Two important events to watch in November as they will impact all our lives: The US Elections and the Chinese Communist Party Congress.

With just days to go to the US Elections on November 6th one of the most interesting outcomes to watch is the reaction of China to the results. Whilst it's understandable that everyone's focus is on the Presidential election, the Senate and House votes matter as they have a major impact on Sino-US relations too.

At various times over the past few years odd Congressional players have been urging successive administrations to label the Chinese 'currency manipulators' .  On my trip to China I noted evidence of this at a micro level (see here). Since the President oversees the Executive branch of the US government, the US Treasury has avoided assigning this label to the Chinese for foreign policy reasons.  Will the election of Mitt Romney change this? 

During the both the primary and general election campaigns Romney has taken a 'hardline stance' on China. During the primaries he said that "China was stealing intellectual property rights from the US and other nations and responsible for a large number of cyber attacks on US facilities and bases". More recently he has accused China of manipulating its currency.  Perhaps if the Republicans win back control of the House of Representatives, the Treasury may be urged to change its stance after all. A move Obama's campaign have said would be "highly disruptive" to the bi-lateral relationship given the sanctions the US would levy against China as a result.

Yet on recent foreign policy 'problems' the Chinese have hardly been supportive of the more 'liberal' approach that the US and Europe thinks is likely to improve levels of international trade. Chinese support for Syria's President Assad at the UN is a case in point and demonstrates that China is not ready to step up to its broader responsibilities as a global Leader/Player. 

Interestingly, it seems likely that the Big US business supporters of Romney may lobby against him taking too tougher a stance against China.  The Washington Post recently reported that General Motors sells more cars in China than in any other country. Three years ago, Apple counted on China for just 2 percent of its revenue; in the most recent quarter, it was 16 percent. Starbucks thinks that China will be its second-biggest market by 2014. In short this constituency is looking for a slowing China economy to take up the slack from the brow beaten US consumer.

In the end, all these economic issues may play second fiddle to plain old political ones.  It is arguable that the US Elections are not the most important 'elections' anyway this year.  Two days after they are held China hosts its Communist Party Congress which will see more than 2,000 delegates gather in Beijing to formally anoint the country’s next generation of leaders.  At least if Romney is elected he will have already made his pile of cash in the private sector. Yesterday's extraordinary New York Times story on how Chinese Premier We Jiabao's family has made billions since he has been in power highlights some key differences between the two political systems.

Then again, it also illustrates some similarities. Things are never allowed to get in the way of profit making business. As usual, Money makes the world go round...

Sometimes as the torrent of news stories flow on a daily basis it is hard to see the wood for the trees.  It becomes harder to pick out moments that may have some larger more lasting meaning.  Over the past weeks, two stories have caught my eye that portends developments of an ominous nature.

It seems that that both the Taliban and al-Qaeda, or in the case of the latter at least, some of their satellite groups or hangers-on, have rediscovered the true value of 'ROI terrorism' - where inflicting a high economic price on the target community is the key objective of the 'attack'. I’m sure that bin Laden understood the economic impact of hitting the Twin Towers just a stones’ throw away from Wall Street.  Yet this thought was likely secondary to the cost in human lives and the worldwide visual impact accentuated by the fact that it happened in New York City - the world’s largest media market.   The 9/11 event (I call it this since they haven't managed to repeat it yet on US soil) took months of planning and cash according to the report of the US commission setup to investigate it.  Any objective observer would surely agree that 9/11 provided a tremendous return on this investment (hence, ‘ROI terrorism’) for al-Qaeda.  Somehow they have failed to get similar returns from other subsequent events. The problem is that after 9/11 what we are all watching for in the 'west' is the next big spectacular, with 'spectacular' being the operative world.

Yet the real story of modern terrorism is that it is a mind numbing, daily grind for both the people who perpetuate it and those who try to prevent it.  Of course, the terrorists only have to be lucky once whereas defenders have to be lucky all the time but both sides just hammer away continuously trying to find that odd moment that they can call a 'win' - a return on the investment that they have made in carrying out or preventing terrorism.  9/11 and bin Laden's death are both sides of the same coin even if the respective investments of either side are asymmetric.   

Still, when one party consistently presses home an attack on the weaker parts of the other it can be a game changer which brings us to the two stories I mention above. The first is the Taliban's attack on the Allied Camp Bastion base in Afghanistan in which 6 Harrier jets were destroyed and a further 2 were seriously damaged. Unbelievably, this was the single biggest loss in American airpower since Vietnam. The full impact of this story was under reported precisely because it took a few days for the full details to emerge and the world had moved on.  In fact, the cost of these assets alone is over US$150 million and that's beyond the reputational damage to the allied forces involved.  For the loss of just 11-15 Taliban lives this must be considered an ROI win for the terrorists/insurgents. 

The second, has even more serious implications in my view.  This is the report from the Russian news service that Russia’s security chief has warned that international terrorism is changing and spreading its tactics, from setting fire to European forests to obtaining Weapons of Mass Destruction in Mid-East countries that suffer from internal crisis.  The latter is to be expected as al-Qaeda worms its way in behind well-intentioned reformers but the former is really disturbing.  As budgets are cut across Europe, terrorist ‘elements’ can cause disastrous results with a just a few matches and little chance of dying or getting caught. If this turns out to truly be a tactical shift, the implications are as serious as they are profound.

This is not new.  The IRA recognised the value of economic targets particularly those in the City of London but its remergence as an explicit terrorist tactic seems to me to be a cause for grave concern. My good friend Roger has spent most of his life studying terrorism - both the modern kind and its history.  He authors a great blog here detailing all sorts of ingenious schemes that those wishing to wreak havoc have come up with to do exactly that.  I have looked at this for a number of years and I now realise that the most effective ones are those that get the best ROI.  As an economist, I might be expected to say this but it seems to be self-evident that the longer lasting the economic impact the more likely the terrorist is to cause extensive damage to the morale and psyche of western democracies - which is their ultimate aim.