But when it comes to the brass tacks of trade—trade deals, tariff lines, the paperwork that companies have to file at the border, and other mechanics—U.S. President Joe Biden’s administration has not articulated a coherent agenda. At times, the administration has tried to use the specter of China’s economic threat to generate support for trade deals. One notable example is its signature Indo-Pacific Economic Framework (IPEF), which is intended to strengthen economic relations between the United States and countries across the Pacific. But geopolitical arguments for deals are failing to carry the day. Last November, deep congressional skepticism and electoral concerns spurred the administration to indefinitely postpone the IPEF trade pillar, and it is unclear whether it will complete the work even after the 2024 election.

Former president Donald Trump, in his current campaign to return to the White House, does have a clear vision for trade: he has announced plans to deploy tariffs and other protectionist measures to support favored U.S. industries. The architect of Trump’s trade policy between 2017 and early 2021, former U.S. trade representative Robert Lighthizer, has argued that the United States should vigorously deploy tariffs and other trade restrictions both to protect U.S. industry and to force not only China, but a variety of European and Asian countries, to cease unfair trade practices. However, a number of experts have raised concerns about the economic impacts of these policies as well as the risks they would pose to U.S. geopolitical relationships.

Resetting America’s trade agenda and developing a trade vision capable of drawing broad support across Washington is going to require the government to, as Steve Jobs would have said, “think different.” Rather than treating trade deals as a geopolitical endeavor that the United States should suffer through to support America’s allies and partners, or pursuing Trump’s vision of simply reducing trade (the geopolitical argument), the United States should get back to a basic premise that has guided successful trade policy in the past—that policymakers can develop and promote trade policies that advance American economic interests as well as American geopolitical interests.

Given the nature of the economic challenges the United States currently faces, this approach will require policymakers to spend less time on the geopolitics and more time on the economics. That choice, in turn, will encourage a shift in the primary focus away from regional deals and toward narrower sectoral deals that address the problems of greatest concern to most Americans, such as climate, energy, and the looming artificial intelligence (AI) revolution. To actually solve those problems, the United States should be open to using a new set of tools in creating trade deals, including those related to financial instruments, development, and national security. Today’s biggest challenges cannot be solved simply with market access and regulatory cooperation. The next chapter in American trade policy will need to entail new types of sectoral deals between the United States and key allies and partners on a set of issues that include climate and energy, supply chains, and AI and the digital economy.

The Rise of the Modern Trade Paradigm

Rebooting America’s trade agenda first requires understanding why the protrade consensus that prevailed from the 1990s to the mid-2010s—the most recent era of significant U.S. trade dealmaking—broke down.

Since the end of World War II, the United States has undertaken successful rounds of trade dealmaking during periods when trade deals had both a clear geopolitical and a clear economic logic. In the late 1940s, in the aftermath of the war, the deal that fit both U.S. geopolitical and economic interests was the General Agreement on Tariffs and Trade (GATT). Geopolitically, American policymakers saw the GATT as a tool to shore up Western alliances in the nascent days of the Cold War. From an economic perspective, trade negotiators designed the GATT to be an antidote to prevent a return to the “beggar thy neighbor” tariff policies of the 1930s, which postwar economists and policymakers saw as having exacerbated the Great Depression. The agreement required reductions in tariff rates and ensured that members accorded each other “most favored nation” trading status to put further downward pressure on tariffs over time. From a U.S. perspective, American officials also understood the GATT as a tool to help open markets to U.S. goods at a time when the United States was the world’s largest net exporter and needed foreign markets to replace war-driven demand for U.S. industry. Reductions in foreign tariffs on U.S. goods provided a major direct benefit for American industry.

The United States pushed to expand the GATT several times during the Cold War. The so-called Kennedy Round of 1964–1967 resulted in additional tariff reductions and began to establish disciplines around dumping, the practice where a country sells a product internationally at a lower price than the product sells for in its home market. The Tokyo Round of the 1970s expanded participation in the GATT to more than one hundred countries, seeking to include much of the nonaligned developing world. It began to try to tackle nontariff barriers and “voluntary export restraints,” a type of measure where countries would agree to limit export quantities in exchange for avoiding tariffs. With the introduction of a Subsidies Code, the Tokyo Round also began to introduce the concept of rules around subsidies.

However, the modern trade orthodoxy that guided U.S. trade policy from the end of the Cold War through the mid-2010s crystallized in the late 1980s and early 1990s. The fall of the Berlin Wall ushered in America’s unipolar moment, when America’s geopolitical policymakers saw an opportunity to use trade and economic relations to anchor its former Soviet adversaries and emerging geopolitical competitors, notably China, in a U.S.-led international order. Presidents Ronald Reagan, George H. W. Bush, and Bill Clinton, meanwhile, presided over a period of neoliberal economic consensus in Washington that Washington thought was an economic model appropriate for the world as well. Trade policy and trade deals (as well as other policy levers such as the International Monetary Fund) offered a tool to promote that U.S. economic model abroad. This intersection of geopolitics and economics ushered in a remarkably productive period of trade policymaking, with initiatives such as the North American Free Trade Agreement (NAFTA), the World Trade Organization (WTO), and free trade agreements (FTAs) with more than a dozen nations. Other related policies included the Africa Growth and Opportunity Act (AGOA), which cut tariffs on imports from democratic countries in Africa in a bid to foster development and democratic progress on the continent.

The deals of this era had a clear geopolitical logic. NAFTA was designed to strengthen the North American political union and, in the eyes of both presidents Bush and Clinton, to provide an eventual pathway toward a more democratic and economically unified Western Hemisphere—a vision that George H. W. Bush’s son and later president George W. Bush, took further with the Central America–Dominican Republic FTA (CAFTA-DR) a decade after NAFTA entered into force. The WTO, and China’s ultimate accession to it at the end of the decade, reflected the prevailing 1990s geopolitical view that a global trading arrangement would help draw countries like China toward the West. As Clinton said of China’s accession in 1999, “it represents the most significant opportunity that we have had to create positive change in China since the 1970s,” noting that China was “agreeing to import one of democracy’s most cherished values: economic freedom. The more China liberalizes its economy, the more fully it will liberate the potential of its people.” Or, as George W. Bush said about U.S. legislation to enact the CAFTA-DR agreement, “this bill is more than a trade bill. This bill is a commitment of freedom-loving nations to advance peace and prosperity throughout the Western hemisphere.”

FTAs with Morocco (2004), Bahrain (2005), and Oman (2006), enacted in the years following the 9/11 terrorist attacks, were intended to bolster American allies in the war against Islamic terrorism and with the aspiration that economic progress could reduce the terrorist threat. In a 2003 presidential speech, George W. Bush laid out his economic vision for the region, which proposed bilateral FTAs as stepping stones toward a Middle East Free Trade Area. As he remarked, “across the globe, free markets and trade have helped defeat poverty, and taught men and women the habits of liberty.”

The economic logic behind these deals was as important as the geopolitics. From a macroeconomic perspective, the trade deals of this era reflected a view that the U.S. economy could benefit from offshoring lower-value U.S. manufacturing in order to lower consumer costs, while encouraging the domestic growth of higher-value industries like software, healthcare, and value-added manufacturing. As Clinton put it in 1993, “this debate about NAFTA is a debate about whether we will embrace [economic] changes and create the jobs of tomorrow, or try to resist these changes, hoping we can preserve the economic structures of yesterday.” Trade globalization was thought to create opportunities for new U.S. exports, encourage innovation by forcing companies to compete globally, and lower consumer costs. Furthering Clinton’s argument in support of NAFTA and an aspirational Latin America free trade deal, policymakers also thought that an expanded U.S. trade block could deliver the economies of scale needed to compete with the emerging European Union trade block and growing intra-Asian regional trade.

With the texts of the deals themselves, trade policymakers sought to promote the then-prevailing economic consensus in Washington, which championed reduced government subsidies; nondiscrimination for goods produced by other countries; lower regulatory burdens for business, including the then-nascent digital economy; and strong intellectual property (IP) protections. Policymakers also sought to promote higher labor and environmental standards and to tackle challenges like corruption. Senior figures in Washington often spoke of these goals as raising standards internationally and writing global rules based on U.S. rules.

The WTO’s Agreement on Subsidies and Countervailing Measures (SCM Agreement), which went into effect in 1995, for example, drastically expanded the pre-WTO GATT’s disciplines regarding industrial subsidies. Throughout the text of the WTO agreements and U.S. FTAs, countries agreed to accord “national treatment” to each other’s goods, committing not to give preference to domestically produced goods. In most U.S. FTAs, and with respect to the countries that have signed up to the WTO’s Government Procurement Agreement, this nondiscrimination commitment even extended to government procurement of goods—meaning that the U.S. government, for example, should not show a preference for U.S.-made cars over foreign cars when buying for the federal fleet. Of course, these agreements also required governments to allow U.S. companies to bid on their procurement contracts.

U.S. FTAs typically included chapters ensuring that FTA partners offered IP protections comparable to U.S. IP protections. Several also sought to codify legal immunity for digital platforms regarding content posted by their users, just as platforms have immunity in the United States from lawsuits over user-posted content. Free data flows generally were protected, and governments made other commitments to not limit the operations of digital platforms operating in their countries. Trade policymakers also regularly touted deal language that promoted workers’ rights and environmental standards.

The final chapter of this era of trade policymaking was President Barack Obama’s support for the Trans-Pacific Partnership (TPP), a trade deal between a dozen economies in the Americas and Asia negotiated by the Obama administration in 2016. The TPP expanded on earlier FTAs from the 2000s and early 2010s, including by developing new disciplines on state-owned enterprises and currency manipulation. But the Obama administration made its case for the TPP largely on geopolitical grounds, arguing that it would be an important economic counterweight to China’s influence in the Pacific and an economic pillar of the administration’s “pivot to China.”

The Modern Paradigm’s Fall From Grace

Obama signed the TPP in January 2016. But even as he pushed for congressional ratification of the deal, it was becoming clear that the trade paradigm that had dominated Washington policy discussions since the early 1990s was falling out of favor. By late 2015, key congressional leaders had begun to express skepticism of the emerging TPP provisions, and ultimately they never scheduled a vote on the deal. Both of the major presidential candidates in 2016, Democrat Hillary Clinton (who had supported the early development of the TPP while serving as Obama’s secretary of state) and Republican Donald Trump, opposed the deal on the campaign trail, and Trump withdrew the United States from the deal shortly after his inauguration in 2017. (The other members of the deal, led by Japan, moved forward and completed the deal, rebranded as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, in 2018.)

