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AP Explains: US Sanctions on Huawei Bite, But Who Gets Hurt?

Trump administration sanctions against Huawei have begun to bite even though their dimensions remain unclear. U.S. companies that supply the Chinese tech powerhouse with computer chips saw their stock prices slump Monday, and Huawei faces decimated smartphone sales with the anticipated loss of Google’s popular software and services. 

The U.S. move escalates trade-war tensions with Beijing, but also risks making China more self-sufficient over time.

Here’s a look at what’s behind the dispute and what it means.

What’s this about?

Last week, the U.S. Commerce Department said it would place Huawei on the so-called Entity List, effectively barring U.S. firms from selling it technology without government approval. 

Google said it would continue to support existing Huawei smartphones but future devices will not have its flagship apps and services, including maps, Gmail and search. Only basic services would be available, making Huawei phones less desirable. Separately, Huawei is the world’s leading provider of networking equipment, but it relies on U.S. components including computer chips. About a third of Huawei’s suppliers are American. 

Why punish Huawei?

The U.S. defense and intelligence communities have long accused Huawei of being an untrustworthy agent of Beijing’s repressive rulers — though without providing evidence. The U.S. government’s sanctions are widely seen as a means of pressuring reluctant allies in Europe to exclude Huawei equipment from their next-generation wireless networks. Washington says it’s a question of national security and punishment of Huawei for skirting sanctions against Iran, but the backdrop is a struggle for economic and technological dominance. 

The politics of President Donald Trump’s escalating tit-for-tat trade war have co-opted a longstanding policy goal of stemming state-backed Chinese cyber theft of trade and military secrets. Commerce Secretary Wilbur Ross said last week that the sanctions on Huawei have nothing to do with the trade war and could be revoked if Huawei’s behavior were to change.

​The sanctions’ bite

Analysts predict consumers will abandon Huawei for other smartphone makers if Huawei can only use a stripped-down version of Android. Huawei, now the No. 2 smartphone supplier, could fall behind Apple to third place. Google could seek exemptions, but would not comment on whether it planned to do so.

Who uses Huawei anyway?

While most consumers in the U.S. don’t even know how to pronounce Huawei (it’s “HWA-way”), its brand is well known in most of the rest of the world, where people have been buying its smartphones in droves.

Huawei stealthily became an industry star by plowing into new markets, developing a lineup of phones that offer affordable options for low-income households and luxury models that are siphoning upper-crust sales from Apple and Samsung in China and Europe. About 13 percent of its phones are now sold in Europe, estimates Gartner analyst Annette Zimmermann.

That formula helped Huawei establish itself as the world’s second-largest seller of smartphones during the first three months of this year, according to the research firm IDC. Huawei shipped 59 million smartphones in the January-March period, nearly 23 million more than Apple.

Ripple effects

The U.S. ban could have unwelcome ripple effects in the U.S., given how much technology Huawei buys from U.S. companies, especially from makers of the microprocessors that go into smartphones, computers, internet networking gear and other gadgetry.

The list of chip companies expected to be hit hardest includes Micron Technologies, Qualcomm, Qorvo and Skyworks Solutions, which all have listed Huawei as a major customer in their annual reports. Others likely to suffer are Xilinx, Broadcom and Texas Instruments, according to industry analysts.

Being cut off from Huawei will also compound the pain the chip sector is already experiencing from the Trump administration’s rising China tariffs.

The Commerce Department on Monday announced an expected grace period of 90 days or more, easing the immediate hit on U.S. suppliers. It can extend that stay, and also has the option of issuing exemptions for especially hard-hit companies.

Much could depend on whether countries including France, Germany, the U.K. and the Netherlands continue to refuse to completely exclude Huawei equipment from their wireless networks.

The grace period allows U.S. providers to alert Huawei to security vulnerabilities and engage the Chinese company in research on standards for next-generation 5G wireless networks.

It also gives operators of U.S. rural broadband networks that use Huawei routers time to switch them out.

​Could this backfire?

Huawei is already the biggest global supplier of networking equipment, and is now likely to move toward making all components domestically. China already has a policy seeking technological independence by 2025.

U.S. tech companies, facing a drop in sales, could respond with layoffs. More than 52,000 technology jobs in the U.S. are directly tied to China exports, according to the Computing Technology Industry Association, a trade group also known as CompTIA.

What about harm to Google?

Google may lose some licensing fees and opportunities to show ads on Huawei phones, but it still will probably be a financial hiccup for Google and its corporate parent, Alphabet Inc., which is expected to generate $160 billion in revenue this year. 

The Apple effect

In theory, Huawei’s losses could translate into gains for both Samsung and Apple at a time both of those companies are trying to reverse a sharp decline in smartphone sales.

But Apple also stands to be hurt if China decides to target it in retaliation. Apple is particularly vulnerable because most iPhones are assembled in China. The Chinese government, for example could block crucial shipments to the factories assembling iPhones or take other measures that disrupt the supply chain.

Any retaliatory move from China could come on top of a looming increase on tariffs by the U.S. that would hit the iPhone, forcing Apple to raise prices or reduce profits.

What’s more, the escalating trade war may trigger a backlash among Chinese consumers against U.S. products, including the iPhone. 

