From Latin America to South East Asia and much more
This week, we move across the world - from Cuba, the Panama Canal to China & Taiwan. And we end with how AI is aiding in discovering new antibiotics
Bloomberg’s estimation on the impact of a China - Taiwan war
With a new “pro-independent” Taiwanese government (and not a puppet of China) being formed just now, it remains to be seen how China reacts to that, post Taiwan’s recently concluded elections. If the extreme step of a military intervention by China is taken, it would lead to a global escalation where-in US and it’s allies are likely to get involved.
Bloomberg tried to estimate the cost of this hypothetical war and the results are damning, to say the least! Engaging in a conflict over Taiwan would incur a tremendous toll in both human lives and financial resources, with implications reaching far beyond the immediate parties involved.
Bloomberg projects the staggering cost at approximately $10 trillion, equivalent to about 10% of the global GDP. This figure surpasses the economic impact of notable events such as the war in Ukraine, the Covid-19 pandemic, and the Global Financial Crisis.
The repercussions for Taiwan's economy would be severe, with Bloomberg estimating a substantial 40% decline in GDP based on comparisons with recent conflicts.
China, grappling with a lack of access to advanced semiconductors, would see its GDP plummet by 16.7%.
The United States would not escape unscathed, experiencing a 6.7% reduction in GDP, highlighting its significant stakes in the Asian electronics supply chain, exemplified by its reliance on Apple.
East Asian economies, including South Korea and Japan, would bear the brunt of the impact, underscoring the interconnectedness and interdependence of the world's economic landscape.
China’s manufacturing & global issues
China is often termed as the “factory of the world”, helping in supply chains across the world. However, based on China’s recent focus, it’s transition towards high-value manufacturing is poised to intensify trade tensions with the US, Europe, and other nations. The shift is notable as the share of manufacturing in China's GDP reached its peak in 2011, with services surpassing half of the economy's composition in 2015 – a typical trajectory for growing economies.
China is now channeling investments into manufacturing, emphasizing the "new three" growth drivers: electric vehicles, batteries, and renewable energy.
This strategic move aligns with global decarbonization efforts and escalates demand for commodities such as copper and lithium.
The US and European Union are increasingly expressing concerns about China's overcapacity, prompting trade investigations and countermeasures. The focus on retaining lower-end industries impacts developing nations like Vietnam and Indonesia, limiting their space to benefit from China's upward value chain shift. Countries like Turkey and India are responding with increased protectionism in a bid to attract more sophisticated industries.
China's pursuit of self-sufficiency in cutting-edge technology, driven by US restrictions on high-end chips, underscores its urgent national security priorities.
The country's surplus in manufactured goods relative to global GDP has reached around 2%, reminiscent of post-World War II US levels. This surplus emphasizes the challenge posed by China's massive manufacturing output, with approximately 45% being exported.
The new focus on "industrial upgrading" positions China as a direct competitor with wealthier nations in sectors traditionally dominated by them. The success of the "new three" products – electric cars, batteries, and solar panels – is evident in a 42% year-on-year growth in export value during the first three quarters of 2023.
Despite tensions, China seeks to allay concerns by emphasizing the welcome presence of foreign companies. For instance, Tesla Inc. is encouraged to manufacture in China for both domestic consumption and exports. However, the impact on the ever-growing Chinese trade surpluses and potential protectionist reactions from the global community remains to be seen.
Panama Canal issue
Current parched conditions in the Panama Canal have significantly hampered the functionality of the canal, which annually handles trade worth $270 billion. Water levels, currently six feet (1.8 meters) below normal, prompted the canal authority to impose restrictions on the number of vessels allowed to cross.
Typically handling 3% of global maritime trade volumes and facilitating 46% of containers from Northeast Asia to the US East Coast, the canal is a crucial source of revenue for Panama, generating $4.3 billion in 2022.
Shipping delays at the Panama Canal are the result of a confluence of factors, with climate change and infrastructure playing key roles.