As president, Trump generally eschewed traditional trade deals in favor of a tariff-heavy approach to trade, intended to put pressure on China while protecting U.S. industries, like steel, that he deemed important. Nevertheless, he did successfully enact the U.S.-Mexico-Canada Agreement (USMCA), an overhaul of the NAFTA agreement from twenty-five years earlier. And while some in the trade policy and national security communities hoped that Biden would launch negotiations to reenter the TPP, Biden has instead launched trade initiatives like the IPEF that are intended promote cooperation on trade and standards but do not provide access to the U.S. market as traditional FTAs would. And even without U.S. market access, such initiatives have proved politically controversial. In November 2023, for instance, Biden indefinitely postponed finalization of the trade-related aspects of IPEF owing to concerns by Democrats in Congress that the deal would be politically harmful and due to opposition by American labor unions. Biden also quietly postponed nascent trade talks with the United Kingdom and Kenya that began in the last months of the Trump administration, and late last year his trade representative, Katherine Tai, withdrew long-standing U.S. support for proposed digital trade rules at the WTO. Trump, in his campaign to regain the presidency this year, has doubled down on his commitment to tariffs and other protectionist measures rather than deals, floating the idea of imposing a 60 percent tariff on goods imported from China and a 10 percent tariff on products imported from everywhere else.

Of course, trade has long been a hot-button political issue. Texas billionaire H. Ross Perot made his opposition to NAFTA a signature issue in his 1992 independent presidential campaign against Bill Clinton and incumbent George H. W. Bush, and trade deal approvals have always been hard fought in Congress. But for the twenty-five-year period between 1990 and the mid-2010s, geopolitical and economic logic were able to overcome that political opposition to see deals to fruition. Today, there is scant evidence that new trade deals could get through Congress, and a dwindling number of elected political leaders are willing to argue in favor of them. There are several reasons for this change in political support.

The first is the shifting U.S. relationship with China. Although economic research from the 1990s and early 2000s generally found that expanding U.S. trade flows had at most a limited impact on U.S. manufacturing employment, with other factors such as automation playing a larger role, research from the mid- and late 2010s found that the “China shock” of growing U.S.-China trade in the 2000s had substantially more disruptive impacts on jobs. Moreover, communities adversely impacted by the China shock have seen little recovery over the past decade. Adverse employment impacts from trade with China, combined with China’s rise as a geopolitical competitor, have led to bipartisan support for “derisking” U.S. supply chains from China, fueled the arguments of trade skeptics, and renewed a focus on U.S. domestic manufacturing.

The second reason is shifts in domestic political preferences. It is true that some polling shows that the majority of Americans are supportive of trade: a 2023 poll commissioned by the Chicago Council for Global Affairs, for example, found that 74 percent of Americans say “trade is good for the U.S. economy.” But as prominent economist Alan Blinder pointed out several years ago in Foreign Affairs, “most Americans’ belief in free trade is a mile wide but an inch deep,” with polling responses varying widely depending on which questions are being asked and whether Americans are asked only about trade in the abstract or also about American manufacturing and jobs.

Trade policy is a classic example of an issue where a constituency that is invested deeply in and affected by an issue, such as specific U.S. industries and workers who face the risk of losses from trade, exert more influence than a majority of voters who may benefit from lower prices but who do not see their well-being as being deeply connected to trade issues. Recent polling by American Compass, a conservative organization that is skeptical of trade deals, has also shown that while a plurality of Americans thinks they personally benefit from globalization, a similar plurality thinks the United States as a whole has been harmed. Other recent polling suggests that on trade, more Americans trust Trump, with his zeal for tariffs, than trust Biden. Academic research, meanwhile, indicates that while Trump’s tariffs were an economic mixed bag, they won Republicans votes at the ballot box.

A third reason is that the raw economic benefits of trade deals have become less compelling. Take the TPP as an example: even the Obama administration’s own official estimate found that the TPP would add just 0.15 percent to U.S. gross domestic product (GDP) after a decade, hardly a compelling economic justification for the deal. And in the years since Trump abandoned the deal, actual U.S. trade flows have still moved in a beneficial direction: China’s share of U.S. goods imports declined from a high of over 20 percent in the late 2010s to approximately 15 percent last year, while the absolute value of U.S. goods imports from China fell last year to the lowest level in a decade. Trade with allies and partners also has grown: since 2017, U.S imports of goods from India are up 37 percent, up 80 percent from Indonesia, up 61 percent from the Philippines, and up a whopping 200 percent from Vietnam—the last of these now exports goods valued at a quarter of its entire GDP to the United States. The United States became India’s largest trading partner in 2023, while U.S. exports to the European Union and European imports from the United States are both up more than 25 percent over the past few years. Overall U.S. exports today substantially exceed prepandemic levels, reflecting growing global demand for U.S. energy, agriculture, and manufactured goods, as well as U.S. services.

Meanwhile, Americans traditionally thought to be adversely impacted by trade are doing well. Real wages for lower-income Americans grew strongly in 2023, and, in a reversal of the trend that has prevailed for most of the past two decades, the real wage growth for lower-income Americans over the past two years has been higher than the rate of wage growth for higher-income Americans. Women and Black Americans also saw historic gains in the labor market. A situation where both U.S. companies and U.S. workers are doing well creates little incentive to open U.S. markets to more competition. Numbers like these reinforce skepticism about the benefits of new FTAs.

But perhaps the most important reason for declining U.S. political support for new trade deals is that the economic theory of the case that underpinned the deals of the 1990s to the mid-2010s has fallen out of favor in Washington. At a fundamental level, a bipartisan consensus has emerged in Washington that the United States should rebuild its manufacturing industrial base and focus more on the economic well-being of American workers. Irrespective of whether prioritizing manufacturing optimizes American economic growth, there is strong political support for doing so.

In some sectors, U.S. domestic support for reindustrialization is driven by geopolitics: Congress’s bipartisan support for the CHIPS Act in 2022, which will provide more than $75 billion in incentives for manufacturing semiconductors in the United States, was driven in part by concern that a conflict between China and Taiwan could cut off America’s access to the chips it needs for industrial, defense, and consumer applications. In other sectors, such as manufacturing clean energy technologies, the push for reindustrialization is driven by a combination of geopolitical desires—ensuring that the United States is not dependent on China for green technologies—as well as domestic economic interests in boosting manufacturing employment in emerging manufacturing sectors. Across the political aisle, Biden’s trade representative Katherine Tai and Trump’s former trade representative Robert Lighthizer are united in a view that a goal of trade policy should be to raise wages and well-being for workers and that, for too long, trade policy has focused on benefits to consumers.

At a macroeconomic level, this desire to reindustrialize in many respects runs counter to the economic theory that underpinned many of the major trade deals of the past, which posited that U.S. workers would move up into “higher value” sectors like information technology, healthcare, and advanced manufacturing as the United States offshored lower-value (and lower profit margin) types of manufacturing. Moreover, many of the tools that policymakers want to deploy to rebuild manufacturing may run up against the trade rules that the United States long supported. Many of the United States’ European and Asian allies, for example, argue that the manufacturing subsidies the United States adopted in the CHIPS Act and particularly the green energy–focused Inflation Reduction Act violate the spirit and likely the letter of provisions of the WTO and U.S. trade agreements that long sought to limit industrial subsidies or at least give countries the right to retaliate against them. Likewise, “Buy America” provisions that direct the U.S. government to purchase American-made products run counter to trade rules on government procurement long supported by the United States.

The United States confronts a similar dynamic with respect to policymakers’ preferences on technology and the digital economy. Going back to the early days of the internet and continuing through the 2019 U.S.-Japan digital agreement, U.S. trade agreements have sought to promote light-touch regulation of the tech sector, guarantee the free flow of data across borders, and protect tech companies from lawsuits for content posted online. Today, Democrats and Republicans alike are pursuing a much more aggressive regulatory approach to technology companies, including competition policy crackdowns, efforts to repeal companies’ immunity for content posted online, and increased restrictions on cross-border data flows, at least to China. Some members of Congress and policy experts in the United States even want to revisit long-standing patent and copyright protections—such as the Biden administration’s current consideration of exercising “march in rights” to override patents to reduce drug costs—arguing that U.S. law has become too protective of intellectual property. The rise of generative AI is also likely to prompt a profound reassessment of intellectual property protections. These shifting domestic preferences, much like America’s growing preference for industrial policy, in many ways run counter to provisions historically supported in U.S. trade deals and will require a reassessment and overhaul of the trade rules America pushes for.

How to Reset the Agenda

Faced with fading support for FTAs, over the past two years trade-focused experts, industry lobbies, and protrade officials in Washington have floated a number of ways to reboot support for trade deals. The most popular approach has been to lean heavily on geopolitical arguments for trade. Commentators and political figures from across the political spectrum have argued that geopolitical competition with China makes trade deals with allies important: a late 2023 report by the bipartisan U.S. House of Representatives Select Committee on China, for example, argued that to compete with China the United States should “pursue trade agreements with strong rules of origin and high standards,” and it suggested Taiwan and possibly the United Kingdom and Japan as partners. As the Washington Post put it more succinctly in the title of a 2023 editorial, “To compete with China, the U.S. should put real trade deals on the table.”

Geopolitics has been the driving argument for the Biden administration’s IPEF. As Commerce Secretary Gina Raimondo said at a 2022 launch event, the IPEF “marks an important turning point in restoring U.S. economic leadership in the region and presenting Indo-Pacific countries an alternative to China’s approach to these critical issues.” Commentators such as Matthias Dopfner, meanwhile, have argued that Western democratic states should create a democratic trading block that increasingly would align trade policy with values while establishing the type of large economic scale that drives the efficiency gains that have been a long-standing economic argument for trade.

