In Other News – May 1, 2020

China has scheduled its delayed National Party Congress meeting for May 22, signaling confidence that Covid-19 is sufficiently contained and setting the stage to announce post-pandemic stimulus measures and this year’s economic growth target. China is likely to take aggressive measures to juice its economy, which is positive news for the U.S. economy, especially for sectors like agriculture and energy that are suffering from demand destruction and low (sometimes negative) prices. However, the U.S. has amped up rhetoric targeting China over its response to the Covid-19 epidemic, specifically its lack of transparency regarding the origin and severity of the virus. The U.S. has also sent another Navy ship to the South China Sea in response to China’s ongoing efforts to assert its claims to internationally disputed territory. The U.S.-China trade relationship is too entrenched and too important to both countries’ economies to unravel, and a resumption of activity is critical to their return to growth. But tensions in other areas of the relationship could lead both sides to seek a new normal in bilateral trade ties, one that limits mutual reliance.

With the Covid-19 outbreak on the wane in Asia, anti-China protests have once again flared up in Hong Kong. Last week, local authorities arrested high-profile, pro-democracy political activists linked to months-long anti-government demonstrations that were disrupted by the Covid-19 outbreak. The arrests have sparked accusations that China’s proxy government in Hong Kong is using the outbreak as cover for taking anti-democratic action, as well as fear of more arrests and other measures to further weaken Hong Kong’s autonomy from the mainland. Hong Kong’s 2019 protests were striking in both size and duration and should leave no room for doubt about the population’s willingness to respond to perceived Chinese overstepping. Unfortunately, China does not seem to have heeded the message. As Beijing continues to assert its dominance in Hong Kong, that will both elevate the risk of a renewal of mass protests and further undermine U.S.-China relations.

Brazil’s President Jair Bolsonaro’s “So What?” response leaves him unpopular and politically vulnerable. In the last week, Brazil’s health and economic woes merged with political crisis when the Minister of Justice, Sérgio Moro, resigned in protest against Bolosonaro. Moro is well-regarded in Brazil for his 2014 role in the Operation Car Wash corruption case that brought high-profile politicians and business executives to justice. Moro is now accusing President Bolsonaro of corruption, alleging that he fired the head of Brazil’s federal police, Maurício Valeixo, in an effort to undercut federal investigations into his sons. Since Moro’s bombshell resignation, Brazil’s Supreme Court authorized public prosecutors to investigate the allegations against Bolsonaro and blocked his appointment of a family friend and loyalist, Alexandre Ramagem, as the new federal police chief. Meanwhile, criticism is mounting over Bolsonaro’s response to the coronavirus crisis and economic fallout. As of April 30, Brazil recorded 80,246 confirmed cases and 5,541 deaths. Asked about the rising death toll, Bolsonaro said to reporters: “So what? I’m sorry, but what do you want me to do?” Brazilian pollster Datafolha found this week that 45% consider Bolsonaro’s handling of coronavirus to be bad or terrible, compared to 27% who consider it good or excellent. This number falls below his baseline of support which hovers around 33%. With the number of Covid-19 deaths rising, the economy likely to contract by 5.3% according to the IMF, and now political turmoil in the capital – Brazil is entering uncharted territory.

Investigations into the downing of Malaysia Airlines flight MH17 over eastern Ukraine point to the direct involvement of a senior Russian FSB border service official, Colonel General Andrei Burlaka. Audio recordings suggest Burlaka may have been acting as a commander of pro-Russian rebel forces in Crimea believed to have shot down the aircraft, killing nearly 300 civilians. If confirmed, this would further undermine Russia’s denial of any involvement in the incident. Also this week, a video meeting between Russian and Ukrainian Foreign Ministry officials seeking an end to the conflict – a condition for the relaxation of EU sanctions on Russia – failed to make progress. These two developments together diminish the likelihood that Russia will see any sanctions relief in the near term, as it grapples with an extreme drop in global oil prices and the spread of Covid-19 within its borders. Now would be an opportune time for Russian President Vladimir Putin to strike a more cooperative tone on the international stage, but we doubt this combination of headwinds will trigger any effort on his part to scale back the country’s aggressive tactics, like backing separatists in Ukraine or conducting cyber-assaults on the U.S.