“Beijing could stoke nationalist sentiment over the treatment of Huawei, which could result in protests against major U.S.technology brands,” CompTIA warned. 


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Sanctions Threaten North Korea’s Old and New Elites

By all accounts, North Korea’s cash-strapped economy is flagging under crippling international sanctions and the slowdown means the traditional elite and a rising merchant class may be feeling pinched, experts say.

“The elites in Pyongyang are really feeling it,” said Joshua Stanton, a Washington attorney who helped draft the North Korean Sanctions Enforcement Act in 2016.

“They’re having a very tough time right now. I think they’re losing their wealth rapidly. And they’re concerned about the government’s policies and directions, and the failure to get sanctions lifted in Hanoi,” he continued.

North Korean aristocrats

The most privileged government and military officials, considered North Korea’s aristocrats, are estimated to number about 2,000 people. Born into families who backed the country’s founder, Kim Il Sung in the 1940s and 1950s, they are fiercely loyal to the Kim dynasty, said William Brown, former CIA analyst and a North Korea economy expert.

Despite their fealty to current leader Kim Jong Un, this top echelon of what is supposed to be a classless society is losing money. The state-run enterprises they control in the centrally planned socialist economy — heavy industries such as mining and light industries such as textile and clothing factories — have been hit hard by the sanctions that President Donald Trump refused to lift at the Hanoi summit earlier this year, demanding that North Korea agree to full denuclearization as a precondition for relief.

These families share their profits from state enterprises with a newer privileged class, the merchants called donju, who help the aristocrats by facilitating the export of goods produced from state-run mines, farms and factories or by selling them domestically now that sanctions make overseas trade difficult, Brown, the economy expert, said.

Similar to oligarchs or private entrepreneurs and capitalists by the Western standards, the donju emerged from the market economy, which grew out of the country’s worst famine in the 1990s as workers, paid by the state in food rations, started trading whatever they could find for food on black markets. The markets established in a time of shortages were legitimized, then encouraged under Kim. Today, the donju partner with the elite families, providing funds for construction projects such as building apartments in Pyongyang while the families provide labor, usually workers they re-assign from state-owned enterprises.

“The donju touch on about just everything, everything from construction to manufacturing to things happening in the markets to transportation issues,” said Ken Gause, director of the International Affairs Group at the Center for Naval Analyses.

“Right now, they’re under increasing pressure in terms of … getting the hard currency that they need in order to continue to do various projects that they do inside North Korea, which allows them to maintain their influence that they have within the regime and on the society,” he added. 

​Limiting luxuries, confiscating wealth

Unlike ordinary North Koreans, members of these privileged classes enjoy a luxurious lifestyle. Some drive imported cars. Some occasionally travel abroad. Others send their children to the country’s prestigious Kim Il Sung University, Kim Jong Un’s alma mater.

But as the government runs ever shorter on hard currency, it’s confiscating their wealth.

“[The] North Korean government has always historically used a lot of its money to keep those people happy,” said Stanton, listing gifts of luxury goods, apartments and “access to … material wealth.”

But that’s changing, Stanton said, “because the government is running out of money, it’s doing a lot of anti-corruption investigations and inspections. It’s trying to find their money, their savings, any cash that they have stored away, any bank accounts that they have in China, any wealth that they’ve accumulated.”

The overall lack of cash and the government’s confiscation of what it finds among the elite are creating discontent but not so much as to trigger organized unrest.

“They could put pressure on Kim definitely,” Brown said. “But [as] more of a loyal opposition rather than a radical opposition. I think … the most likely unrest would come from workers, state enterprise laborers, miners, people who are working for the state and who are barely being paid at all, and have to go into the marketplace to make a living.”

​A ‘mounting toll’

In October 2006, the U.N. Security Council (UNSC) imposed sanctions on North Korea in response to Pyongyang’s first nuclear weapons test. They were designed to pressure North Korea into ending its nuclear ambitions by banning sales to Pyongyang of heavy weaponry, missile technology and material, and select luxury goods, according to a Council on Foreign Relations backgrounder. In March 2016, the UNSC sanctioned sales of aviation fuel to North Korea after its fourth nuclear test.

Since November 2016, after Pyongyang’s fifth nuclear test, the UNSC has aimed sanctions at North Korea’s economy by banning its export of key commodities such as copper, coal, seafood, textiles and labor.

The sanctions were aimed at cutting off foreign currency flowing into the country — most of the wages paid to North Korean workers contracted to work overseas ended up in Pyongyang — and the UNSC capped North Korea’s imports of the crude oil and refined petroleum that the country needs to sustain its economy and run the military.

Since Trump took office in 2017, the U.S. has issued its own set of sanctions through the so-called “maximum pressure campaign,” which blocks from the U.S. financial system any foreign business or individual involved in trade with North Korea, and exposes any assets of the foreign businesses or individual to seizure by the U.S. government. Last week, U.S. officials seized a North Korean ship allegedly used in the illegal coal trade.

“I’m convinced that the international and other sanctions on North Korea are taking a mounting toll on [North Korean] economy,” said Evans Revere, former State Department official in the George W. Bush administration.

