By Beatrice E. Rangel
November 1989: An astonished world clung to TV screens watching the people of Germany bring down the 20th century’s most hideous piece of real estate. And while the joyful event marking the end of the Cold War period had been preceded by a highly critical reprimand by Mikhail Gorbachev to Berlin, the subsequent ousting of Erik Honecker, a relentless migration outflow and -- for the first time since the end of WWII -- the vigorous expression of civil discontent and party dissatisfaction with its leadership, no one foresaw this epic journey taking place before the new millennium.
The fall of the wall launched the world into an unchartered geopolitical territory as it shattered the Westphalian architecture in which the balance of power notion rested. This introduced instability to the theretofore predictable international politics which many seemed to abhor.
But it also had a time released destructive effect upon tyrannies. Revelations of the cruelty of civic control methods performed on daily basis by the feared Stassi led to the exposure of the secret police’s relations to the KGB and those, in turn, to the people’s understanding of the true colors of socialism. In short, it was the Emperor’s clothes call.
Last week another wall felt with little or no drama. President Obama of the US and Xi of China capped an agreement on climate change that is bound to set yet another transformative wave upon the world economy.
Two words encapsulate the significance of the most recent Pacific gathering in Beijing: Fresh Air.
So it was to president Obama who frolicked in a river of popularity and awed curiosity denied to him at home.
Fresh air it also was for the host who got the world applause for finally tackling differences with the US to agree to reduce carbon emissions in favor of a healthier world.
And fresh air it was for the world that will enjoy less pollution, as China and the US reduce emissions. But as the limelight recedes, confetti is vacuumed, and everyone (including President Putin) returns home, the implications of the US-China deal begin to impact reality.
First, of course, are the markets. Initially, they rallied behind everything green including solar powered elves. Twenty four hours after the initial applause, however, markets sent greens on the same roller coaster ride that has mapped the journey of most shares this year. Then there is the journalist establishment that immediately concentrated on the agreement's flaws. Then there are the Republicans that rallied against the agreement even before they had a chance to read it. And, there are,of course, the Democrats that think the agreement was too little to late.
And while all these constituencies either cheer or air their discontent, that obstinate child that is the world economy works its way towards the recently open field unlocked by the agreement. This largely means that China and the US have reached the conclusion that they both can indulge in a raise of production standards because their industrial cum services platforms are so highly competitive that an increase in fixed costs will not undermine their recovery.
On the contrary, they seem to adhere to the Rybczynski theorem which posits that open trade between two regions often leads to changes in relative factor supplies between the regions. Because a rise in the endowment of one factor will lead to a more than proportional expansion of the output in the sector which uses that factor intensively productivity gains will materialize.
As both China and the US increase the proportion of capital destined to green innovations, output will rise as these enter the value chain. Production efforts in both countries will enjoy competitive advantages up and until these innovations spill over to other economies in the world.
In short what we just witnessed in Beijing was not a celebration among two leaders that wore funny silk pajamas but rather the fall of the wall of mistrust among the two nations that already share the economic leadership of the world. Also by Beatrice Rangel in her Latin America from 35,000 Feet seriesBeatrice Rangel: Across the Americas, We the PEOPLE
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Beatrice Rangel is President & CEO of the AMLA Consulting Group, which provides growth and partnership opportunities in US and Hispanic markets. AMLA identifies the best potential partner for businesses which are eager to exploit the growing buying power of the US Hispanic market and for US Corporations seeking to find investment partners in Latin America. Previously, she was Chief of Staff for Venezuela President Carlos Andres Perez as well as Chief Strategist for the Cisneros Group of Companies.
For her work throughout Latin America, Rangel has been honored with the Order of Merit of May from Argentina, the Condor of the Andes Order from Bolivia, the Bernardo O'Higgins Order by Chile, the Order of Boyaca from Colombia, and the National Order of Jose Matías Delgado from El Salvador.
You can follow her on twitter @BEPA2009 or contact her directly at BRangel@amlaconsulting.com.