The White House released a report Thursday contending that the United States’ war on poverty — a drive that started over 50 years ago to improve the social safety net for the poorest citizens of the world’s largest economy — is “largely over and a success,” contrasting with other reports on the nation’s poor.

The report, authored by President Donald Trump’s Council of Economic Advisers, called for federal aid recipients to be pushed toward work requirements.

The report says poverty, when measured by consumption, has fallen by 90 percent since 1961. It also says that only 3 percent of Americans currently live under the poverty line.

“The timing is ideal for expanding work requirements among non-disabled working-age adults in social welfare programs,” according to the report. “Ultimately, expanded work requirements can improve the lives of current welfare recipients and at the same time respect the importance and dignity of work.”

U.N. report

The council’s report contrasts with a U.N. report on poverty in the U.S. that was released last month. That report said about 12 percent of the U.S. population lives in poverty, and that the U.S. “leads the developed world in income and wealth inequality.”

Phillip Alston, a U.N. adviser on extreme poverty and the author of the report, wrote in December 2017 that he believed Trump and his administration, along with U.S. House Speaker Paul Ryan, a Wisconsin Republican, “will essentially shred crucial dimensions of a safety net that is already full of holes.”

In April, Trump signed an executive order outlining work mandates for low-income citizens on federal aid programs. These programs included Medicaid, which provides federal health insurance for low-income individuals, and the Supplemental Nutrition Assistance Program, which provides these low-income individuals with assistance in food purchasing.

Both programs were among those introduced in the 1960s, during the administration of then-President Lyndon Johnson, a Democrat who coined the term “war on poverty” during his first State of the Union address.

Four state mandates

The Trump administration has already permitted four states — Kentucky, Indiana, Arkansas, and New Hampshire — to implement work requirement programs for Medicaid recipients, the first such restrictions enforced on the program. In June, however, a federal judge struck down Kentucky’s mandate, writing that the administration’s waiver “never adequately considered whether [the program] would in fact help the state furnish medical assistance to its citizens, a central objective of Medicaid.”

Anne Marie Regan, a senior staff attorney for the Kentucky Equal Justice Center, one of the organizations that successfully challenged the Kentucky waiver, told VOA that while she didn’t know the specifics of other states’ Medicare waivers, she thought similar challenges could be successful because of the administration’s insistence on work requirements.

Regan said her state’s proposal would have removed 95,000 people from health care coverage.

“The war on poverty is certainly not over,” Regan said. “There’s certainly still a great need for a safety net.”

In June, the U.S. House of Representatives narrowly passed a farm bill that includes work requirements for some adults who receive food assistance benefits. Every Democrat, along with 20 Republicans, voted against the bill, which is not expected to pass the Senate.
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The Turkish lira recovered some losses Thursday hours after it hit record lows. New Treasury and  Finance Minister Berat Albayrak, President Recep Tayyip Erdogan’s son-in-law, sought to reassure nervous markets that the central bank’s independence was not in question.

The wild currency gyrations following Albayrak’s appointment underscore concerns over what economic policy Erdogan will adhere to now that he has consolidated power following his June re-election.

The lira approached five to the dollar late Wednesday in a nearly 30 percent depreciation since the beginning of the year.

The heavy decline is a result of worries over Erdogan’s economic expansion policy.

Although growth has soared more than 7 percent, inflation has surpassed 15 percent — a 15-year high — while the current deficit has widened to more than 6 percent of national income.

Analysts say after the June election, key ministers led investors to believe Erdogan would adopt austerity measures to rein in inflation. They are concerned the president, with the appointment of his son-in-law, may be seeking more control over monetary issues while excluding two prominent government figures from any say on policy.

“The two faces of market-friendly policies, Deputy Prime Minister Mehmet Simsek and Finance Minister Naci Agbal, are being excluded from policymaking roles,” economist Inan Demir of Nomura International Securities said.

“Before the elections,” he continued, “Agbal and Simsek had been talking to investors before the election, promising a return to orthodoxy that would generate a cooldown in the economy. The appointment of his son-in-law [Berat Albayrak] as the economy czar, would lead many investors to believe Erdogan will take tighter control of the economy, which would essentially annul promises of Agbal and Simsek.”