“The pressure from sanctions and related measures may not now be enough to destabilize the regime,” he added, “but if these measures remain in place, and especially if more sanctions and other measures are applied, they have the potential to do so.”

Economic growth impaired

According to a report on 38North, a website devoted to analyzing North Korea, the growth rate of the country’s economy in 2018 was 4.6%, the lowest since 2006, based on the assessment it made from the data on North Korea’s 2019 budget reported at its parliamentary session in April. 

“This corresponds with Western reports on sanctions, especially those issued since 2017, having an impact on North Korea’s economy,” the report said.

Troy Stangarone, senior director at the Korean Economic Institute, said, “Kim Jong Un does face a dilemma” of how long he can “continue on the current path without sanctions relief.”

Many coal mines in North Korea are reportedly closed because of a drop in coal exports, and transportation and military sectors are also struggling because they are running short on raw materials.

Scores of government-backed factories closed after the Hanoi summit, and workers were told to find work elsewhere because the factories are unable to keep the lights on, pay their workers or provide food rations.

“What we have now is a situation where North Korea’s heavy industry appears to be collapsing,” Stanton said. “The effect of this is going to become more noticeable in the coming weeks and months.”

Rations reduced

North Korea is currently facing a food crisis with more than 10 million people estimated to be without enough food to last until next year, according to a U.N. report on the country’s food security issued earlier this month.

As the state-enterprises are failing, displaced factory workers are turning to the private markets to make money, much as they did in the 1990s.

“It allows people to get off the official economy, the economy that is controlled by the state, which has basically dried up early since the ’90s, into the 2000s, and the 2010,” Gause said. “That part of the top-down economy has been weaker and weaker, and the markets have basically filled in the gaps.”

Stangarone said, “As long as North Korea’s able to control the flow of information and maintain control of the population, I think this shift towards marketization is probably permanent.”

Gause said, “If [Kim] is not able to show progress on [economy] … either one, he’s got to re-engage in diplomacy with the United States and see if he can get sanctions relief there or he has to potentially go toward more brinkmanship in order to try to reset the chess board.”


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Huawei Founder Sees Little Effect From US Sanctions

Huawei Technologies’ founder and chief executive said Saturday that the growth of the Chinese tech giant “may slow, but only slightly,” because of recent U.S. restrictions.  

 

In remarks to the Japanese press and reported by Nikkei Asian Review, Ren Zhengfei reiterated that the Chinese telecom equipment maker had not violated any law. 

“It is expected that Huawei’s growth may slow, but only slightly,” Ren said in his first official comments after the U.S. restrictions, adding that the company’s annual revenue growth might undershoot 20%.  

 

On Thursday, Washington put Huawei, one of China’s biggest and most successful companies, on a trade blacklist that could make it extremely difficult for Huawei to do business with U.S. companies. China slammed the decision, saying it would take steps to protect its companies. 

Trade, security issues

 

The developments surrounding Huawei come at a time of trade tensions between Washington and Beijing and amid concerns from the United States that Huawei’s smartphones and network equipment could be used by China to spy on Americans, allegations the company has repeatedly denied. 

 

A similar U.S. ban on China’s ZTE Corp. had almost crippled business for the smaller Huawei rival early last year before the curb was lifted. 

 

The U.S. Commerce Department said Friday that it might soon scale back restrictions on Huawei. 

 

Ren said the company was prepared for such a step and that Huawei would be “fine” even if U.S. smartphone chipmaker Qualcomm Inc. and other American suppliers would not sell chips to the company. 

 

Huawei’s chip arm HiSilicon said Friday that it had long been prepared for the possibility of being denied U.S. chips and technology, and that it was able to ensure a steady supply of most products. 

 

The Huawei founder said that the company would not be taking instructions from the U.S. government. 

 

“We will not change our management at the request of the U.S. or accept monitoring, as ZTE has done,” he said.

In January, U.S. prosecutors unsealed an indictment accusing the Chinese company of engaging in bank fraud to obtain embargoed U.S. goods and services in Iran and to move money out of the country via the international banking system. 

 

Ren’s daughter, Huawei Chief Financial Officer Meng Wanzhou, was arrested in Canada in December in connection with the indictment. Meng, who was released on bail, remains in Vancouver and is fighting extradition. She has maintained her innocence.  

 

Ren has previously said his daughter’s arrest was politically motivated.


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US OKs Possible $314M Missile Deal for S. Korea 

The U.S. State Department has cleared $314 million in possible sales of air defense missiles to South Korea, the Pentagon said, as tensions re-emerge on the Korean Peninsula. 

 

South Korea, a key Asian ally of the United States, asked to buy up to 94 SM-2 missiles used by ships against air threats, along with 12 guidance systems and technical assistance, for a total cost of $313.9 million, the U.S. Defense Security Cooperation Agency (DSCA) said on its website. The agency, a unit of the Department of Defense, delivered certification on Thursday notifying Congress of the possible sale. 

 

The proposed sale, announced Friday by the Pentagon, comes after North Korea recently criticized South Korea’s defense purchases from the United States, including the arrival of the first F-35 stealth aircraft. 