The idea of a broad democratic trading bloc is appealing as a long-term vision. But there is little reason to expect that geopolitical arguments for trade will prevail in the debate—particularly after they failed both to gain support for the TPP and to prevent Biden from postponing the IPEF trade pillar. The political and policy reality is that, aside from America’s robust defense budget, Americans are wary of policies that they perceive as requiring the American taxpayer to pay for the benefit of even other democratic states, as evidenced by the comparatively low levels of U.S. foreign assistance, and, more recently, the sharp congressional debate over continuing U.S. military and economic support to Ukraine. Framing trade deals as a sort of tax the United States should pay to strengthen the democratic world against China and other autocracies is unlikely to be a winning argument in the American heartland without a healthy dose of economic self-interest thrown in as well. Moreover, a number of large emerging market democracies that would be an important part of a democratic trading block, such as India and Brazil, have traditionally pursued protectionists trade policies and seem unlikely to be interested in a broad market liberalization in the near or mid-term.

A handful of former officials, seeing the political success of the USMCA—Trump’s updated NAFTA—have argued that the new agreement could be expanded to add additional members, potentially ultimately countries on both sides of the Pacific. But here, too, both the politics and the policies likely would prove challenging. Although there was broad bipartisan support for USMCA, that support reflected the fact that the United States already had a trade deal with Mexico and Canada (NAFTA) and bipartisan recognition that after twenty-five years, elements of NAFTA were in need of an update. Adding more countries, which would de facto result in the United States entering into new agreements with countries that did not have preexisting FTAs, would carry a different and almost certainly more challenging set of political dynamics. Instead, the way to reset the trade agenda is to start by resetting the economic logic of deals. If successful periods of trade policymaking have occurred in the past when the United States saw deals as advancing both its economic and its geopolitical interests, policymakers need deals that work on the economics as well as the geopolitics.

To reset the economics, policymakers should start by thinking less about traditional goals of market liberalization and more about discrete global challenges that require international economic cooperation—and possible ways of using trade deals to address those challenges. This would almost certainly mean pivoting from a bilateral or regional approach to trade to a sectoral approach to trade that brings together different sets of international partners to address discrete challenges.

Start with climate and energy. Global climate change poses an existential threat, as carbon dioxide emissions hit a new global high in 2023 despite years of international promises to address the problem. The United States accounts for only about 15 percent of total global emissions, whereas traded goods and services account for perhaps 25 percent of global emissions. Trade policy offers a powerful tool to tackle the 85 percent of emissions that originate outside the United States. Meanwhile, many U.S. allies and partners face a near-term challenge of securing their supplies of traditional fossil fuel energy, particularly following Russia’s 2022 war on Ukraine. European allies, for example, have had to scramble to find substitutes for Russian oil and gas. Even the United States remains far too dependent on Russia for uranium for nuclear power.

A climate and energy agreement could bring together a group of countries with the technologies and critical materials needed to produce clean energy, such as South Korea on battery technology, Indonesia for critical minerals, and the European Union for its role in clean power. The countries could work together to coordinate clean energy supply chains and industrial policies to promote the adoption and manufacturing of clean energy technologies. They also could commit to technological cooperation on clean energy technologies, with members, for example, offering streamlined permitting for nuclear energy construction from other member states. As with any trade deal, there would be an economic give and take: the United States and Europe, for instance, could offer countries access to incentives for green energy manufacturing in exchange for reliable access to critical inputs produced with high environmental and labor standards.

Meanwhile, the United States and Canada, major producers of traditional fossil fuels, could commit to providing access to fuels such as liquefied natural gas to address near-term energy security needs while the green transition is underway. The United States also could commit to maintaining high tariffs on Chinese clean energy technologies, including Chinese clean energy technologies produced in third countries, leveraging supply chain diversification away from China as an incentive for participation. It might also make efforts to lean heavily on the European Union and other allies to agree to impose similar tariffs on their imports of green energy products, such as electric vehicles (EVs), from China.

Conversely, countries could coordinate so-called carbon border adjustment mechanisms, which impose tariffs on products based on their carbon emissions, to put pressure on nonmember states like China and other highly polluting countries to reduce their emissions as well. Indeed, the United States and Europe are already discussing miniature versions of coordinated trade action for the clean economy. The proposed Global Arrangement for Sustainable Steel and Aluminum would promote trade in low-carbon steel and aluminum products, and proposed agreements on critical minerals would offer foreign battery materials makers some access to U.S. Inflation Reduction Act subsidies. These nascent steps could be bolstered and expanded into a compelling agenda.

A second sectoral area for trade policy focus would be to develop an “economic security” arrangement that coordinated industrial policy measures while strengthening supply chains for critical products. Countries such as Germany and Japan have joined the United States in pursuing new industrial policy measures, as in the case of the European CHIPS Act, which provides incentives for semiconductor manufacturing in Europe to match the U.S. version. Although this approach is welcome, in that it will likely spur further global production of important products like green technologies and semiconductors, poorly coordinated industrial policy measures risk triggering global subsidy fights and creating incentives for companies to play governments off against one another in a bid to maximize subsidies beyond those strictly needed to spur a project.

Meanwhile, the United States continues to face significant supply chain risks for other key products, such as medical devices and pharmaceutical ingredients. The production of many pharmaceuticals ingredients and some medical devices is concentrated on China and India. The United States, Europe, Israel, and a number of other countries, however, have a strong interest in resilience. An economic security arrangement could enable like-minded countries to coordinate industrial policy measures and promote supply chain resilience across critical products.

A final area for a sectoral agreement is AI and the digital economy. The United States has already begun to promote shared global standards for AI development through the G7’s Hiroshima process. Over time, an AI and digital economy agreement could link G7 political agreements into binding commitments for a larger number of countries to adopt. With respect to the digital economy, such agreements could establish shared standards and rules of managing data flows to strategic competitors, notably China, to prohibitions on government review of source code for apps and software developed in participating countries and expanded access to the digital economy and trusted telecommunications network infrastructure.

Sectoral agreements also would let the United States reconceptualize the tools that are included in a trade agreement. Since the first modern FTA in the 1980s, American trade agreements have focused on reducing tariffs and aligning regulations, generally around American standards. But trade—the actual exchange of goods and services and the associated economic activity—depends at least as much on policies and tools outside the scope of these FTAs as it does on FTA provisions: effective infrastructure, streamlined permitting processes, access to capital, and a skilled workforce. It is time for the United States to open the aperture of what a trade agreement can include to bring in a larger set of tools and potential commitments. For example, an AI and digital economy agreement should not be limited to governance and regulatory standards—it also should include meaningful financial commitments to help developing-world partner countries procure secure Western telecommunications equipment, rather than relying on Chinese suppliers. Similarly, a climate and energy agreement should include commitments to work together on streamlining the permitting process for high-priority projects that require a footprint across participating countries.

National security tools should also be on the table. The Committee on Foreign Investment in the United States (CFIUS) and export controls have come to play a far more prominent role in the international economy in recent years. Here, the United States should use trade deals in an offensive rather than defensive manner, for example, using trade deals to lock in commitments by foreign governments to restrict Chinese acquisitions of strategic companies in their countries. But the United States should also use its own national security tools as an incentive. A climate and energy agreement, for example, should promise to whitelist reputable automotive companies from allied nations like Japan for streamlined CFIUS approval, ensuring that they can invest in promising EV and autonomous driving companies in the United States. A digital economy agreement could include commitments not to impose export controls on allies without advance notice and consultation.

Finally, sectoral deals will let the United States focus trade provisions on specific facilities, rather than country of production. When the Trump administration negotiated the USMCA, for example, it included novel provisions that required workers to be paid at least $16 an hour for automotive parts to qualify for USMCA tariff treatment—essentially meaning that only certain Mexican plants qualify. Sectoral trade agreements are well suited to take this type of approach: a climate and energy agreement, for example, could offer foreign-made electric parts access to some of the subsidies contained in the Inflation Reduction Act, but only for facilities that meet the highest labor and environmental standards.

Negotiating large sectoral agreements undoubtedly will be challenging, as countries argue over the scope of covered sectors, market access, and the commitments to put on the table. But sectoral agreements also offer a new set of opportunities—to reframe trade deals as solving tangible problems that matter to the American people and to the world at large, and to negotiate rules that would internationalize some domestic policy changes within the United States.

Addressing China—and Whither the WTO?

Of course, a rebooted U.S. trade agenda is not just about deals with allies—it also requires addressing the U.S. trade relationship with China.

For many years, the strategic paradigm of U.S. trade policy toward China was defined by the hope that economic ties would persuade China to continue on a course of gradual economic and political liberalization. By the mid-2010s, it was clear that this paradigm had failed, prompting Trump to impose sweeping tariffs in a bid to generate negotiating leverage to compel China to change its economic model. China responded to the tariffs, initially with retaliatory tariffs on U.S. exports like agricultural products, and ultimately Trump offered tens of billions of dollars in assistance to U.S. farmers to offset the impacts of Chinese tariffs. Later, China offered a handful of concessions as part of a “Phase 1” trade deal, largely to avoid a threatened future tariff escalation. However, China steadfastly refused to make more fundamental changes to its economy and market, and there is no evidence that China’s willingness to reform has increased in the years since.

Moreover, even in the unlikely event that China made additional trade concessions to the United States, it is far from clear that they should be accepted: the United States has a strategic interest in reducing its dependencies on China in critical goods irrespective of whether China offers better terms on trade. For example, even if China somehow offered to allow American firms to produce critical minerals or EV batteries in China on fair terms, the United States has a strategic interest in ensuring that its domestic markets are not reliant on those supplies. The United States of course should pursue appropriate, fair terms for trade in nonstrategic goods, but when it comes to critical products, the U.S. objective should be to derisk the relationship, not for American and Chinese firms to compete on a level playing field.

Against that backdrop, the United States should rebalance its China tariffs to prioritize derisking rather than leverage for a deal. For example, it should raise tariffs on products where supply chain vulnerabilities remain acute, like EVs, batteries, medicines, and critical materials, while potentially offering some reductions in tariffs on nonstrategic consumer goods.

Effective derisking will require more than simple tariffs on China, however: it also will require measures to reduce the Chinese content in imports from third countries. There is a growing body of evidence, for example, that some of America’s growing imports from Vietnam are of products composed mostly of Chinese components, with low-value finishing work done in Vietnam. The United States needs to revisit the so-called rules of origin that determine what a product’s country of origin is for tariff purposes to begin derisking the upstream elements of critical supply chains. It also needs to figure out how to tackle China’s dominance in a handful of strategic construction industries, like shipbuilding and port infrastructure, where China’s impacts are global.