Agbal and Simsek are credited with persuading Erdogan to agree to an emergency hike in interest rates in May to protect the lira after steep falls. The Turkish president subscribes to the unorthodox view that low interest rates curb inflation, describing high interest rates as “the mother and father of all evils.”

Erdogan unnerved markets Tuesday by declaring his belief that “we will see interest rates fall in the period ahead.” Investors say any interest rate reduction would result in the total collapse of the currency, and that further increases are needed to secure the lira.

In a move to calm investors, Albayrak Thursday pledged to cut inflation, saying structural reform and fiscal discipline would be enforced, and he guaranteed the central bank’s independence. His statement saw the lira bounce back slightly.

Words, though, might not be enough. “It depends on how Albayrak will act really,” economist Demir said. “It’s possible if he manages to reassure the markets by actions, then the sell-off can subside. Otherwise, we will see an ongoing fall in lira assets going forward.”

Analysts warn there is skepticism about whether Albayrak will follow through on his commitment to fiscal discipline. Erdogan’s re-election campaign centered on the promise to continue with massive public construction projects and opposition to interest rate increases.

Political considerations

Political analyst Atilla Yesilada of Global Source partners suggests that political considerations could outweigh economic concerns.

“Something needs to be done. And the traditional recipe is belt-tightening and structural reforms in the traditional sense, to curtail domestic demand,” he said. “The challenge there is not that Erdogan is incapable of signing off for such a recipe. He is facing local elections in March 2019, which are extremely important, and the voters need to be fed, and that is the opposite of what the traditional recipe requires.”

A critical test of the direction Erdogan might choose will come at a July 24 meeting of the central bank. “If the central bank cannot find an opportunity to hike, the markets will take it very badly,” Demir said.

The failure of the central bank to act likely would increase worries about the introduction of capital controls to restrict money from leaving Turkey in a bid to protect the lira.

Demir said such a move would be counterproductive as it would end much of the international investment. Turkey needs to borrow about $5 billion monthly to cover the difference between its imports and exports.

As speculation rises over the threat of capital controls, Demir acknowledged investors now are asking about the risk of such a move. Pressure for decisive action by the central bank at its meeting July 24 is seen as critical to stemming the risk of an investor stampede out of the Turkish market.
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U.S. consumer prices barely rose in June, but the underlying trend continued to point to a steady buildup of inflation pressures that could keep the Federal Reserve on a path of gradual interest rate increases.

Other data on Thursday showed first-time applications for unemployment benefits dropped to a two-month low last week as the labor market continues to tighten. The Fed raised interest rates in June for a second time this year and has forecast two more rate hikes before the end of 2018.

“U.S. inflation continues to drift gradually higher in response to a nearly fully employed economy, with some nudging from tariffs,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “The Fed has every reason to pull  the rate trigger again in October.”

The Labor Department said its Consumer Price Index edged up 0.1 percent as gasoline price increases moderated and the cost of apparel fell. The CPI rose 0.2 percent in May. In the 12 months through June, the CPI increased 2.9 percent, the biggest gain since February 2012, after advancing 2.8 percent in May.

Excluding the volatile food and energy components, the CPI rose 0.2 percent, matching May’s gain. That lifted the annual increase in the so-called core CPI to 2.3 percent, the largest rise since January 2017, from 2.2 percent in May.

Economists polled by Reuters had forecast both the CPI and core CPI rising 0.2 percent in June.

The Fed tracks a different inflation measure, which hit the U.S. central bank’s 2 percent target in May for the first time in six years. Economists expect the personal consumption expenditures (PCE) price index excluding food and energy will overshoot its target.

U.S. financial markets were little moved by the data.

In another report on Thursday, the Labor Department said initial claims for state unemployment benefits dropped 18,000 to a seasonally adjusted 214,000 for the week ended July 7, the lowest level since early May.

That suggests robust labor market conditions prevailed in early July. The economy created 213,000 jobs in June.

A tightening labor market and rising raw material costs are expected to push up inflation through next year. Manufacturers are facing rising input costs, in part because of tariffs imposed by the Trump administration on lumber, aluminum and steel imports.

So far, they have not passed on those higher costs to consumers. Fed officials have indicated they would not be too concerned with inflation overshooting its target.