 

With denuclearization talks stalled after a second summit between North Korea and United States broke down in Hanoi in February, North Korea went ahead with more weapons tests this month. 

 

The reclusive North and the rich, democratic South are technically still at war because their 1950-53 conflict ended in a truce, rather than a peace treaty. 

 

South Korea already uses SM-2 missiles developed by Raytheon Co., but is building more missile defense-capable destroyers equipped with the weapon. 

 

North Korea has boasted about its indigenous surface-to-air missiles. 

 

Separately, Japan, another key U.S. ally in the region, was also cleared to buy $317 million worth of medium-range air-to-air missiles from Washington, the DSCA said.


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Lawbreakers to Lawmakers? The ‘Criminal Candidates’ Standing in India’s Election

India’s ruling Bharatiya Janata Party (BJP) has one unwanted lead in this month’s general election race – according to data from an electoral watchdog it is fielding the most candidates among the major parties who are facing criminal charges. Its main rival, Congress, is just a step behind.

Election laws allow such candidates to run so long as they have not been convicted, on grounds both of fairness and because India’s criminal justice system moves so slowly that trials can take years, or even decades, to be resolved.

Still, the number of such candidates accused of offenses ranging from murder to rioting has been rising with each election.

Analysts say political parties turn to them because they often have the deepest pockets in steadily costlier elections, and that some local strongmen are seen as having the best chance of winning.

Nearly one-in-five candidates running for parliament in the current election has an outstanding criminal case against them, inching up from 17% in the previous election and 15% in 2009, according to the Association for Democratic Reforms (ADR), a non-profit organization that analyzed candidates’ declarations.

The data shows that 40% candidates from Prime Minister Narendra Modi’s BJP face criminal charges, including crimes against women and murder, followed by the Congress party at 39%.

Among the smaller parties, the Communist Party of India (Marxist) has an even higher proportion, with 58 percent of its candidates embroiled in criminal cases.

Polls have suggested that the BJP and its allies lead the race to win the mammoth, staggered election that began last month and ends on Sunday. Votes will be counted on Thursday.

​”Parties only think about winnability and they know that money power and muscle power of such candidates ensures that win,” said Anil Verma, head of the ADR.

With 240 cases against him, K Surendran of the BJP tops the list of candidates with the most outstanding criminal complaints that include rioting, criminal trespass and attempted murder.

He said most of the cases stem from his involvement in theBJP campaign to oppose the entry of women and girls of menstruating age into the Sabarimala temple in his home state of Kerala.

“I understand that an outsider might feel that I am a grave offender but, in reality, I am completely innocent of these charges,” he said. “It was all politically motivated.”

Dean Kuriakose from the Congress party has 204 criminal cases against him, the second highest, the data showed. Most of the cases were related to a political agitation against the ruling Communist Party in Kerala, which turned violent.

He was not available for comment. But a party spokesman said Kuriakose was innocent. “He was falsely charged by the police under influence from Kerala government,” the spokesman said. 

Political analysts say that often people vote for candidates who face criminal charges because they are seen as best placed to deliver results. In some parts of India local strongmen mediate in disputes and dispense justice.

“Powerful people, even if criminals, offer a kind of parallel system of redressal,” said K.C. Suri, a professor of political science at the University of Hyderabad.

A separate ADR survey of more than 250,000 voters last year found 98% felt candidates with criminal backgrounds should not be in parliament, though 35% said they were willing to vote for such a candidate on caste grounds or if the candidate had done “good work” in the past.


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Taiwan Lawmakers Allow Same-Sex Marriage

Taiwan’s legislature has passed a law allowing same-sex marriage in a first for Asia. 

The vote Friday allows same-sex couples full legal marriage rights, including in areas such as taxes, insurance and child custody. 

Taiwan’s Constitutional Court in May 2017 said the constitution allows same-sex marriages and gave parliament two years to adjust laws accordingly. 

Taiwan’s acceptance of gay and lesbian relationships began in the 1990s when leaders in today’s ruling Democratic Progressive Party championed the cause to help Taiwan stand out in Asia as an open society. Although claimed by China as its own territory, Taiwan is a self-governing democracy with a vibrant civil society.

 


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Australian Political Hero Dies, Overshadowing Saturday’s Vote

Australia’s opposition leader said he wants to win elections Saturday for his Australian political hero whose death overshadows the final days of campaigning.

The death of former Prime Minister Bob Hawke at his Sydney home Thursday has turned the national focus to the legacy of his center-left Labor Party government, which modernized the Australian economy from 1983 until 1991.

The immensely popular 89-year-old had given his imprimatur to opposition leader Bill Shorten, who opinion polls suggest is the favorite to win the election.

​Win for Bob

Shorten said Friday that Hawke had given him his blessing when they last met at Hawke’s home last week.

“Bob was generous in his last remarks to me, and he said we were doing really well and he was very proud of me,” Shorten told Nine Network television.

“I already feel a responsibility to millions of people to win. But sure, I want to do it for Bob as well. I don’t want to let his memory down,” Shorten added.

Many commentators believe Hawke’s death at such a crucial time in the five-week campaign is a blow to the conservative Liberal Party-led coalition’s chances of winning a third three-year term.