Though a U.S. pivot to sectoral agreements and more active management of the U.S.-China trade relationship could offer the potential to reboot the U.S. trade agenda, it will draw even more questions from U.S. allies about whether the United States has any residual support for the WTO. The WTO still serves as a basic framework for trade between nearly 200 countries, but the simple, often unspoken reality is that many American policymakers today regard the WTO as an outdated institution that reflects a different geopolitical moment. One of the WTO’s core tenets is that countries would accord each other preferential “most favored nation” trade status, in that the United States would set similar tariffs for both competitors like China and allies like Germany. With the resurrection of great power geopolitics as a defining feature of international relations, for most American policymakers it makes little sense for the United States to promote a global trading regime. Instead, most U.S. policymakers would prefer to see the development of a U.S.-centered trading bloc or blocs among allies and partners.

That said, most of America’s allies remain committed to the WTO, for understandable reasons. As the world’s largest economy, the United States is relatively well-positioned to negotiate bilateral or plurilateral agreements with major trading partners. Most small and midsize countries, however, strongly benefit from a stable global trading system rather than having to negotiate hundreds of bespoke agreements. The WTO also offers smaller countries a set of rules they see as being a valuable check on both the protectionist actions of large countries and for smaller countries to manage trade among themselves. The WTO itself, meanwhile, requires consensus for major changes, making reform unlikely. Moreover, a U.S. withdrawal from the WTO would be costly. It would result in more than one hundred countries around the world having the right to impose higher tariffs on the United States. To avoid that outcome, the United States would have to negotiate an unmanageable number of new deals in a short time frame.

Unfortunately, there is no clear path forward to resolve global differences on the WTO, given differences of both interest and opinion between the United States and its partners. The simplest path is likely for the United States and China, or perhaps the G7 on one side and China on the other, to reach a kind of mutual detente in which WTO rules would not actually govern trade between them. In many ways, this scenario would simply codify and expand the existing de facto reality between Washington and Beijing, where both Trump’s 2018 tariffs on China and China’s retaliation violate WTO rules, but the two governments effectively have reached a mutual understanding on tariff rates that simply exist outside the WTO system. Over the longer term, however, the world may see global trade continue to move toward discrete blocs—and this trend is already well underway. But there is not yet any international consensus on what a vision for that future would look like.

Conclusion: Does Trade Policy Matter?

Of course, for many Americans, and many policymakers, a rational lesson of the past few years could be that American trade policy does not need a reboot. Supply chains are diversifying away from China, U.S. exports are up, and real wages for workers are rising. Even if allies and partners complain about the lack of new American trade deals, rising actual trade volumes and closer defense relationships, like the AUKUS nuclear submarine deal with Australia and the UK and closer U.S. military cooperation with the Philippines, help to strengthen geopolitical ties. And even policymakers who want to use trade deals to strengthen geopolitical relations have to acknowledge that the correlation between economic and geopolitical relations is far from perfect. After all, Russia invaded Ukraine in 2022 despite decades of European policy aimed at using trade to anchor Russia economically into the West. As Lighthizer told a House committee last year, the iconic rock band the Beatles taught him that “money can’t buy me love” and that he doubted that “transferring our wealth to these people is going to make them like us more.

The strongest argument for rebooting U.S. trade policy ultimately may not be geopolitics, nor even the economic argument that trade deals will help an already-strong U.S economy. Instead, the best argument is that trade is a key element of solving global challenges that affect us all, like the green energy transition and the risks of AI and the digital economy. For trade policy to advance those goals, and win the domestic support that will be needed to make them happen, it is time to develop a trade policy designed around them.

Peter E. Harrel is a nonresident fellow at the Carnegie Endowment for International Peace.

Harrell_US-Trade-Agenda

To read the full paper published by the Carnegie Endowment for International Peace, click here.

To read the full paper, click here.

The post Time to Reset the U.S. Trade Agenda appeared first on WITA.

Today, a new chapter may have opened. In the wake of financial crises unprecedented since the Great Depression, persistent economic inequality, migratory pressures on Europe and the United States intensifying in the mid-2010s, Brexit, the norm-breaking U.S. Trump administration of 2017-21, the first global pandemic in a century, an accelerating climate crisis, the Russian invasion of Ukraine, and the newest Israel-Gaza war, the world looks to have moved into a distinct era echoing many of the interwar tensions that the post-World War II settlement sought to overcome. And unlike in the 1920s and 1930s when radio first became widely available, modern media display global stresses to everyone visually and in real time and amplify them in a way undreamed of then. How much reversion toward the troubled past is likely, and to what extent will that reversion undermine the global community’s ability to address common challenges, some inconceivable before World War II?

As an economist, I will focus mainly on issues related to commerce and finance, but the nature of the current malaise underscores the inherent inseparability of geopolitics, domestic politics, and economics. The destabilizing potential of this interplay was less salient for parts of the postwar period, especially in the quarter-century or so from the collapse of the Soviet bloc over 1989-91 to the mid-2010s. After that brief belle époque, however, history has indeed returned, with a vengeance.

In this paper, I start by briefly summarizing challenges the Bretton Woods system’s monetary, financial, and commercial arrangements were meant to overcome, and factors that led to the system’s unraveling by 1973. I then describe how economic globalization exploded under the newer floating exchange rate arrangements, and how the Global Financial Crisis years 2008-09 appear under various metrics to be a watershed for global economic integration. Geopolitical developments in recent years may have accentuated the disintegrative forces in the global economy—it is still early days. I therefore turn to the links between geopolitics, domestic politics, and economics and the prospects for future multilateral global cooperation on a range of macro-critical common threats.

Maurice Obstfeld, C. Fred Bergsten Senior Fellow at the Peterson Institute for International Economics, is the Class of 1958 Professor of Economics emeritus at the University of California, Berkeley, where he taught between 1991 and 2023.

To read the abstract published by the Peterson Institute for International Economics, click here.

To read the full working paper, click here.

The post Economic Multilateralism 80 Years After Bretton Woods appeared first on WITA.

The horse is already out of the barn when it comes to China overtaking Europe and America economically and technologically. The key difference is that when America overtook Europe the two were not adversaries. Today China is, with Xi Jinping referring to the need for China to “win the battle” for core technologies. In contrast, too many U.S. and EU officials still cling to the fiction that it’s possible to negotiate with China to achieve fair competition and even cooperation.

While neither the U.S. nor the EU can hope to change China nor outpace its advanced industry growth, they can and should not lose the battle for either advanced industries (e.g., aerospace, high-speed rail, biopharmaceuticals, semiconductors, machinery, software, etc.), and or emerging ones (e.g., AI, quantum computing, synthetic biology). Collectively these are a principal source of geo-economic power and Chinese victory in these sectors would turn the transatlantic partners (the U.S., UK, and European nations) into techno-economic vassal states, dependent on China for key inputs. China has already won steel, shipbuilding, solar panels, and it is gaining high-speed rail, telecom equipment, EV’s, and machine tools.

Not losing this battle is not about figuring out what policies and programs to adopt. There are many reports from think tanks and others laying out such an agenda. Policymakers could easily craft an actionable agenda by inviting experts to a two or three-day brainstorming retreat. The real problem is that policy makers on both sides of the Atlantic do not take the China challenge seriously enough to do so.

As such, the most important task for the transatlantic policy community is to recognize the true nature of the threat and adopt a new conceptual framework. Albert Einstein once stated that “We shall require a substantially new manner of thinking if mankind is to survive.” Today, if the transatlantic community is to survive, elites will need a new manner of thinking. The two most important components are to:

1. Recognize that the EU and U.S. have far more in common than they don’t and that they are collectively in a great-power techno-economic competition with China that is more akin to war than a game of football guided by rules and norms; and

2. Understand that not losing this techno-economic war is the most important non-military task. It is about not losing, rather than winning, because it’s not likely the transatlantic community can gain significant global market share in these industries over China. But it can and should avoid seeing its key sectors slowly decimated by Chinese predatory practices like intellectual property theft, massive subsidies, and closed Chinese markets.

The United States, especially Congress, is further in understanding point 1, in part because since WWII the U.S. has shouldered the global defense of freedom. As such, it’s easier for American policymakers to understand the true nature of adversaries. Many EU policy makers naively cling to the belief that China is a “normal” nation competing for economic competitiveness just like democratic nations do, and that existing rules and institutions (like the World Trade Organization) can effectively address economic conflicts.

Thankfully, as the reality of Chinese innovation mercantilism become clearer, it appears that EU officials are shedding some of their blinders and utopian globalist beliefs. But when EU President Ursula von der Leyen states that: “Global integration and open economies have been a force for good for our businesses, our competitiveness, and our European economy. And that will not change in the future,” it’s clear that the EU has still not caught up to reality. Is it too much to ask for EU policymakers to not lag five years behind the United States in understanding the true nature of the China challenge?

On issue 2, the United States is also ahead, but not by as much. While “Trump” Republicans and many centrist Democrats understand the importance of not losing the techno-economic war to China, many traditional Republicans are worried more about military superiority over China and about maintaining “freedom” and a small government at home. Industrial policy remains anathema to them. For most Democrats, including the Biden administration, competing with China takes a backseat to what they see as the two most important challenges: climate change and racial equity, with the latter requiring significant income redistribution and limits on corporations. Indeed, when President Biden was running for President, he made it very clear that he rejected the notion that China was an economic threat to the United States. In 2019 he stated, “China is going to eat our lunch? Come on, man…. I mean, you know, they’re not bad folks, folks. But guess what? They’re not competition for us.” The administration seems to still believe this as it has done little to confront China’s innovation mercantilism other than its export controls on semiconductors, which it justifies in military terms. If the view is that China does not present a competitive challenge to America, the door is open for hundreds of billions of dollars for domestic spending: building mass transit, insulating houses of low-income Americans, subsidizing costly clean energy, eliminating college debt, and expanding health care. Acknowledging the true nature of the China threat would require way more techno-economic “guns” and way less domestic policy “butter”.

Unfortunately, the dominant views in the EU are even worse, with an almost exclusive focus on clean energy. Winning the solar panel race will not cut it. And when it comes to winning in advanced industries, the EU seems to think winning means designing the most restrictive technology regulations, while at the same time punishing U.S. technology companies.