Last month, gasoline prices rose 0.5 percent after increasing 1.7 percent in May. Food prices gained 0.2 percent, with food consumed at home rebounding 0.2 percent after falling 0.2 percent in May. Food prices were unchanged in May.

Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.3 percent last month after increasing by the same margin in May. But the cost of hotel accommodation fell 3.7 percent after rising 2.9 percent in May.

Healthcare costs advanced 0.4 percent, with the price of hospital services surging 0.8 percent. Healthcare prices gained 0.2 percent in May. Consumers also paid more for prescription medication last month.

Prices for new motor vehicles rose for a second straight month. There were also increases in the cost of communication, motor vehicle insurance, education and alcoholic beverages.

But apparel prices fell 0.9 percent after being unchanged in May. The cost of airline tickets declined for a third straight month. Prices of household furnishings and tobacco also fell last month.
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The U.S. is on pace to leapfrog both Saudi Arabia and Russia to become the world’s biggest oil producer.

The latest data released by the Energy Information Administration shows U.S. output growing again next year to 11.8 million barrels a day.

 

Linda Capuano, who heads the agency, says that would make the U.S. the world’s No. 1 producer.

 

The director of the International Energy Agency, a group of oil-consuming countries, made a similar prediction in February.

 

Russia and Saudi Arabia pumped more crude than the U.S. last year.

 

Production is booming in U.S. shale fields because of newer techniques such as fracking and horizontal drilling.
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Nigeria’s President Muhammadu Buhari said on Wednesday the country will soon sign up to a $3 trillion African free trade zone.

Nigeria is one of Africa’s two largest economies, the other being South Africa. Buhari’s government had refused to join a continental free-trade zone established in March, on the grounds that it wishes to defend its own businesses and industry.

The administration later said it wanted more time to consult business leaders.

“In trying to guarantee employment, goods and services in our country, we have to be careful with agreements that will compete, maybe successfully, against our upcoming industries,” Buhari told a news conference during a visit by South African President Cyril Ramaphosa.

“I am a slow reader, maybe because I was an ex-soldier. I didn’t read it fast enough before my officials saw that it was all right for signature. I kept it on my table. I will soon sign it.”

The continental free-trade zone, which encompasses 1.2 billion people, was initially joined by 44 countries in March. South Africa signed up earlier this month.

Economists point to the continent’s low level of intra-regional trade as one of the reasons for Africa’s enduring poverty and lack of a strong manufacturing base.
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In a ceremony last week attended by heads of state from across East Africa, Djibouti inaugurated what it says will become the largest free-trade zone on the continent.

The project will take 10 years to complete and will occupy more than 48 square kilometers when finished. In the pilot phase, it will increase the size of Djibouti’s economy by 11 percent, Prime Minister Abdoulkader Kamil Mohamed told VOA’s French-to-Africa service.

But the $3.5 billion project will also add to what some experts consider to be an extreme reliance on Chinese financing and could raise the small desert nation’s debt to alarming levels.

Debt distress

Scott Morris is a senior fellow at the Center for Global Development and the director of the U.S. Development Policy Initiative. He co-wrote a report in March that highlights the debt implications of the Belt and Road Initiative.

Morris and his colleagues considered the debt vulnerability of 68 countries involved in the BRI, including China. They concluded that most countries have a low risk, but for eight countries, the risk is high.

Djibouti is the only high-risk African country. It stands out because its debt represents a large portion of its gross domestic product, which economists consider to be a good indicator of a country’s overall economic strength and size. By the end of 2016, Djibouti’s debt had reached more than 86 percent of its GDP, and it owed nearly all of that money to China.

Combined, these factors make Djibouti susceptible to debt distress, a condition that can hurt economic growth or even cause an economic crisis.

The new free-trade zone will add significantly to Djibouti’s Chinese debt, possibly elevating Djibouti’s risk to “an alarming state,” Morris said.

‘We are well-situated’

Djibouti is optimistic its investments will pay off.

“We don’t have natural resources, but God has placed us in a strategic zone where about 30 percent of the maritime commerce in the world passes through,” Mohamed said. “So, we are well-situated, and we plan to take advantage of this placement to have the maximum profit for our country and our people.”