Prime Minister Scott Morrison on Friday described Hawke as Labor’s best prime minister.

“He was beyond politics. All Australians could connect with Bob Hawke,” Morrison told Nine. “That I think was his great charm and his great strength and that enabled him to take the country with him on quite a number of important things.”

Long-serving prime minister

Hawke was Australia’s third longest-serving prime minister and the longest-serving Labor prime minister.

He was ousted by his own party during a recession in 1991. But the economic reforms he made are often cited as a major reason that Australia has not had a recession since.

Morrison said Friday the election result “is going to be incredibly close.”

An opinion poll published in The Sydney Morning Herald newspaper on Friday showed Labor ahead of the conservatives 51% to 49%.

But the difference is within market researcher Ipsos Australia’s 2.3 percentage-point margin of error.

The poll was based on a nationwide telephone survey of 1,842 voters this week from Sunday to Wednesday.

Final campaign pitches

Shorten invoked the memory of another Labor hero Thursday when he made his final campaign pitch in the same western Sydney venue where party leader Gough Whitlam gave what has been remembered as his “It’s Time” speech in 1972.

“It’s Time” was also the campaign slogan. Weeks after his speech, Labor won its first federal election victory since 1946 and Whitlam became a reforming prime minister.

Morrison accused Labor of indulging in self-congratulation with the reminder of the Whitlam victory.

Whitlam, who died in 2014, is remembered for sweeping reforms including government-funded universal health care and free university education. But he is also remembered for financial mismanagement that led to his government being fired in 1975 by the Australian governor-general, who represents Australia’s head of state, British Queen Elizabeth II.


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Huawei Offers to Sign ‘No-Spy’ Agreements

As anticipation builds for the next-generation mobile communications or 5G, security has become a heated topic. The U.S. government has launched an unprecedented campaign urging countries to ban one of the key makers of equipment for the new network, China-based telecom titan Huawei. But Huawei is vowing to refuse to assist any country in spying and even claims it would rather go out of business. VOA’s Bill Ide recently visited the company’s headquarters in China’s southern city of Shenzhen.


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Duterte Allies Appear to Have Won Philippine Senate Seats

President Rodrigo Duterte’s allies appeared to have overwhelming leads in elections for the Philippine Senate, one of the opposition’s last bulwarks against a brash populist leader accused of massive human rights violations.

Preliminary results comprising 94% of returns from Monday’s midterm elections showed at least eight candidates endorsed by Duterte were leading in races for 12 seats in the 24-member Senate. Official Commission on Election results are expected to be declared in about a week.

Those leading include Duterte’s former national police chief, Ronald dela Rosa, who enforced the president’s crackdown on illegal drugs, a campaign that left thousands of suspects dead and drew international condemnation. 

Monday’s vote is seen as a gauge of public support for Duterte, who is midway through the single six-year term Philippine presidents are allowed under the constitution. His anti-drug crackdown, unorthodox leadership style, combative and sexist joke-laden outbursts, and contentious embrace of China have been the hallmarks of his presidency.

Duterte’s three children were also expected to win races for mayor, vice mayor and a congressional seat representing their southern home region of Davao city. The 74-year-old maverick leader first carved a reputation as an extra-tough mayor of the city who hunted drug addicts and criminals on a Harley Davidson motorcycle and carried the nickname Duterte Harry after the gunslinging Clint Eastwood film character.

“Undoubtedly, the Duterte magic spelled the difference,” presidential spokesman Salvador Panelo said in a news conference. 

“The overwhelming majority of the electorate have responded to the call of the president to support those whom he said would help pass laws supportive of his goal to uplift the masses of our people and give them comfortable lives.”

Manila-based analyst Ronald Holmes, however, said that except for dela Rosa and Duterte’s longtime aide, Bong Go, who entered politics for the first time without their own established bases of support, other leading administration senatorial contenders earned votes based on their own political track records. 

The flipside of Duterte’s perceived endorsement strength was the weakness of the opposition ticket and its campaign, said Holmes, who heads Pulse Asia, an independent pollster that predicted the dominance of Duterte’s senatorial bets.

Another analyst, Richard Heydarian, said many Filipinos seem more open to authoritarianism due to failures of past liberal leaders from long-established political clans. Such a mindset has helped the family of the late dictator Ferdinand Marcos make a political comeback, the latest through the senatorial bid of one of his daughters, Imee Marcos, who was endorsed by Duterte and whose vote tally in unofficial results indicated a victory.

Duterte, who has shown little tolerance for critics, especially those who question his anti-drug campaign, aimed for stronger leverage in the traditionally more independent Senate to bolster his legislative agenda.

That includes the return of the death penalty, lowering the age for criminal liability below the current 15, and revising the country’s 1987 constitution primarily to allow a shift to a federal form of government, a proposal some critics fear may be a cover to remove term limits.

Last year, opposition senators moved to block proposed bills they feared would undermine civil liberties.

The handful of incumbent opposition senators whose seats were not up for election could potentially get backing from leading independent aspirants to veto Duterte’s emerging majority in the upper chamber. At least seven senators are needed to block any proposal by Duterte’s camp to revise the constitution, which was passed with anti-dictatorial safeguards in 1987, a year after Marcos was ousted by an army-backed “people power” revolt.