Sadly, it does not appear that this will change any time soon. Both EU and U.S. officials tell themselves that they can have their green cake and eat it to; that by leading the clean energy transition they can outcompete China. But that is not the case. There are far too many sectors critical to national power that will not be supported by a green industrial policy, including aerospace, semiconductors and advanced computing, machine tools, and biopharmaceuticals. And in the United States the libertarian right and the “equalitarian” left shows no signs of retreat, with the former wanting more military spending and less spending on everything else (including competing with China), and the latter wanting to use regulation and competition policy to tear down large corporations, while ensuring that tax and spending advances social policy goals not competitiveness.

Nonetheless, let’s suppose the ideal happens and conceptual frameworks change that in turn enable real policy innovation. In the United States this would mean that virtually all federal government programs and regulations that affect the economy are restructured and reinvigorated around the goal of not losing to China. To be sure, this is easier said than done. The old “DNA” of federal agencies is deeply entrenched. And powerful special interests resist real change.

Still, one can hope. Let me provide two examples of how change might happen. First, the U.S. science system. The current system dates to after WWII when the academic science community convinced Washington that personal investigator-directed scientific research focused on basic science was the key. Policy makers are told that any changes to this will have dire consequences, not just on the conduct of science but on U.S. technological leadership.

But that system, like so many other U.S. systems, is no longer purpose fit for a world where China is the pacing competitor. In the old model, researchers pick the areas of research. In the new model, the state prioritizes key areas where China is a threat. In the old model, the federal government provided the lion’s share of funding. In the new world, industry funding, incentivized by the federal government, needs to play a key role. In the old world, publications were the key goal. In the new world, transferring knowledge to the domestic private sector is the key goal. In the old world, science was seen as global, so cooperation with Chinese scientists and university students is an unalloyed good. In the new world, science cooperation with China is seen as fraught with risks.

To be sure, Congress is aware of some of these challenges, but unwillingness to see China as an existential threat means that efforts at change have been incremental at best. A case in point is the 2022 CHIPS and Science Act. The Science part created an initiative to fund research in 10 key areas, but because of political pressures and limitations the program was placed in the National Science Foundation (NSF), rather than in an agency more focused on commercial development. And the original industry areas were broadened to include domestic social challenges, like clean water. When it came to funding, the original legislative funding proposals were cut in half, while funding for the traditional NSF science programs doubled. Finally, as NSF implements this program it’s likely that the “working with industry” component will be paid lip service at best.

If Congress took the China challenge truly seriously, it would have done something quite different and far bolder. Congress would have created a National Advanced Industry and Technology Agency dedicated to working closely with industry. It would have appropriated far more money and required that most of the money be spent in university-industry research partnerships to support industries and technologies threatened by China.

We see that same incrementalism regarding the U.S. Export Import Bank (EXIM), an agency established in the 1930s to provide exporters with patient capital. Congress realized that through its massively funded export finance and development banks China was bribing the way for its industries to capture contracts and influence around the world. In response, Congress created within EXIM the China and Transformational Export program, which requires EXIM to invest 25 percent of its lending authority in deals that compete with China in ten designated technologies. Certainly, a useful step.

But if Congress took the China challenge truly seriously it would have picked technologies critical to America’s future (water treatment is not one), provided significantly more lending authority to the Bank, and allowed a loss rate of at least 10 percent (instead of mandating that the Bank earn at least a 2 percent rate of return). It also would have changed the core mission of the Bank from job creation to winning the global battle for advanced industries with China. This would include lowering the domestic content requirements to enable the Bank to fund a greater number of projects that contain less American labor, but that still challenge Chinese expansion.

In other words, U.S. efforts have been incremental. If China is truly seen as the existential threat to the West, we’d see a new approach to not just science and export financing, but to many areas of economic policy. We would see a trade policy that prioritizes market opening for advanced industries (rather than supporting all industries, including agriculture and financial services, equally) and revised and improved trade protection tools to limit market access of unfairly supported Chinese companies. We would see a much more generous R&D tax credit and a new investment tax credit. We would see a regulatory system with two tracks, one for domestic-serving industries and a more-flexible one for sectors competing globally, especially with China. Congress would transform the Small Business Administration into the New (high-growth) Business Administration. We would see a workforce development system focused more on generating skills needed for advanced industries, and less on subsidizing English literature degrees.

The EU is no different. There is no broad-based commitment to outcompete China, even if EU officials naively believe that its green strategy will do the trick. And there is an unwillingness to invest. For example, the new German China strategy states: “we will strive to implement this Strategy at no additional cost to the overall federal budget.” Good luck with that because without significantly increased financial support for German innovation and advanced industry companies, Germany will lose.

But even if the EU and the U.S. develop a broad-based consensus on the real nature of the China challenge, domestic action alone will not be enough. We need to join forces. And that has to start with real transatlantic cooperation. Unfortunately, Europe thinks it is competing against both the United States and China, and that it needs strategic independence from both. This is music to Beijing’s ears. During the Obama administration I co-chaired its U.S.-China Innovation Experts Group. At a lunch in Beijing with a high-level Chinese government official I asked how the Chinese government would handle increased resistance to Chinese unfair economic and trade policies. The official said they were not worried about individual countries or even the G20. What really worried them is the G2: a strong alliance between the EU and U.S. It was the threat of the G2 “ganging up” on China that kept him awake at night.

Today, he must be sleeping very soundly, for the trade tensions between the EU and the United States are quite high and the EU refuses to name United States a key ally and China a key adversary. To listen to many EU officials, one could easily get the message that the United States is the EU’s key technology adversary.

The reality is that the United States cannot adequately prevent Chinese global technological dominance without full and unstinting cooperation with the EU. Because if China wins in Europe, its companies will be too powerful for American companies to compete with. But this cooperation will not happen until policy makers accept the two key realities discussed above.

While some in the EU seem to be moving in the direction of recognizing that China is not a “normal” country when it comes to trade and globalization, overall, the EU has a long way to go, especially as Germany keeps resisting EU efforts to get tougher with China and as EU officials still maintain the fiction that it is possible to reform the WTO in ways that can stop China’s mercantilism. They even believe that, “China should play a part commensurate with its economic weight to help achieve this objective.” It boggles the mind to believe that China will allow changes to the WTO that would constrain its widespread manipulation of the global trading system.

Likewise, when the Commission states:

to achieve a maximum benefit from the trade and investment relationship between the EU and China, solutions to long-lasting concerns will have to be found. Ensuring reciprocity, achieving a level-playing field, and addressing asymmetries in the relationship is a matter of priority.

That ship has sailed. The only reciprocity, level-playing field, and addressed asymmetries possible is from the transatlantic side; China will not roll their mercantilism back. EU officials appear to be living in a fantasy world where if only they can have enough meetings and “constructive dialogue” China will start playing fair. Germany continues this delusion in its “Strategy on China” which states: “At the same time, China is an essential partner as regards global challenges. No it is not. The CCP’s coverup made the pandemic worse. And there is no need to “partner” with China on climate change. China will cut emissions when CCP officials see it as in their interests to do so and bribing them to do so lets China win.

At the end of the day, the EU needs to decide whose side it’s on. The EU wants it both ways: to be friendly with China and the United States, and to avoid getting involved with the “U.S. trade war” which most in Europe wrongly see as U.S. protectionism. The reality is that America did not start the “trade war” (China did in the 2000s) and it is not being fought solely for the United States; it’s being fought on behalf of all allied nations. It’s time the EU stopped free-riding on U.S. efforts (though doing so appears to be one of Europe’s few comparative advantages.).

Relatedly, the EU needs to significantly dial down trade tensions with the United States. This is not the place to litigate who is more at fault for deteriorating trade relations, although I would argue that most of the blame lies on the eastern side of the Atlantic. When German Chanceller Olaf Scholz states that European sovereignty “means in essence that we grow more autonomous in all fields; that we assume greater responsibility for our own security,” he is playing directly into the hand of Beijing. When EU Commissioner Theirry Bretton talks about the need for the EU to have digital sovereignty from the United States he is playing into the hands of Beijing. The fact that some EU officials appear to believe that the United States would cut off exports to the EU and therefore it needs strategic “derisking” from America boggles the mind.

While efforts like the EU-US Trade and Technology Council try to address some of the trade irritants, it is best a side show. Until the EU decides which path it wants to take, no bilateral efforts like the TTC will bear real fruit. As such, the EU has three choices. It can seek to continue to engage economically with China and hope to maintain acceptable relations with the United States. The problem with this is, as the German think tank MERICS has shown, the negative impacts of the Made in China 2025 plan are likely to be more damaging to the EU than to the United States. As each year goes by, the ability of EU companies to sell in China will deteriorate and the ability of China to sell in Europe will grow; as Europe is now seeing with electric vehicles. Why the EV export surge should have come as a surprise to EU policy makers is truly amazing.

Second, the EU can continue to go down its path of strategic derisking and digital sovereignty, where it sees both China and the United States as equal risks. That path will make joint efforts to limit China’s techno-economic aggression hard if not impossible, and it will result in tens of billions of Euros wasted to prop up industries for which the EU is better off relying on from the United States and other allies (and vice versa).

Third, deeply aligning with the United States (creating a “G2”), is the only course that will be effective in countering China. This means the United States and the EU dialing back recent protectionist actions, including U.S. steel tariffs (for which both the Trump and Biden administrations have been completely in the wrong on) and EU “digital sovereignty” actions that discriminate against U.S. firms. The two regions should however go much further and resurrect and pass a Transatlantic Trade and Investment Partnership that would eliminate all tariffs on products traded between nations and eliminate most if not all regulatory barriers to trade and investment. On top of this, both regions should establish much closer cooperation in areas of science and technology, foreign development assistance, and commercial counterintelligence against China. And most importantly the two regions should create a “demand alliance” focused on advanced technologies or inputs which would insulate markets from unfairly produced Chinese goods. This approach is based on reciprocity: the PRC constantly manipulates its market as a tool of statecraft. Joint policies to support this agenda would include tariffs to impose a price floor on Chinese product dumping—in sectors such as critical minerals—to enable market-based firms to compete, as well as long-term import restrictions on companies that systematically benefit from unfair trade practices, including closed Chinese markets and excessive subsidization.

As much as that is the optimal outcome, its prospects are not good. Too many EU activists are willing to fall on their swords on trivial issues like chlorinated chicken and GMO crops. Will EU leaders have the courage to ignore these radical voices, whose mission is to overthrow market capitalism? Probably not, at least until the threat from Chinese quantum computers becomes clearer than the threat from U.S. chickens.

