September 2019

Country Ranking Trends

  • Magni completed a review of Saudi Arabia. The country received an upgrade for improving the transparency of its economic performance. Accurate, timely, and complete information is important so that businesses can establish market-responsive business plans. Good information reduces risk and increases capital investment. Even though Saudi Arabia has a relatively low ranking, this upgrade was enough to move the country ahead of China, Philippines, and Russia.

Boris’ Unmovable Deadline and a Reconvened Parliament

  • The UK Supreme Court ruled that Prime Minister Johnson had acted unlawfully when he suspended parliament. The eleven justices ruled unanimously that there had been no justification for taking the extreme action of suspending Parliament for five weeks. The suspension began on September 10 and had been due to end on October 14, just a few days before an EU summit. The summit will be one of the last chances to conclude an exit deal before the October 31 deadline. The court’s decision makes it more difficult for Johnson to try and force Brexit by this deadline, which the prime minister has repeatedly promised to do even if that meant leaving the EU without any exit arrangements. Parliament has already passed legislation requiring Johnson to request a three-month Brexit delay if no deal with the EU has been reached. A reconvened parliament is certain to ramp up efforts to prevent a no-deal exit, which most members oppose.
  • Implications: Every path forward has at least one obstacle; many obstacles are legal and most paths lack majority support. The only predictable result is a lack of predictability. The least unlikely outcome would be a further delay to Brexit with a general election following in quick succession. The situation with the EU is unchanged. Brexit remains a distraction, and the other challenges continue slowly eroding the union’s foundation.

Will a Trade Deal Between India and the U.S. be Enough?

  • The hopes of both administrations were not realized as India and the United States were unable to conclude a mini-trade deal during the meeting of President Trump and Prime Minister Modi at the United Nations. The Trump administration has been focused on concluding smaller deals focused on only a few sectors and products. India has been eager to conclude a deal after Trump accused them of insufficient market access and cancelled India’s benefits under the Generalized System of Preferences (GSP), which enables India to export certain goods at a reduced tariff rate. India retaliated by imposing tariffs on 28 U.S. goods. The U.S. is also concerned about regulations that they contend are unfair to major U.S. e-commerce companies. There is hope the remaining issues can be resolved before a possible visit by Trump to India in November.
  • Implications: Both Trump and Modi have reasons for wanting a trade deal. Trump is eager to show his approach to trade can be successful. Modi is under pressure for the weak economy and for his Hindu nationalism, including the changes in Kashmir. Further, India is seeking to be closer to the U.S. as China becomes ever more assertive. A deal is likely. However, for India to make material progress it needs to continue to expand the reforms that made it one of the most upgraded countries during 2018.

Is the Japan Trade Deal a Model Going Forward?

  • Japan and the United States have reached a limited trade deal on areas of market access for certain agriculture and industrial goods, as well as on digital trade. The agreement will open Japanese markets to about $7 billion in U.S. agricultural products. Japan will also reduce tariffs on products such as beef and pork. The United States also agreed to delay any tariffs on Japanese automobiles, but no further specification on the exact timing was announced. The hope is the deal will compensate for some of the lost markets as a result of President Trump’s withdrawal from the Trans-Pacific Partnership, a multilateral trade deal that would have reduced trading barriers with Japan.
  • Implications: Trump is eager to show his approach to trade can be successful. USMCA (i.e., the updated NAFTA) remains unapproved by Congress and, hence, not in force. Trump may choose to try and replicate the Japan deal with other countries. Prime Minister Abe will hopefully be able to shift the government’s attention to reform. Japan’s relatively low Magni Country Score places it in the middle of the countries of the developed markets.

Groundhog Day in Israel

  • Israel has held its second parliamentary election this year after Prime Minister Benjamin Netanyahu was unable to form a governing coalition following the April election. This latest election was no more decisive, with neither of the top parties winning enough seats to form a parliamentary majority. The centrist Blue and White party led by Benny Gantz had the most seats and Netanyahu’s Likud was in second place. In Israel’s parliamentary system the president names who will have the first opportunity to form a government, and since no party has a majority, he had called on the top two parties to hold talks on forming a unity government. However, Gantz has said he will not allow Netanyahu to stay as prime minister, citing the corruption charges pending against Netanyahu. With the failure of the talks on a unity government, the president has asked Netanyahu to once again try to form a government. Continued failure could lead to an unprecedented third election within a year.
  • Implications: Even if a government is formed, the coalition will have a small majority. Reform is not high on anyone’s agenda, and frequent elections may continue. Israel will likely continue to have a relatively low score among the countries of the developed world.