Dear Readers,
It’s Thinking Time! Buckle up for a quick recap of global events. This week we cover the trade deal between Europe and South America and its potential to create the biggest free trade zone in the world. We also cover the emergence of AI- and chips-powered boomtowns across Malaysia and Vietnam and the possibility of two global supply chains, one catering to the US and one to China.
TBL Thinks is our way to summarize the most important paywalled, longer reads relevant to global macroeconomics, helping you cut through the noise. With that in mind, please enjoy.
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White Gold Seen as Pivotal to Europe’s Massive Trade Deal with South America (CNBC) After decades of talks and negotiations, the European Union and five Mercosur countries (a trade bloc in South America with six member states and seven associated states) reached a trade agreement on December 6. It is likely that the strategic importance of lithium has played a key role in this historic deal, which if ratified by Europe will create one of the world’s biggest free trade zones — this zone will cover roughly 20% of global gross domestic product.
According to the European Commission, the objective of the deal is to increase bilateral trade and investment, and lower tariff and non-tariff barriers, create stable rules and promote sustainable development. The agreement will remove over 90% of tariffs on goods exchanged between the two blocs, saving European companies approximately $4 billion per year.
France and Poland, among others, have expressed significant opposition to the deal on accounts that the agreement will increase import quotas, while also reduce and remove tariffs on agricultural products, thereby creating unfair competition for Europe’s agriculture sector which cannot operate at the same lower costs as its Mercosur counterparts.
Argentina, Bolivia, and Brazil hold large reserves of critical raw materials such as lithium, something Europe currently heavily relies on China for. Europe’s demand for these critical raw materials is also expected to increase many times over as it marches towards its goal of producing 40% of its own clean tech, such as solar power or fuel cells, by 2030. Lithium, also referred to as “white gold”, is critical in the shift away from fossil fuels, and is used in the production of electric vehicles, cellphones, and laptop batteries.
The deal is a beacon of hope for free trade in the era of protectionism, but it remains to be seen if the entire European Union will ratify or reject the terms presented in it.
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US-China Tech War Fuels Asia Boomtowns Built on AI, Chips (BBG) Vietnam and Malaysia are feeling the fallout of the Washington-Beijing tension as little villages and palm oil plantations transform into tech nerve centers. Malaysia and Vietnam have seen more than $100 billion in foreign direct investments from 2020-2023, and tens of more billions are expected, resulting in more jobs and rising incomes. However, property prices and demand for power are also increasing, and many of the best jobs are going to foreign workers.
With Washington working hard to curb China’s tech domination, companies are exploring production as close as Mexico and as far as Southeast Asia, with Malaysia being at the heart of this shift. As the US gets readies itself for a second ride with Donald Trump, so do these countries which have a lot to lose: “The US president-elect has vowed to impose universal tariffs, and his nominees for key economic positions have proposed targeting Chinese companies that set up shop in third countries, including those in Southeast Asia.” Governments across the region are preparing to kiss the ring. Vietnam, one of the biggest beneficiaries of China’s off-shoring, has pledged to buy more aircrafts, liquified natural gas, and other products from the US, while officials in Malaysia have begun warning Chinese companies against investing.
“Malaysia accounts for 13% of the world’s share of chip testing, packaging and assembly” and is now expanding its chip manufacturing capacity, while Bac Ninh in Vietnam (just across the country’s border with China) is fast developing into a high-tech industrial hub. Key suppliers to Apple, Microsoft, and Sony are among companies that have invested billions into the region, and as they expand so do their employment needs, ranging from low-skilled part-time work to senior engineering management positions. Even though businesses seeking candidates through Bac Ninh’s local employment service platform in the first quarter of this year was up 50% from last year, it is important to note that there is no abundance of qualified workforce and many of the lucrative jobs are going to Chinese expats.
Vietnam is encouraging people to join upskilling programs, and provinces are providing incentives to instructors and students in training programs. The government is also working to stabilize power supply after outages caused multinational corporations hundreds of millions of dollars.
A senior fellow at the ISEAS-Yusof Ishak Institute, Jayant Menon, was quoted saying that “Trump’s escalation to target nationality of firms rather than their location could soon result in a world where there are two supply chains for many products - one for the US and other markets that penalize value addition in China, and another for the rest of the world.” He further warned that such an outcome would compromise the gains of scale economies leading to higher prices for everyone.
Until next time,
TBL Thinks
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Don’t wait to take control of your financial future. Set up an Unchained IRA today at unchained.com/tbl and experience true ownership of your retirement.
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