Even without activists gluing themselves to paintings, close EU-US economic relations have always been stymied by Europe’s chip on its shoulder. Ever since Jean Jacques Servan-Schrieber wrote in his 1968 book The American Challenge, that “The American challenge [U.S. firms like IBM gaining market share and entering Europe] is not ruthless like so many Europe has known in her history, but it may be more dramatic, for it embraces everything” the EU has been in a defensive mode towards America. We see this in Europe’s decade-long campaign to achieve “digital sovereignty” as a remedy to “digital imperialism”. President von der Leyen claimed that “it is not too late to achieve technological sovereignty” in areas including AI, blockchain, and quantum computing. Commissioner for Internal Market and Services Thierry Breton claimed that EU efforts to do this, including limiting access by U.S. firms “is not a protectionist concept, it is simply about having European technological alternatives in vital areas where we are currently dependent.” The EU wants sovereignty, and strangely it sees its democratic ally, the United States, as more of a threat to that sovereignty than the Chinese Communist Party. It is willing to decouple from the United States, but not China.

Maybe there’s a middle way. At one level, who cares if the American farmers can sell chickens to Europe; poultry is not strategic. The real question is can the two regions develop a much more integrated economy in advanced technology industries, like semiconductors, drugs, automobiles, machine tools, digital and others, where they work together to support each other’s advanced industry development while limiting China’s market access and overall techno-economic advance. Only time will tell… But time is running short.

To read the full article as it was published by the Information Technology & Innovation Foundation, click here.

The post A Transatlantic G2 Against Chinese Technology Dominance appeared first on WITA.

Today’s proposals are part of a broader three-pillar approach to EU economic security by promoting the EU’s competitiveness, protecting against risks and partnering with the broadest possible range of countries to advance shared economic security interests.

The initiatives adopted today aim at:

• further strengthening the protection of EU security and public order by proposing improved screening of foreign investment into the EU;
• stimulating discussions and action for more European coordination in the area of export controls, in full respect of existing multilateral regimes and Member States’ prerogatives;
• consulting Member States and stakeholders to identify potential risks stemming from outbound investments in a narrow set of technologies;
• promoting further discussions on how to better support research and development involving technologies with dual-use potential;
• proposing that the Council recommends measures aimed at enhancing research security at national and sector level.

Future EU actions will continue to be informed by the on-going risk assessments and by strategic coordination with Member States to reach a shared understanding of the risks that Europe faces and of the appropriate actions.

Legislative proposal to strengthen foreign investment screening

Foreign investments into the EU benefit the European economy. However, certain foreign investments may present risks to the EU’s security and public order. The Commission has reviewed over 1,200 foreign direct investment (FDI) transactions notified by Member States over the past 3 years under the existing FDI Screening Regulation. Building on this experience and extensive evaluation of the functioning of the current regulation, today’s proposal addresses existing shortcomings and improves the efficiency of the system by:

1. ensuring that all Member States have a screening mechanism in place, with better harmonised national rules;
2. identifying minimum sectoral scope where all Member States must screen foreign investments;
3. extending EU screening to investments by EU investors that are ultimately controlled by individuals or businesses from a non-EU country.

Monitoring and assessment of outbound investment risks

The EU is one of the biggest foreign investors in the world and recognises the importance of open global markets. It also acknowledges the growing concerns regarding outbound investments in a narrow set of advanced technologies that could enhance military and intelligence capacities of actors who may use these capabilities against the EU or to undermine international peace and security.

This is currently neither monitored nor controlled at EU or Member State level. The Commission’s White Paper on Outbound Investments is therefore proposing a step-by-step analysis of outbound investments to understand potential risks linked to them. This analysis will include a three-month stakeholder consultation and a 12-month monitoring and assessment of outbound investments at national level, which will contribute to a joint risk assessment report. Based on the outcome of the risk assessment, the Commission will determine, together with Member States, if and which policy response is warranted.

More effective EU control of dual-use goods exports

Today’s increasingly challenging geopolitical context requires action at EU level to improve the coordination of export controls on items with both civil and defence uses – such as advanced electronics, toxins, nuclear or missile technology – so that they are not used to undermine security and human rights. Today’s White Paper on Export Controls proposes both short and medium-term actions, in full respect of the existing rules at EU and multilateral level. The Commission proposes to introduce uniform EU controls on those items that were not adopted by the multilateral export control regimes due to the blockage by certain members. This would avoid a patchwork of national approaches.

The White Paper also provides for a senior level forum for political coordination and announces a Commission Recommendation in Summer 2024 for an improved coordination of National Control lists prior to the planned adoption of national controls. The evaluation of the EU Dual-Use Regulation is advanced to 2025.

Options to support research and development in technologies with dual-use potential

With a White Paper on options for enhancing support of research and development (R&D) of technologies with dual-use potential, the Commission launches a public consultation. Announced by President von der Leyen in November 2023, the White Paper contributes to the ‘promote’ dimension of the European Economic Security Strategy, aiming at maintaining a competitive edge in critical and emerging technologies with the potential to be used for both civil and defence purposes.

The White Paper reviews current relevant EU funding programmes in the face of existing and emerging geopolitical challenges and assesses whether this support is adequate for technologies with dual-use potential. It then outlines three options for the way forward: (1) going further based on the current set-up, (2) removing the exclusive focus on civil applications in selected parts of the successor programme to Horizon Europe, and (3) creating a dedicated instrument with a specific focus on R&D with dual-use potential. Public authorities, civil society, industry, and academia can have their say in an open public consultation and inform the Commission’s next steps until 30 April 2024.

Enhance research security across the EU

In today’s complex geopolitical context, the openness and borderless cooperation in the research and innovation sector may be exploited and turned into vulnerabilities. Results of international research and innovation cooperation can be used for military purposes in third countries, or in violation of fundamental values. Higher education and research institutions can fall victim to malign influence by authoritarian states.

Against this background, the Commission presents a proposal for a Council Recommendation to provide more clarity, guidance and support to Member States and the research and innovation sector at large. EU action is required to ensure consistency across Europe and to avoid a patchwork of measures. By joining forces at all levels and across the Union we can mitigate the risks to research security and ensure that international research and innovation cooperation is both open and safe. The overall approach follows the principle ‘as open as possible, as closed as necessary’ as regards international research cooperation.

Background

On 20 June 2023, the European Commission and the High Representative published a Joint Communication on a European Economic Security Strategy, to minimise the risks in the context of increased geopolitical tensions and accelerated technological shifts, while preserving maximum levels of economic openness and dynamism. It provides a framework for assessing and addressing – in a proportionate, precise and targeted way – risks to EU economic security, while ensuring that the EU remains one of the most open and attractive destinations for business and investment.

The strategy identified four risk categories to be addressed as a matter of priority: supply chains; physical and cyber-security of critical infrastructure; technology security and technology leakage; weaponisation of economic dependencies or economic coercion.

To address these risks, the Strategy is structured around three pillars:

• Promoting the EU’s competitiveness and growth, strengthening the Single Market, supporting a strong and resilient economy, and strengthening the EU’s scientific, technological and industrial bases.
• Protecting the EU’s economic security through a range of policies and tools, including targeted new instruments where needed.
• Partnering and further strengthening cooperation with countries worldwide who share our concerns and those with which we have common economic security interests.

To read the press release as it appears on the European Commission’s press corner, click here.

For more information

Communication: advancing European economic security: an introduction to five new initiatives

Proposal for a Council Recommendation on enhancing research security

White Paper on options for enhancing support for research and development involving technologies with dual-use potential

White Paper on export controls

White Paper on outbound investment

Proposal for a new regulation on the screening of foreign investments

Memo on European Economic Security

Factsheet – Proposal for a Council Recommendation on enhancing research security

Factsheet – White Paper on options for enhancing support for research and development involving technologies with dual-use potential

Factsheet – White Paper on export controls

Factsheet – White Paper on outbound investments

Factsheet – Proposal for a new regulation on the screening of foreign investments

The post Commission Proposes New Initiatives to Strengthen Economic Security appeared first on WITA.

It’s been a rocky year for global trade. The World Trade Organization now expects trade in world merchandise to have grown just 0.8% in 2023, less than half of the 1.7% growth it forecasted earlier in the year, buffeted by rising inflation, high interest rates, and simmering geopolitical tensions.

What’s in store for 2024? Can we expect more of the same? Or will the situation start to stabilize? Our experts share their insights on what to watch out for over the next 12 months.

Globalization will continue to involve in 2024, not unwind

Richard Baldwin, Professor of International Economics at IMD

Globalization is under fire in many nations, no doubt about it. International commerce – and indeed the whole idea of economic openness – has been challenged by a long series of massive shocks ranging from Brexit and President Trump’s tariffs to the pandemic, the Russo-Ukrainian war, battles in the Levant, and rising geoeconomic tensions.  

Newsfeeds are filled with headlines about de-globalization and the adoption of inward-oriented trade and industrial policies. But the headlines can be deceiving. The facts are that global trade in goods – as a share of global income – has recovered from COVID-19 lows, even if it has not reversed its downward trend.  Digitally enabled trade in services, by contrast, never faltered, even in the depths of the pandemic, and continues to power ahead. As we head into 2024, my research suggests that trade in goods will continue to stagnate while trade in digitally enabled services (e-services) will continue to boom.

A stabilization of US-China geoeconomic tensions
The US and China are now strategic rivals in the economic, political, cultural, and military spheres. But neither wants this intense competition to lead to WWIII. The US is actively trying to prevent China from acquiring technology that would counter the US’s military edge and promoting the diversification and de-risking of the American supply. This involves encouraging more production in the United States while hindering production in China of a narrow range of goods, most notably including the highest-end semiconductors, technology related to quantum computing, and advanced AI that has military and surveillance uses. Apart from these goods, the Biden administration is not pursuing policies aimed at hindering China’s economic prosperity.  

China’s retaliation to date has been very measured – limited to requiring export licenses for a few inputs that are critical to semiconductor production (gallium, germanium, and graphite). These are best seen as a ‘shot across the bow’ of the US restrictions aimed at preventing China from developing the capacity to produce or purchase the very highest-end semiconductors.  

Both sides are trying to cool down the conflict. As one White House official put it, “The United States and China are in an intense competition, and we believe the best way to manage that competition is through equally intense diplomacy.” Biden and Xi met for the first time in about a year on the sidelines of the Asia-Pacific Economic Cooperation Summit in November 2023, sending a signal that they are committed to working out how to cooperate where they can. I hedge my conjecture with a famous Lenin quote, “There are decades where nothing happens; and there are weeks where decades happen.” Great power rivalries are usually stable but beware that things can go south quickly.  