“While we expect dissent to continue, we hope that that same be demonstrated with fairness and within the bounds of the law, as well as with deference to the leaders duly chosen by the electorate,” Panelo said.

Aside from the drug killings, Duterte’s gutter language and what nationalists say is a policy of appeasement toward China that may undermine Philippine territorial claims in the South China Sea have also been the cause of protests and criticism.

Opposition aspirants consider the Senate the last bastion of checks and balances given the solid dominance of Duterte’s loyalists in the lower House of Representatives.

Voters in Monday’s elections made their choices for 18,000 congressional and local posts, including 81 governors, 1,634 mayors and more than 13,500 city and town councilors in 81 provinces. In the Manila metropolis, younger mayoral candidates defeated three long-entrenched political clan leaders, including former President and Manila Mayor Joseph Estrada, who lost to Isko Moreno Domagoso, also a former movie actor.

The elections were relatively untroubled, despite pockets of violence in southern Mindanao region, which is under martial law as government forces hunt down Islamic State group-linked militants and communist insurgents. 


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US, China Trade War Already Reshaping Trade Links

With the Trump administration locked in an escalating trade war with China, much of the media focus is on the immediate impact of decisions by leaders on both sides to impose sharp tariffs on goods flowing between the two countries. But while consumers and exporters in both countries will suffer in the near-term, an even more disruptive possibility looms in the long term: a “decoupling” of two massive economic systems that have become deeply interdependent over the past several decades.

At the root of the dispute is a U.S. effort to force China to bring its trade policies in line with other major industrialized countries.

Specifically, the U.S. wants to see China stop subsidizing domestic firms to help them compete on the world stage, eliminate the widespread theft of intellectual property by Chinese businesses, and open its markets to foreign competition.

The U.S. is also putting pressure on specific Chinese telecommunications firms, out of concern that they could be used by the Chinese government to spy on global rivals.

In recent days, the two countries have both ratcheted up economic pressures. As negotiations over a major trade deal stalled last week, President Trump announced that he would direct his administration to hike tariffs to 25% on Chinese goods that accounted for $200 billion in imports last year.

He indicated that he would eventually move to place that same levy on all $540 billion of annual Chinese imports. The Chinese government retaliated Monday with the imposition of tariffs on $60 billion worth of U.S. goods that flow into its country, and indicated that it will take more drastic steps if necessary.

While many experts believe that the two countries will strike a deal before the new tariffs really start to bite, there is increasing concern that strife between the world’s two largest economic powers could persist, forcing a disruptive overhaul of global supply chains that would echo around the world.

In fact, there is evidence that companies are already taking the first steps in a significant reorientation of global supply chains.

According to Paul Triolo, practice head for Geo-Technology at the Eurasia Group, there already has been a significant amount of decoupling by companies in the information and communications technology industries, as well as furniture, apparel, and agricultural products.

“US technology companies are already withholding new investment in manufacturing facilities based in China, and shifting parts of supply chains as feasible to southeast Asia and beyond,” he said in an interview. “There is a spectrum of potential options here, and so far most of the ‘easy’ stuff has been moved. The equation becomes much more complicated for things like advanced electronics.”

Understanding why this would be so disruptive requires digging below the surface of most discussions of US-China trade.

Political rhetoric about trade, much of it originating in President Trump’s Twitter feed, tends to oversimplify — and frequently misrepresent — the reality of global trade flows. The exchange of goods between the two countries is portrayed as a zero-sum game, in which U.S. consumers face a simple choice between buying widgets manufactured in China and buying competing products manufactured in the U.S.

Bilateral trade, intermediate goods

The truth is far more complex. Combined exports and imports between the two countries totaled $650 billion in 2018, according to U.S. government figures. Goods moving from China to the U.S. make up just under two-thirds of that total, and they are not limited to the cheap clothes and toys that made up a large portion of Chinese exports a generation ago. Smartphones, appliances, computers and other goods travel in a constant stream across the Pacific to U.S. markets.

Importantly, though, those finished goods often contain key elements, like microchips, that were originally manufactured in the U.S. and exported to China. These “intermediate goods” represent a huge market for U.S. technology firms.

Similarly, intermediate goods made in China find their way into finished products that bear the “Made in the U.S.A.” stamp. As a whole, intermediate goods make up between 60% and 65% of all global trade flows, which further illustrates the complexity of worldwide supply chains.

Restructuring supply chains

These complex manufacturing relationships have grown up over decades, and are very much baked into the way companies in both countries do business. Now, as the trade war escalates, they are facing the real possibility that ongoing conflict between Washington and Beijing could require companies to restructure global supply chains in a way that will provide more certainty and stability in the future.

But doing so would be a long and difficult process, experts warn.

“These value chains, or supply networks are both highly specialized and quite idiosyncratic,” said Scott Miller, a senior adviser to the Center for Strategic and International Studies’ Abshire-Inamori Leadership Academy said in an interview. “Company A and Company B might be in the same business, but the way they organize their supply network could be quite different.”

