesan would give Greece and Italy an opportunity to step in. Marin Bozic, an assistant professor of dairy foods marketing economics at the University of Minnesota, says a deal would not only give Europe a non-price advantage in foreign markets, where American cheese exports are booming, but would affect domestic consumers, too.

“People will be confused,” Bozic says. “But the problem is that those names don’t indicate origin. They indicate method of preparation. When you order Greek feta, you don’t expect that it’s feta from Greece. You just expect feta.”

Consumers have come to understand these names as representative of a type of cheese rather than rooted in a certain place, Bozic argues. “It’s not adding anything for consumers. There’s nothing about Greek feta that would make it taste superior. It’s a common food name and reverting back 50 years is no solution. It’s going to be a hard fight, but I don’t see the U.S. relenting on this topic. I think the E.U. would have to make real concessions in other fields to make it beneficial for the U.S.”

TIME European Union

EU Suspends Russia Trade Talks, Threatens Sanctions

European Council President Herman Van Rompuy speaks at a news conference at the end of a European leaders emergency summit on Ukraine, in Brussels, March 6, 2014.
European Council President Herman Van Rompuy speaks at a news conference at the end of a European leaders emergency summit on Ukraine, in Brussels, on March 6, 2014 Yves Herman—Reuters

The announcement by the E.U. follows a move by the White House to impose financial sanctions on people in Ukraine and Russia it believes have instigated unrest in the southern region Crimea amid a tense, days-long standoff with Russia

The European Union said Thursday it suspended talks on two agreements with Russia and opened the door to further sanctions against Moscow over the ongoing crisis in Ukraine.

EU officials said at an emergency summit in Brussels that it was suspending talks on an economic pact and on a visa deal, the Associated Press reports. European Council President Herman Van Rompuy also said the EU would consider travel bans, asset freezes and canceling an EU-Russia summit.

Earlier Thursday, the White House said it imposed visa restrictions on some pro-Russian Ukrainian and Russian officials and called for additional financial sanctions related to the Ukraine crisis.

Western countries are calling on Moscow to end the aggression in Crimea – where Russian and pro-Russian troops reportedly control all access to the peninsula — and participate in talks to put a stop to the crisis, which Rompuy called “the most serious challenge to security on our continent since the Balkan wars.”

[AP]

Your browser, Internet Explorer 8 or below, is out of date. It has known security flaws and may not display all features of this and other websites.

Learn how to update your browser