– Despite signs pointing to an agreement between the United States and Iran, several analysts foresee an economic downturn worse than the pandemic crisis. What assumptions are behind that view?
Sales Marques – In formal terms, economic indicators do not yet show a crisis on that scale, but there are several factors that make it likely. Above all, Iran responded very intelligently by blocking shipping traffic through the Strait of Hormuz and attacking neighboring countries. Beyond the destruction within Iranian territory, this has resulted in the destruction of a great deal of infrastructure. In other words, although the conflict is limited to one region, the crisis has worldwide repercussions – particularly on the price of oil and its derivatives, as well as across a broad range of sectors such as fertilizers and tourism. In certain respects, this crisis could prove more long-lasting than COVID.
– Because of the destruction of infrastructure?
S.M. – During COVID, a number of assets, especially airplanes, were left idle due to a lack of demand. But nothing compares to the physical destruction of infrastructure; that is the central issue, because rebuilding takes time. Another problem is determining who will pay for it. War reparations are one of the controversial points in negotiations between Iran and the United States. There is some optimism on both sides, but many uncertainties remain, beyond the central issue of nuclear capability for civilian use, which Iran sees as a matter of sovereignty. Obama had reached a fairly satisfactory solution for all sides, but it was later abandoned.
– Beyond infrastructure, what are the most worrying signs pointing toward a long-term crisis?
S.M. – First and foremost, inflation, which does not necessarily mean crisis; in many cases it even accompanies economic growth. However, when combined with a problem affecting much of the world — low growth — we are beginning to see signs of what was once called “stagflation,” during the oil crisis era. We can see this happening, for example, in the European economy, but also more broadly around the world. Except, to some extent, in the regions we belong to: China, Southeast Asia, North Asia… where the economic situation is not as severe in terms of the negative factors inherited from the past – problems that predate the war. Many regions of the world have been unable to make a real leap forward in their development.
We are beginning to see signs of what was once called stagflation
– War is expensive, and countries like the United States are piling up deficits. What are the consequences?
S.M. – The United States keeps pushing the problem down the road; it simply issues more dollars and more public debt.
– Doesn’t that accelerate inflation?
S.M. – Of course! But this crisis mainly affects regions that were growing and are the ones most in need of development. It hits Africa directly because of the harmful effects of the fuel and fertilizer crisis, with a very negative impact on extremely vulnerable countries that need to produce for their own populations while importing food. Portuguese Speaking Countries, for example, are heavily affected, worsening their balance-of-payments deficits. To some extent, this war accelerates trends that already existed and makes the outlook even more negative, in addition to creating a geostrategic conflict with unpredictable consequences.
– Historically, nations intensify wars to relieve economic pressure. Could the effort to contain China’s rise be behind American militarism?
S.M. – In Israel’s case, there may be economic problems, but the issue is fundamentally political: the survival of the current leadership. In the United States, there is a leadership that views the world like a sheriff who owns the place, with a fixed idea of a world divided into spheres of influence. For Trump, the Western Hemisphere is his backyard, his little estate. On the other hand, internal discussions in the United States suggest that the attack on Iran may have been done as a favor – and it is proving to be a very expensive favor.
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– So there is no challenge directed at China?
S.M. – There are underlying issues connected to the National Security Strategy published at the end of last year, where it is clear that Trump does not want a significant Chinese presence in Latin America. The issues involving Venezuela, Panama, Cuba… are related to that. Then there are those very strange ideas in which he sees balance-of-payments deficits as theft, as an assault on the American economy, whereas I would say it is the most natural outcome of choices Americans made a long time ago – namely, to live in debt and have the world finance the American way of life. There is certainly a desire to contain China, I have no doubt about that. But beyond matters related to its sphere of influence, it seems to me that this containment strategy boils down to commercial tools: tariffs, sanctions, or anything else that could hinder China’s growth.
In China, the state supports development, but the United States and Europe, in their own ways, do the same. What is really at stake are the barriers to China’s growth and influence
– The war industry requires investment and technological innovation. Could that have a positive impact on economic recovery?
S.M. – As long as it is not used to destroy value. The war industry helped the U.S. economy during World War II, especially because American territory was not affected. Later, policies such as the Marshall Plan supported the American economy while also removing Europe from the sphere of influence that could have been extended by the Soviet Union. The expansion of the European Union, particularly along its southern flank – Spain, Portugal, Greece – is connected to that idea.
– In the current context, what is the economic impact of the war industry?
S.M. – Production itself contributes to economic growth, but it needs a market, and for that there must be demand.
– More conflict and destruction…
S.M. – It is a complicated situation because it is destructive. What is happening right now is worrying: an economy that is already unhealthy, like Europe’s, is now being called upon to invest in the war industry. I have no doubt that this will divert part of what has been invested – rightly so – in public goods and infrastructure.
– Meanwhile, Xi Jinping is receiving everyone in the role of a global mandarin. Is he shaping the new economic order?
S.M. – China does not only play a role in the economic order, but also in the global political landscape as a stabilizer. At this moment, it is the only power capable of playing that role. Europe is compromised, the United States is compromised… and it is very interesting to see the rise of countries such as Pakistan or Turkey — middle powers close to China that can serve as intermediaries, always supported by China, tacitly or explicitly. Therefore, I would say that Beijing is the capital of global stability, and I believe China appreciates that role.
This war accelerates trends that already existed and makes the outlook more negative
– Putin left Beijing acknowledging the possibility of ending the war in Ukraine. Is that another sign of this stabilizing effect?
S.M. – Yes. For the first time, I am seeing Russia give signs that it wants to end the conflict, at least openly and through public statements. Of course, Russia has wanted to end the conflict for a long time, I have no doubt about that. The problem lies in the red lines drawn by each side in the war. Ultimately, the center of my concerns is always Europe, partly because I am Portuguese, and I believe Europe must find a way to coexist with Russia in the long term. It is impossible to live like this forever, always viewing Russia as a threat intent on seizing more European territory. That vision does not seem likely to lead to a very promising future.
– Does China have the capacity to turn the Belt and Road Initiative into a kind of new Marshall Plan?
S.M. – I think so. Regarding countries in the Global South, China has that capacity, although it may face difficulties in countries Trump has defined as part of his sphere of influence. Macau, in fact, is investing somewhat in that role. However, China will no longer have the same level of investment in Europe or the United States. As far as the EU is concerned, it is not because China lacks interest, but because increasingly visible barriers are being created against Chinese investment – and those barriers will intensify. Deliberately, the EU is establishing a set of criteria that, while not directly or explicitly aimed at China, are fundamentally directed at it: carbon tariffs, state subsidies, and so on. It is a Pandora’s box – once opened, it can justify anything. It is true that in China the state supports development, but the United States and Europe, in their own ways, do the same. What is really at stake are the barriers to China’s growth and influence.