Climate change, exacerbated by global warming and the impact of El Niño, has led to dry conditions in Panama, affecting Lake Gatún's water levels. The intensification of El Niño is expected to persist through at least March in the Northern Hemisphere. This has resulted in accelerated evaporation, draining Lake Gatún faster during severe dry seasons.
Addressing the long-term water shortage challenge involves a comprehensive solution. The proposed plan includes damming up the Indio River and constructing a tunnel through a mountain to transport fresh water 8 kilometers (5 miles) into Lake Gatún, the primary reservoir.
Estimated to cost around $2 billion, this initiative, coupled with additional conservation measures, is projected to take at least six years to complete.
In summary, the critical shipping delays at the Panama Canal are a complex issue rooted in the interplay of climate change and infrastructure limitations.
Cuba’s experiment with capitalism
Cuba finds itself in its most challenging economic situation since the collapse of the Soviet Union in the 1990s.
Official reports indicate an alarming annual inflation rate of 30%, with a projected fiscal deficit of at least 18% of GDP in 2024.
The economy contracted by approximately 2% in 2023.
Migration from the island has surged to levels not seen since the 1959 revolution. During the fiscal years of 2022 and 2023, a staggering 425,000 Cuban migrants sought refuge in the United States, while 36,000 submitted asylum applications in Mexico, constituting over 4% of the population.
Tourism, a significant contributor to GDP at 11% in 2019, struggles to recover from the pandemic. In 2023, the number of visitors fell short of expectations at barely 2 million, as opposed to the government's target of 3.5 million.
The primary obstacle to Cuba's economic rejuvenation lies in the leadership's persistent reluctance to foster a thriving private sector.
In 2021, limited entrepreneurship was allowed, leading to the establishment of 10,000 small- and medium-size enterprises, contributing significantly to 14% of GDP.
However, recent indications from the December National Assembly meeting suggest resistance from the aging top brass, rooted in the Castro era, against further economic liberalization.
The agricultural sector faces challenges as farmers are restricted from importing equipment or directly selling produce. The government's inefficiency in supplying fuel and parts has led to a drastic 35% decline in agricultural production between 2019 and 2023.
Despite abolishing the two-currency system in 2021, Cuba maintains fixed exchange rates that favor state enterprises over individuals. The black-market rate, however, exceeds official rates, standing at over 270 pesos per US dollar.
While some changes were announced in December 2023, such as an unspecified rise in petrol prices and a 25% increase in electricity prices for heavy consumers, the fundamental issues persist.
The state insists it is not waging a "crusade" against the private sector but warns against anti-revolutionary activities, emphasizing that political loyalty remains a prerequisite for business ownership.
In conclusion, a manipulated private sector and artificial exchange rates may benefit a select few insiders, but incremental adjustments to a flawed system are insufficient to halt Cuba's economic decline.
AI identifying new antibiotic candidates
MIT researchers have uncovered a novel category of antibiotic compounds with the capability to eliminate methicillin-resistant Staphylococcus aureus (MRSA), a bacterium responsible for more than 10,000 annual deaths in the US due to drug-resistant infections, including skin infections, pneumonia, and sepsis.
In their pursuit, researchers leveraged deep learning, a form of artificial intelligence (AI), to analyze approximately 39,000 compounds for their antibiotic efficacy against MRSA.
Through this process, deep learning models were trained to recognize chemical structures linked to antimicrobial activity, meticulously sieving through millions of compounds to generate predictions on those exhibiting robust antimicrobial properties.
Importantly, the identified compounds demonstrated notably low toxicity against human cells, positioning them as promising candidates for drug development.
Subsequent training of three additional deep learning models enabled researchers to discern compounds that not only effectively targeted microbes but also exhibited minimal adverse effects on various types of human cells.
This breakthrough marks a significant stride in the ongoing battle against antibiotic-resistant bacteria.