Climate-related disruptions in production and trade will continue
Extreme weather events are becoming more frequent and climate-related disruptions will increasingly impact international business and international trade globally. What’s more, the interconnectedness of global trade will only amplify the risks of climate-related disruption.  Some extreme weather events disrupt production directly via droughts, floods, or overheating of workers. Others – such as low water levels in the Rhine, or hurricanes that damage ports – disrupt international transportation directly.

How do we know that extreme weather is becoming more common due to climate change? Nothing is certain in the business of climate change, but there are many hints that the unusual weather the world has seen in recent years is not a fluke. These clues include record-breaking heatwaves on land and sea and in most parts of the planet, severe floods and droughts, and extreme wildfires. To withstand the challenges of extreme weather events, policymakers, and business leaders will need to work together to build more resilient and adaptable systems.

Simultaneous Speech Translation (SST) will continue to transform international commerce
Microsoft recently launched speech translation technology that allows participants in a Teams meeting to see live captions of the conversions that are translated into a language of their choice.  This is a big deal. There is even a story in the Old Testament suggesting that language-linked divisiveness was divinely inspired. The book of Genesis discusses a building that humans were constructing to reach the heavens: “The Lord said, ‘If as one people speaking the same language, they have begun to do this, then nothing they plan to do will be impossible for them. Come, let us go down and confuse their language so they will not understand each other.’” The structure came to be known as the Tower of Babel, where “babel” means a confused noise made by a number of voices. 

Not to put too fine an edge on it, simultaneous speech translation is dismantling the Tower of Babel. English speakers – who have long had an edge when it comes to international commerce, especially trade in services – are in for some competition. With machine translation being so good, and getting better so fast, English speakers will soon find themselves in much more direct competition with the billions of service workers who don’t speak English.  Machine translation won’t let them speak perfectly but perhaps well enough to participate in remote office work. The result will be a tsunami of global talent in the online service sectors. This will increase the choices facing employers or remote workers, generate more opportunities for high-skill low-wage workers in emerging markets, and create a lot more competition for advanced economy workers who have jobs that can be done remotely.

Super election cycle will disrupt trade policy

Simon J Evenett, Professor of International Trade and Economic Development at the University of St. Gallen, and Fernando Martin, Head of Analytics at Global Trade Alert

Nearly two billion people living in some of the most important economies on Earth will vote next year in elections. The run-up to polling day doesn’t normally make for enlightened trade policies because plenty of opportunistic politicians will try to blame foreigners for their own countries’ deficiencies. Already governments are maneuvering to deliver short-term political highs by whacking trading partners. The European Commission’s investigation into fast-growing imports of electric vehicles from China is cynically timed to deliver a verdict just before the elections to the European Parliament. Few US politicians will resist the siren call of being tough on Chinese trade and investment as November 2024’s American elections approach. Furthermore, so tight is that US election that the Biden Administration’s patience with the EU on steel will likely snap, leading to transatlantic trade tensions in 2024.

Geopolitical tension may tempt governments to weaponize trade flows
With geopolitical tension top of many executives’ minds, security of supply considerations will remain an important narrative for many governments and corporate buyers during 2024. Will Russia again tighten the screws on grain exports from Ukraine? Will China retaliate against harsher US trade and investment measures by curbing exports of the so-called ‘rare earth’ minerals, critical to the production of many IT products? Derisking pressures – a term used by many to signal reduced dependence on China and other geopolitical foes – won’t go away.

Furthermore, should events in Gaza spiral out of control, some petrol Arab states may find it impossible to resist national pressures to impose oil embargoes. These are unlikely to cause the same damage as witnessed during the 1970s. Even so, oil price hikes are the last thing most economies need as their central banks get inflation under control.

The impact of trade policy pressures will start to be felt
A number of slow-burn trade policy pressures will come to the fore during 2024. October 2023 saw the European Union’s Carbon Border Adjustment Mechanism (CBAM) come into effect. This scheme will impose additional taxes on imports from outside the EU that cannot show they have paid enough charges for the carbon generated during a good’s production. Importers will start receiving their first CBAM bills early in 2024 and there will inevitably be harsh words about EU implementation practices. Some nations may take the EU to court at the World Trade Organization. Others may just retaliate straight away by jacking up trade barriers on EU exports and argue that it is better to negotiate with Brussels from a position of strength. Expect headline-grabbing standoffs over carbon taxes. Other sore points include the EU’s regulations on sourcing products from areas with extensive deforestation and plans in the works to impose extensive regulation on cross-border supply chains operating into and out of the European Union.

The world won’t shatter into trade blocs along geopolitical lines
Despite these concerns, the much-feared split of the world economy into separate trading blocs is unlikely to happen during 2024. The most likely trigger would be an outrage perpetrated by either China or the United States. To many Western governments, any attempt by China to invade Taiwan would be a step too far and would likely result in harsh economic sanctions on Beijing. Yet those American military experts who claim to track this matter aren’t publicly warning that this outcome is likely in 2024. Schism isn’t impossible in 2024, just very, very unlikely.

Africa and Asia will remain bright spots for trade policy
Against this gloomy backdrop are some positive trends that will keep creating opportunities for forward-looking businesses. Africa is pushing ahead with implementing a massive continental free trade agreement, strengthening ties between nations likely to see the fastest population growth through to 2050. Plus, by and large, the sourness expressed across the Atlantic towards globalization and trade finds no counterpart across the Asia-Pacific region. The mistake here is to let zero-sum narratives in the West dominate senior executive decision-making. After a divisive election season in 2024, some may conclude that the derisking needed involves limiting exposure to slower-growth, surly Western economies.

Richard Baldwin is Professor of International Economics at IMD and Editor-in-Chief of Vox since he founded it in June 2007. He was President/Director of CEPR (2014-2018), a visiting professor at many universities, including MIT, Oxford, and EPFL, and a long-time professor of international economics at the Graduate Institute in Geneva. Richard is an expert in global economic policy and theory, specializing in international trade.

Simon J. Evenett is currently a Professor of Economics at the University of St. Gallen and on 1 August 2024 will join the Faculty at IMD. He is also the Founder of the St. Gallen Endowment for Prosperity Through Trade, home of two of the leading independent monitors of how governments shape international business.

Fernando Martín leads the Analytics Unit at the Global Trade Alert. His work focuses on trade and industrial policy with a special focus on geopolitics and geoeconomics. He holds a PhD in business economics from KU Leuven and an MSc in political economy of Europe from the London School of Economics and Political Science.

To read the full article, click here.

The post Globalization in 2024: The Clouds are Clearing appeared first on WITA.

It seems intuitive to think that if the distribution of political power shifts, law eventually follows, as new powers want political changes to ultimately be reflected in the law. However, established actors typically want the law to remain stable and therefore resist legal change. When and how are shifts in global power structure then brought into international law?

One of the greater shifts in geopolitics in recent history has been the rise of China, and it has put the international order under significant strain. The question this chapter will explore is to what extent this shift has resulted in change in international law, and especially in world trade law. The WTO has been a key arena of conflict between the US and China in recent years, well before the Trump years. What happens when a new, potentially powerful, (state) actor enters the scene of an already existing and established legal regime such as international trade law? How did China, whose international trade law profession was underdeveloped (or virtually non-existent) prior to its accession to the WTO, manage to use the WTO dispute settlement system to push for change.

International trade law is a particularly suitable field for an inquiry into the effects of geopolitical shifts on international law, because—especially in the form it found in the WTO Agreements—it is widely seen as a reflection of a particular economic vision associated with the dominant powers of the 1990s. The WTO Agreements tend towards neoliberal market liberalization, mainly due to pressure from the US and, to an extent, the European Union during the Uruguay Round. Developing countries challenged this dominance in the Doha Round and prevented the further extension of this approach through treaty-making, but they did not achieve a rebalancing on this route either as negotiations largely ended in gridlock. Meanwhile, societal contestation—particularly in the area of environmental regulation—has created legitimacy issues for the WTO, adding to the pressures the organization finds itself under, but has not led to formal changes in existing agreements either.

Yet, change in trade law does not necessarily have to come through state-led processes. In fact, this field of international law is particular not only because of its ideational orientation, but also because of the centrality of the ‘judicial’ path of change, embodied in the WTO dispute settlement system and the jurisprudence of the panels and the Appellate Body (AB). In light of the clogged nature of state or multilateral paths, the focus for change agents in this field soon shifted towards the judicial path, and it is here that we have seen most movement, especially under the influence of the AB from the mid-1990s until 2019, when the AB itself became blocked as the US prevented the appointment of new members. Change processes in world trade law over the past decades have then also largely come about through shifts in the interpretation by WTO dispute settlers.

China, too, has been among the change agents using the judicial path at the WTO, and it has been quite successful in using it for its own interests and to advance its global economic and political position. This was aided by the fact that, as we will see in more detail later in the chapter, China invested significant resources into building its own trade law capacity to further global influence. This contributed to the country being perceived as a credible rival to Europe and the US in shaping, changing, and developing international trade law. The change in turn has resulted in political shifts, impacting the political (im-)balance between China and the Western world.

This chapter traces China’s rise and its consequences at the WTO, especially with a view to understanding how the country utilizes home-grown capacity for international trade law, and how these developments can embody a global political shift in power. In the WTO context the AB could achieve (lasting) impactful change and might have therefore been an obvious choice of forum to push for change. In other areas of international law, where one does not have a similar focal point or decisive body, it might be less likely that change can be pursued (successfully) through judicial bodies.

Pressures of geopolitics are especially encapsulated in the case of subsidy regulation at the WTO—the focus of our inquiry here. Subsidy regulation, a seemingly niche topic, provides a magnifying glass through which we can observe how disagreements between economic and political systems play out in a specific issuearea. The WTO’s subsidy rules were not ideally suited to dealing with economies with a blurred boundary between public and private actors, and China soon pushed back against the wide application of these rules on its state-owned entities. This led to a (limited) interpretive shift among WTO dispute settlement bodies, but also to contestation on the part of, in particular, the US, which saw this issue as increasingly significant in the context of the developing trade conflict with China in the early 2010s. As we will see below, the issue seemed relatively settled for several years before the AB took a step back towards the US position later in the decade, when the crisis over AB appointments was already well advanced. Subsidy disciplines have become an element in discussions about general WTO reform, and one could even go as far as to argue that the future of the WTO hinges on them as they represent the ultimate test for whether the institution can accommodate a strong non-market based economy—and whether it can strike a balance between the demands of different types of economies within it.