Morris agrees that Djibouti’s infrastructure deals could generate significant economic activity and growth, and that helps keep the risks of debt in check.

The catch, according to Morris, is big infrastructure projects pay dividends over the long haul, but debt obligations kick in much sooner. “With deals like this continuing to stack up, it does seem to me that Djibouti is facing a real debt problem,” Morris said.

If Djibouti were to default on its loans, it might find itself handing full control of projects such as the free-trade zone or Chinese-built ports over to China. That precedent was set late last year, when Sri Lanka, burdened with $8 billion in loans to Chinese firms, transferred the Port of Hambantota to China on a 99-year lease. 

If China were to take control over a Djibouti-based infrastructure project, the geopolitical implications could extend far beyond finances. But a handover wouldn’t be necessary for China to sway politics in the region and beyond.

“There’s no doubt that the Chinese government as a creditor also makes its political will known on issues that matter to it,” Morris said.

Those stipulations aren’t unique to China, Morris added, citing the United States as one example of a country that ties economics to politics. President Donald Trump’s administration, Morris said, has made clear that countries would be eligible for financial assistance depending on their votes in the United Nations.

The additional challenge with Chinese loans, according to Morris, is a lack of transparency. “It’s really hard to judge the degree to which they are extracting political concessions.”

Risks and rewards

An opaque approach to financing makes Chinese loans more risky overall, Morris said.

“There’s not a consistent reporting principle on the part of China as a creditor,” he added. And because China hasn’t agreed to be governed by globally accepted financing rules, the risk for countries that accept Chinese loans goes up.

African countries need to vet Chinese-financed projects carefully, Morris said, being sure the terms adhere to accepted financing standards. But that doesn’t mean all BRI projects should be taken off the table.

“If there is a viable infrastructure project that an entity like the China Development Bank wants to finance, and the terms look reasonable, there’s no reason not to proceed with that,” Morris said. “But one has to evaluate each project on its own merits.”

In Djibouti, the government is confident its strategy is paying off. “Chinese interests are Djiboutian interests also,” Mohamed said. “We are happy to profit from our position so we can develop our country.”

Idrissa Fall and Anasthasie Tudieshe contributed to this report.
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As the trade war between the world’s two largest economies nears the end of its first week, its most unsettling fact may be this: No one seems to foresee any clear path to peace.

 

The United States insists that China abandon the brass-knuckles tactics it’s used to try to supplant America’s technological dominance. Yet Beijing isn’t about to drop its zeal to acquire the technology it sees as crucial to its prosperity.

 

Having run for the White House on a vow to force China to reform its trade policies, President Donald Trump won’t likely yield to vague promises by Beijing to improve its behavior — or to pledges to buy more American soybeans or liquefied natural gas.

 

“It certainly feels like we’re in for a protracted fight,” said Timothy Keeler of the law firm Mayer Brown and a former chief of staff at the Office of the U.S. Trade Representative. “Truthfully, I don’t know what the off-ramp is.”

 

The first shots sounded July 6: The United States slapped 25 percent taxes on $34 billion in Chinese imports. Most of them are industrial goods that the Trump administration says receive subsidies or other unfair support from Beijing. China quickly lashed back with tariffs on $34 billion in U.S. products.

The two countries have targeted an additional $16 billion worth of each other’s products for a second round of25 percent tariffs. On Tuesday, the Office of the U.S. Trade Representative proposed 10 percent tariffs on another $200 billion in Chinese imports, ranging from fish sticks to burglar alarms.

 

All told, Trump has threatened eventually to slap tariffs on up to $550 billion in Chinese imports — more than China actually exported to the United States last year — if Beijing won’t relent to U.S. pressure and continues to retaliate.

 

At the heart of the dispute: The Trump administration’s complaints that China has used predatory practices in a relentless push to grant Chinese companies an unfair advantage in the industries of the future, including robotics, electric cars and biopharmaceuticals. These tactics include the outright theft of trade secrets, government subsidies to homegrown tech firms and demands that U.S. and other foreign companies hand over technology if they want access to China’s vast market.

