Opinion – Rodrigo Zeidan: Closed circuits

The claim by workers at Foxconn, Apple’s largest supplier in China, could determine the pace of recovery of the Brazilian economy in 2023. The reason for this? If Chinese factories close, they will put even more pressure on the prices of industrial products in the world, and interest rates will stay high for longer around the planet.

The recent wave of world inflation has three causes: the disruption of global supply chains (by the pandemic, by Covid zero in China and by the War in Ukraine), companies’ adjustment to permanent changes in consumption patterns and the accumulated effects of years of policy loose monetary policy, culminating in the trillions of dollars “printed” by central banks during the pandemic.

Global inflation started to rise in 2021, but until the beginning of this year there was no consensus on whether it would be temporary or resistant. US short-term rates were at 0.05% in January, and 30-year bonds paid just 2% a year. But in March came the first shock from the Federal Reserve, which since then has made periodic increases of about 0.75 percentage points in the economy’s basic interest rates.

In July, bonds maturing in one month were already paying 1.75%, and long ones, 3%. Today, three-month interest rates are at 4.75%, and 30-year interest rates are at almost 4%, double the rate at the beginning of the year.

Even so, US real interest rates are negative, with inflation at 7.7%, higher than the return on government bonds. Today, the world follows every announcement of American inflation with suspense and fear, because if it doesn’t come down, the Fed will keep raising interest rates, with chances of throwing the world into a recession.

And that brings us back to factory floors in China. Many workers are dissatisfied with the possibility of having to work under a closed circuit regime, as the country tries to deal with the increase in Covid cases, as a result of the relaxation of some rules of the virus containment policy. Until recently, the Chinese authorities were clear: the priority was the zero Covid policy, whatever the cost. For months, factories in Shanghai were idle, although the local government managed to keep the port open. How did he do it?

The workers started to live inside the port area, not being able to go home until the lockdown, which lasted about 60 days, was over. This was true for all essential sectors, including water and energy companies.

Industries that wanted to continue operating during the lockdown would have to apply for a leave of absence and get their employees to agree to self-isolate until the lockdown eases. And, contrary to what many Brazilians think, no one is obliged to accept it. Some banks paid BRL 800 per day for their IT employees to stay on the job. Other companies offered four times the salary for those who agreed to work on an on-call basis.

Many local lockdowns are popping up. In China, there is no right to strike and formal unions, but there are, like much else in the country, informal collective actions that put pressure on companies and local authorities. And that’s what’s happening. Foxconn employees want better conditions and higher pay to work in a closed circuit. And this will be repeated in many other industries in China.

Unemployment in Brazil depends on closed circuits in Chinese factories via American interest. There is no better example of globalization.