“The idea of ‘decoupling,’ well, if you’re in a business that requires assembly at scale, you’re going to find it hard replacing China,” Miller said. “It can be done, but it’s real work.” The problem is even worse if a company has developed a network of qualified suppliers in China. Replacing them is not like flipping a switch, he said. “It takes time, energy and capital to develop suppliers,” Miller said.

Should it come to that, economists warn, the effects on both countries, at both the macro- and microeconomic levels, could be immense.

Cost of tariffs

Within the U.S. alone, the potential damage from the proposed tariffs would be huge, warned Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Writing in a note to investors on Wednesday, he said, “The hit from 25% tariffs on all imports would be at least 0.6% of GDP, and probably much more as companies would have to rebuild entire supply chains. The hit to earnings growth would be of the order of 10%.”

It is also apparent that many of the supposed benefits of decoupling won’t necessarily accrue to the United States. President Trump has suggested that his trade policies will bring manufacturing jobs back to the U.S., but by all indications, the manufacturers who are already starting to move away from China are relocating to other low-wage countries, like Vietnam and Mexico.

As grim as some of these predictions are, there is a school of thought in which the divisions between the U.S. and China, and their global impacts, become much, much worse.

Worst scenario

In an appearance on the television program Face the Nation on Sunday, former U.S. Treasury Secretary Henry Paulson warned that if China and the U.S. successfully isolate themselves from one another — particularly in the realm of technology — the result could be a bifurcated global system that will devastate economic relationships.

“The real risk is that both countries through their actions will throw up or create an economic iron wall which means we’ll be decoupling global supply chains, right?” said Paulson, who also served as CEO of the investment bank Goldman Sachs.

“We’ll be having two systems with incompatible standards and rules,” he added. “And so as I look at it the defining strength of America is innovation and we need to protect our technology, need to protect our innovation. But if we close ourselves off from other, you know, other innovative economies and entrepreneurs, we jeopardize our leadership position in the world and we’re much less attractive as a destination for foreign investment.”

Triolo, of the Eurasia Group, gave voice to a concern that fewer commentators are willing to discuss out loud, but which must lurk in the back of many business leaders’ minds.

“Many companies are now for the first time factoring in the potential for the trade and tech conflict to morph into a real shooting conflict, either by accident or miscalculation or deliberately,” he said. “The potential for actual conflict has now gone way up for the period 3-5 years out, and this has to be taken into account when multinationals are looking at global supply chain risk.

“The best case scenario, a trade truce with China making some limited concessions, will not necessarily improve this dynamic,” he said. “U.S. focus on the nature of China’s political system, the control of the Party over information, [Chinese President] Xi’s unwillingness to cede more state control of the economy, etc. are all contributing to the ‘clash of civilizations’ meme which is gaining traction among the extreme factions on each side, diminishing the room for rebuilding trust, which is now arguably at an all time low.”


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Small Parties Put Thai Coup Leader on Track to Remain in PM Post

Thai Prime Minister and 2014 coup leader Prayuth Chan-ocha took a giant leap closer to holding on to his post after 11 small parties endorsed his candidacy Monday, although a scramble for control of the lower house of parliament continues.

The 11 parties each landed one of 500 seats in the House of Representatives thanks to an unorthodox formula the junta-appointed election commission devised after the March 24 poll. The algorithm dropped the threshold of votes needed to secure a party-list seat — based on the proportion of nationwide ballots won — from about 71,000 to 30,000.

Along with the expected support of the 250 members of the junta-appointed Senate, their endorsements give the bloc of pro-military parties led by Palang Pracharath the combined majority it needs in both houses to vote Prayuth into a new term.

But with a combined 135 elected seats, the bloc is lagging in the race to shore up a majority in the House of Representatives itself, which it will need to push through any legislation.

Its rival for control of the lower house is the Democracy Front, a bloc of seven parties with 245 seats on a single-minded mission of breaking the stranglehold the military has had on Thai politics since the coup.

The main mid-size parties in play, with more than enough seats to swing the lower house either way, are the Democrat Party and Bhumjaithai. Neither has yet declared for either bloc.

Days after the election, Pheu Thai, the heavyweight of the Democracy Front, offered to consider Bhumjaithai leader Anutin Charnvirakul for prime minister if he joined, said Thepparith Senamngern, a deputy spokesman for Pheu Thai.

Heir to one of Thailand’s largest construction companies, Anutin made headlines on the campaign trail for pushing a pro-cannabis platform. He wants to make marijuana — legalized for medical use in February — the country’s next major cash crop and give every Thai the chance to grow up to six plants each.

Thepparith said the front was still in “hard negotiations” with Bhumjaithai. But now that the 11 smallest parties have called for Palang Pracharath, he conceded it could only make Anutin prime minister on the off-chance that enough senators break faith with the junta that appointed them and either vote for someone other than Prayuth or abstain.

With a majority in the lower house, he added, the front could not only block legislation from pro-military parties but start rolling back the new Constitution the junta drafted after taking power. He said enough votes in the lower house could bypass attempts by the Senate to block amendments.

“We just need six seats, right, to be [2]51,” Thepparith said. “So is it farfetched? I don’t think so. Is it a bit hard?…. Yeah.”

Titipol Phakdeewanich, dean of the political science faculty at Ubon Ratchathani University, said it was unlikely at best.