 

Eliminating the new tariffs will prove a lot harder than it was to raise them in the first place, said Wendy Cutler, a former U.S. trade negotiator who is a vice president at the Asia Society Policy Institute. “Both sides have too much at stake and don’t want to back down.”

 

So how does the trade war end? Analysts offer several potential scenarios:

 

China Blinks

 

The Trump administration boasts that China has more to lose in a trade war. After all, Beijing sold $524 billion worth of goods and services to the United States last year and bought far less — $188 billion. So China has far fewer goods to tax than the United States does.

 

And China’s benchmark stock index — the Shanghai Composite — has dropped 15 percent this year, at least partly on fears about damage from the trade conflict with Washington.

 

“It’s a dicey time for the Chinese economy,” said Claude Barfield, a resident scholar at the conservative American Enterprise Institute and former consultant to the U.S. Trade Representative.

Beijing is trying to contain a run-up in corporate debt and manage a difficult transition away from fast but unsustainable export-driven growth based on exports and often-wasteful investment toward steadier growth built on consumer spending. The International Monetary Fund expects Chinese economic growth to decelerate to 6.6 percent this year from 6.9 percent in 2017.

 

So it’s possible that economic pressure could persuade Beijing to cave. Yet many analysts are skeptical. Eswar Prasad, an economist at Cornell University, said the economic damage from U.S. tariffs is “likely to be muted since China has enough room to forestall a growth slowdown” by increasing government spending or adopting easy-money policies that put more cash into the economy.

 

Mary Lovely, an economist and trade expert at Syracuse University, says it’s unclear how China could appease Trump, even if it wanted to. China has pledged in the past to police cyber-theft and end coerced technology transfers. So any negotiations, Lovely said, would raise more questions: Would the Trump administration accept another promise? How would any promise be verified? How long would it take to determine whether Beijing has actually reformed its ways?

 

And China’s leaders might prove reluctant to back down and risk a backlash from the public.

 

“They have nothing to gain internally by kowtowing to President Trump, and that’s exactly what it would be,” Lovely said.

 

Trump Blinks

 

Trump faces pressures, too. The Chinese designed their tariffs to inflict political pain in the United States. They have, for example, targeted soybeans and other farm products in a shot at Trump supporters in the American heartland. And U.S. farmers are represented by trade groups and congressional delegations who aren’t shy about attacking U.S. policies that threaten farm incomes.

But the president would also find it hard to back down. He’s already considered one possible solution only to back away from it. In May, Treasury Secretary Steven Mnuchin announced after a meeting with the Chinese that the trade war was “on hold” and the tariffs suspended after Beijing agreed to reduce the U.S. trade deficit by buying more American energy and farm products.

 

Yet the cease-fire quickly collapsed once critics complained that the Trump administration was letting China buy its way out of the impasse.

 

“The president felt the sting of that and didn’t like that,” Keeler said. So the administration decided to “drive a harder bargain,” and it revived — and ramped up — its tariff threat.

 

A Win-Win Resolution

 

Taiya Smith, a former Treasury official who handled negotiations with China, says it’s possible a deal could be reached in which Beijing ends its predatory practices but can still keep itself competitive in advanced industries. The key, she says, is persuading China that its tech companies don’t need massive assistance from the state.

 

“Their companies are becoming very powerful,” Smith said. “They have to be willing to compete on a level playing field. They no longer need a leg up.”

 

But she said the U.S. would have to make concessions, too, perhaps by agreeing to let China play a bigger role in global economic policymaking.

 

“The Chinese have to have a political win somewhere in there, too,” Smith said. “You can’t design something where we get what we want and China gets nothing. They have their own politics.”

 

The War Drags On

 

Scott Paul, president of the Alliance for American Manufacturing and a sharp critic of Beijing’s trade practices, wants to see the tariffs remain until either U.S. companies leave China or Beijing opens its market wider to American goods and investment.

 

“They should stay on for long enough that they manifest some change,” he said. “I don’t see the tariffs coming off anytime soon.”

 

Paul notes that China has repeatedly made empty promises to reform its practices.

“We have waste cans full of promises by the Chinese government to reform its anti-competitive practices that are completely ignored,” he said. “The tariffs are the best and only leverage that we have with China, and we would be foolish to squander them without major gains.”
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