To read the full book chapter, click here.

The post World Trade Law and the Rise of China: Struggles over Subsidy Rules appeared first on WITA.

Supply chain activity has normalized in operational terms during 2023, but there are significant risks across the industrial policy, labor action and environmental policy implementation spheres heading into 2024.

Supply chains need to be more resilient, but questions remain over whether corporations and their investors are willing to make the investments necessary to fortify them.

The Take

Global supply chains largely normalized in 2023 after years of disruption, and the need for resilience is clear. The willingness of corporations to build that resiliency is not.

Falling operating margins and higher interest rates may be leading companies to cut their inventory balances and reverse recent supplier diversification increases.

There is no shortage of technology available to enable supply chain resilience, with generative AI as the latest example. Most companies need to see short-term returns on investment, and recent experiences with blockchain, for instance, are leaving some hesitant.

Organizational alignments are necessary to ensure continuing supply chain resilience. Tools for success include increased engagement with labor unions, geographic diversification with an eye to mitigating operational risk, closer tracking of environment profiles, reshoring and enhanced supplier engagement to manage tariff and geopolitical risk.

Paying for Resilience in a High-Cost Environment

S&P Global Market Intelligence data indicates that gross operating profit margins for manufacturers globally are expected to fall to 10.4% of sales in 2024 from 10.7% in 2022. The decline is expected to be particularly stark for the computing and electronics sector and domestic appliance manufacturing. At the same time, capital expenditures are forecast to exceed gross operating profits by 5% in 2024 after being equal to them in 2022. Reinvesting in capital stock may take priority over spending on supply chains.

Empty shelves were one of the most tangible signs of supply chain challenges during the pandemic era. The shortage of inventories, whether of toilet paper or computer chips, led many companies to over-order and subsequently cut stock levels in late 2022 and into 2023.

Data from the S&P Global Purchasing Managers’ Index (PMI) indicates that manufacturing stocks of finished goods were in retreat for eight of the first nine months of 2023. Destocking has been particularly notable in computing, which has been going on for 27 months while the downturn in consumer goods has been more sporadic.

The evidence from corporate financial data is mixed. The inventory-to-sales ratio for the Russell 3000 group of manufacturers and retailers of goods was 54.1% on a trailing three-month basis as of Sept. 30 compared to 50.1% on average for the 2016 to 2019 period. The elevated level is not necessarily evidence of a change in inventory patterns, as it is below the 54.8% peak reached in March.

The increase is also caused by just a handful of sectors. The apparel sector has an inventory-to-sales ratio of 74.7% versus 68.6% historically, while electronics excluding semiconductors stands at 39.1% versus its historical average of 29.9%. 

Sectors with longer sales cycles are closer to balance. In the case of household durable goods, the inventory-to-sales ratio of 55.0% in September is well below the 64.7% peak of a 2022 and in line with the 54.9% historic average.

Diversification of suppliers and reshoring are not the same thing. Both can reduce the inherent risk of a supply chain, and they often go hand-in-hand. However, diversification of suppliers can come in and out of fashion depending on the need for cost reductions.

With a focus on cost cutting in 2024, there may be less diversification as companies seek to shorten their supplier lists by pushing more orders to fewer suppliers to get better prices.

The number of suppliers per ultimate consignee for US seaborne imports for all industrial companies — nonfinancial, logistics or services — among the top 500 US importers increased by 13% in 2021 compared to 2019, indicating the use of more suppliers to deal with disruptions.

That increase in suppliers broadly started to reverse in 2022 and fell below pre-pandemic levels in the 12 months through Sept. 30, 2023. At a sector level, consumer goods companies registered one of the steepest drop-offs in suppliers. Similarly, the pool of suppliers for consumer durables companies — including furniture, appliances and leisure goods — expanded through 2021 but has contracted since then, dropping below pre-pandemic levels.

The auto industry’s supplier pool has crested but remained elevated, potentially reflecting the secular shift to electric auto production while maintaining internal combustion engine production. Electronics has also remained elevated after a drop in 2022.

Chris Rogers is the Head of Supply Chain Research at S&P Global Market Intelligence.

Mark Fontecchio is a Research Analyst, covering the Internet of Things, 451 Research at S&P Global Market Intelligence.

Amy Chang is the Lead Analyst at Panjiva, S&P Global Market Intelligence.

Emilee Nason is a Data Scientist at Panjiva, S&P Global Market Intelligence.

To read the full report, click here.

The post See the Big Picture: 2024 Supply Chain Outlook appeared first on WITA.

Mixing international trade with geopolitical rivalries is going to be the new norm. This is a regrettable development, even more so because most Asian economies – and particularly the success stories of China, South Korea and Japan – were able to grow thanks to access to global markets and expanding trade.

The Chinese economic miracle would have been impossible without these opportunities. Had the West not built the post-World War II structure of international trade and finance, China could have never emerged from the poverty it suffered after the death of former Chinese leader Mao Zedong. In a sense, one might think that China should today be paying back this debt, taking on responsibility for supporting a functioning world economy. Instead, trade in Asia is regressing. (This is not to overlook the role of American policy, during both the Trump and Biden administrations, in politicizing trade in Asia.)

The major uncertainty lies in the Global South. While not as prominent as the Non-Aligned Movement of the Cold War, the Global South is now one of the major geopolitical challenges facing the West, particularly on issues around trade.

Three rival structures

The Far East today lacks a comprehensive security architecture. There are bilateral treaties like those between the U.S. and Japan and the U.S. and South Korea. The Association of Southeast Asian Nations (ASEAN) serves as an established multilateral organization, providing a framework along the lines of other continental bodies such as Mercosur, the South American trade bloc.

In economic and trade issues, there are three organizations – Asia-Pacific Economic Cooperation (APEC), the Regional Comprehensive Economic Partnership (RCEP) and the Indo-Pacific Economic Framework (IPEF) – which must be seen as geopolitical rivals.

All three organizations have made lofty declarations in favor of economic cooperation, trade and development. Their true intentions are revealed in their membership. APEC is the most established of the three and the most diverse, counting rivals like the U.S., China and Russia. Notably, for the forthcoming annual meeting, set to be held in the U.S., Washington has banned Hong Kong Chief Executive John Lee but confirmed that there is no bar on Russia’s participation.

The RCEP is a Chinese initiative, and its membership suggests that Beijing aims to create a following of economically relevant states to support its own international trade agenda. India and the U.S. are outside of the group. Instead, it includes countries that are strongly dependent on China and whose regimes are on the outs with Washington, such as Myanmar, Laos and Cambodia.

The IPEF is the most recently launched forum, aimed at furthering American geopolitical interests in the Indo-Pacific region. This is evident in its composition, which includes Australia, Japan and India – countries playing a key role in the U.S. strategy to contain a rising China.

Australia, despite some trade disputes with China, belongs to all three organizations. Similarly, Japan – which long kept a low profile in multilateral initiatives beyond its security treaty with the U.S. and its presence in the G7 – is also a member of each grouping.

Threat to free trade

Trade issues have always been part of politics, and organizations like the World Trade Organization and the European Union were designed in part to tear down restrictions on free trade. But the present times are especially fraught with risks around trade. During the Cold War, the West had to deal with powerful military threats posed by the Soviet Union and its allies. However, the USSR was of little relevance to the world economy. The West could establish a world economic order that was largely built on a market economy and free trade values. Even beyond the Western alliance, like members of the “nonaligned” countries, there was no other option but to deal with the West on its own terms.

This fundamentally changed with China’s emergence as one of the world’s largest economies. The roots of this new challenge lie in the historic reforms launched by former Chinese leader Deng Xiaoping. Pragmatically, China maintained its one-party system while at the same time opening up major elements of its economy – if not to a full-fledged market economy, then one that allowed Western investors, technology and businesses to enter.

Beijing opened the economy to its own version of private enterprise, meaning that non-state actors were allowed to operate wherever they did not infringe on the general, party-dominated economic framework. With the Western world keen on economic interaction, China sought to make its economy more competitive in world markets.

In the global economic picture that has developed over the past three decades, China competes in Western markets through existing frameworks – for example, in capital markets and by acquiring Western companies to gain access to technology and intellectual property – while maintaining its own unique economic model. Despite talk of free markets, the Chinese economy remains one fully controlled by the Party.

For some time, the West overlooked the challenge presented by this dynamic, presuming that it could deal with China like an ordinary market economy. Now that Western governments have woken up – particularly the U.S., with Europe following haphazardly – they face another challenge. Washington has decided that this is the moment to address the risks posed by Beijing, with politicians from both sides of the aisle declaring China as the country’s main adversary. Besides the highly dangerous possibility of an open war, there are rising prospects of long-term economic conflict.

The historic rivalry between the U.S. and China is, for now, being fought on economic terrain. Washington has moved from the so-called “pivot to Asia” under the Obama administration to a policy of containing China’s rise. The main goals are the reindustrialization of America and preventing advanced technologies from reaching Chinese companies, particularly in the field of information technology.

This is unfortunate for countries (such as Switzerland) that depend on open markets and on trade policies based on economic, rather than geopolitical, criteria. There is considerable collateral damage when ostensibly free-market nations like the U.S. turn to economic populism, alongside more mercantilist states like China and India.

Urs Schöttli is an independent advisor on Asian Affairs.

To read the full report, click here

The post The New Geopolitics of Trade in Asia appeared first on WITA.

There are six sections in the survey. Section I covers the profile of the respondents by nationality, affiliation and age. Section II deals with questions on the regional outlook and viewpoints on international affairs in the past year. Section III covers regional influence and leadership of major and middle powers. Section IV deals with ASEAN’s options in the changing regional politicalsecurity architecture. Section V measures perceptions of trust among Southeast Asians towards five countries – China, US, Japan, the European Union and India. Section VI gauges levels of soft power in the region based on travel and tertiary education choices. The questions and results have been reorganised for logical flow and optimal reporting. The figures in this report have been rounded up or down to the nearest one decimal point.

To access the full report, click here.

The post The State of Southeast Asia 2023: Survey Report appeared first on WITA.