He said the 11 parties’ decision to declare for Palang Pracharath was expected as a quid pro quo for their seats, and all but certain to cement Prayuth’s return as prime minister.

“It’s quite certain that they can make Prayuth the prime minister with the 250 senators,” he said. “But they also still want to make sure that they have enough seats in the lower house, in the House of Representatives. Otherwise, it wouldn’t make sense for them to become a government with a minority voice in the House.”

Titipol said Monday’s endorsements gave Palang Pracharath the momentum to keep adding to its bloc and that Bhumjaithai and the Democrat Party were likely to end up cutting deals with it as well.

“At the moment, Bhumjaithai and Democrat still can play the game… to get what they want. I don’t think they would decide not to be with Palang Pracharath. At the end, they would go with some deal that they get from Palang Pracharath and support Palang Pracharath to form a government,” he said.

“If you look back at Thai politics, in the past, it’s always like this. They negotiate to have good Cabinet ministries, so that they can perhaps get some interest or benefit to the party.”

A spokesman for Palang Pracharath did not reply to requests for comment.

Regardless of which bloc prevails, it could be weeks before Thailand has a new government.

Parliament is due to convene by May 25 and will vote on a prime minister early next month. The new Cabinet will then form in late June, clearing the way for the junta and the government it set up after the coup, the National Council for Peace and Order, to step down.

 


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Philippine Senate Elections Expand Power of Anti-Drug, Pro-China President Duterte

A coalition victory in the Philippine Senate race Monday will expand President Rodrigo Duterte’s space to advance a deadly anti-drug campaign, rebuild crumbling infrastructure in the impoverished country and tighten relations with China by the end of his term in 2022.

Nine of the twelve winners in Senate races are backers of Duterte, who’s halfway through a six-year term, according to unofficial election commission totals released early Tuesday after overnight ballot counting. The other three seats went to independents and the opposition bloc won none.

The race among 62 candidates was widely seen as a national midterm vote on Duterte’s popularity. 

“It’s basically who are for the president versus who are against him,” said Antonio Contreras, a political scientist at De La Salle University in the Philippines. He called the outcome a “referendum” on the president’s performance to date.

The results will give Duterte more confidence to complete his agenda, said Ramon Casiple, executive director with the Philippine advocacy organization Institute for Political and Electoral Reform in Metro Manila. 

​Duterte’s agenda 

The Duterte administration hopes to join China in exploring for oil or gas in the South China Sea, tracts of which both countries call their own. 

A maritime sovereignty dispute between the two countries had prompted Duterte’s predecessor to file, and win, a world court arbitration case against China in 2016. Duterte set aside the dispute, though Chinese vessels backed by the world’s third strongest military still control a contested shoal near Luzon Island. 

China, however, in 2016 pledged $24 billion of aid and investment to the largely impoverished Philippines and committed about half of that to specific projects in April. Some of that funding will bankroll Duterte’s $169 billion, 5-year replacement of outdated or dilapidated infrastructure around the archipelago. 

The president is expected to stick with the anti-drug campaign despite what local media outlets estimate at 5,000 deaths, many of them suspected dealers shot during raids by police. He has ordered police to use more restraint since public protests in 2017 against the killings of teenagers.

Duterte is also advancing tax reforms that are due to lower poverty to 14 percent of the 105 million population by 2022, down from about 22 percent now. 

He needs from 50 to 75 percent of the 24-member Senate to pass some bills, especially outstanding tax reform measures, Casiple said. A hostile Senate could quash bills from the administration or float their own.

Economic stability

Voters in Metro Manila said Monday Duterte’s rule had led to cleaner, more drug-free neighborhoods as well as overall economic improvement. 

Inflation of 6.7 percent that had vexed consumers in September and October had eased to 3.3 percent in March. Overall economic growth reached 6.2 percent in 2018.

In Pasay City, a hotel and shopping-rich municipality within Metro Manila, citizens are getting more funds for healthcare, while students are receiving more money for school, said May Isabela De La Pena, 45, a voter in the city and member of a neighborhood council.

“Many new buildings, many jobs, the children — our students — they have allowances every month (and) we have medical assistance coming from the city,” she said at a crowded elementary school campus where thousands were expected to turn out for 12 hours of voting.

​Weak opposition

Duterte’s public satisfaction rating rose to 79 percent in the first quarter of 2019 from 70 percent in September and 74 in December, tracking the fall in inflation. 

Despite opposition from academics and the military, Duterte’s 3-year friendship with China does not disturb most common Filipinos, political scholars say. Drug-linked slayings still alarm human rights groups on and offshore, but common people say the crackdown has made a lot of neighborhoods safer at night.

Opposition congressional candidates had criticized Duterte over China as well as drugs.

“The opposition has not done a good job in portraying itself in a sincere way,” said Eduardo Araral, a Philippine native and associate professor at the National University of Singapore’s public policy school. “They used the China angle, the drug angle, but none of those really stuck on Duterte.”

Pro-Duterte candidates for House of Representatives seats were expected to hold their massive majority today. That coalition now controls 245 of the 297 House seats.

Presidents in the Philippines by law can serve only one six-year term.


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