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.

Now we are seeing the limits of this model. It is a time of tremendous disruptions in global supply chains with many problems ranging from shifts in consumer demand and off-shoring reliability to transportation jams, anti-competitive practices, and geopolitical complications.^[2] As noted in a 2022 Council of Economic Advisers report, supply chains currently “are efficient but brittle – vulnerable to breaking down in the face of a pandemic, a war or a natural disaster. Because of outsourcing, off-shoring and insufficient investment in resilience, many supply chains have become complex and fragile.”^[3]

In this paper, I outline six ways to improve global supply chains:

• Boosting domestic production through on-shoring and near-shoring

• Easing transportation jams

• Prioritizing public health

• Managing labor shortages

• Fighting anti-competitive practices

• Mitigating geopolitical tensions

Making progress in these areas would go a long way towards easing current global supply chain disruptions and putting global trade back on a firmer footing.

Six ways to improve global supply chains

To read the full report from the Brookings Institution, please click here.

The post Six ways to improve global supply chains appeared first on WITA.

As the US economy rebounds amid elevated inflationary pressures and Europe grows at a rapid clip, an uneven global rebound looms. Although emerging-market and developing economies (EMDEs) generally retain good access to global capital markets for now, their relatively slow pace of COVID-19 vaccination will continue to hamper their economic recoveries and strain their public finances—already stretched owing to the fiscal pressures of the pandemic over the past year and a half. Higher interest rates in the rich countries, particularly the United States, could tip EMDEs into liquidity and even solvency crises. The likelihood of crises is higher if advanced-economy central banks move abruptly, surprising markets. Global policymakers should prepare now by enhancing mechanisms for providing liquidity to EMDEs and, in cases of insolvency, for restructuring their sovereign debts. Perhaps even more important, the scope for uneven recovery can be limited if rich countries make an all-out effort to deliver vaccines globally and enhance less prosperous countries’ infrastructures for getting shots into arms.

To read the full report from the Peterson Institute for International Economics, please click here.

The post An Uneven Global Rebound Will Challenge Emerging-Market and Developing Economies appeared first on WITA.

From: Catherine A. Novelli, Listening for America President

Three years ago, I started discussing the idea of finding out what people outside the Washington DC Beltway from all walks of life thought about international trade and globalization. It had become clear to me when I traversed the country as Under Secretary of State for Economic Growth, Energy and the Environment that there was a large disconnect between policy makers in Washington and everyone else. I talked with international trade experts from both political parties, academics, and colleagues who had nothing to do with trade, but were worried about the state of discourse in the United States. I was uniformly and enthusiastically encouraged to launch Listening for America.

This report is the outgrowth of two years of informal listening sessions and focus groups. I found that whatever preconceived ideas I had when I visited one of the 39 cities that we went to were not at all what I found when we actually talked with people. Most of the time the “conventional wisdom” of the pundits on these issues, for example, that “globalization” was seen as a bad thing, did not pan out in our conversations. We found people recognized the possibilities that globalization could bring and understood that the issues surrounding international trade were complex and often had questions about how to understand all that was happening. We also found cities that embraced the opportunities of globalization as part of their economic development strategy and were thriving. We also found cities that were struggling to find their place in the domestic and global economy.

We have attempted to not just distill what we heard, but also to suggest some recommendations for how to pursue a policy framework that will tangibly benefit Americans. Through the focus groups we conducted, the participants developed a narrative about international trade and globalization that resonated with them— reflecting the complexities and the issues that still need to be tackled.

Listening for America could not have happened without the sage advice of some of the truly eminent practitioners of international trade policy, who consented to be our Board of Advisors—Grant Aldonis, Former UnderSecretary of Commerce; Ambassador Peter Allgeier, Former Deputy U.S. Trade Representative; Rod Ludema, Former Chief Economist of the U.S. Department of State; Ambassador Charles Reis, Former Vice President for International at RAND Corporation; and Bruce Stokes, Former Head of International Trade at PEW and Trade Columnist for the National Journal. Thank you.

We owe an incalculable debt of gratitude to those who volunteered their time to conduct the informal listening sessions and observe the focus groups, most especially Kira Alvarez, who rolled up her sleeves and allowed us to go into each city and state very informed about the economic situation there. Thanks also to Ned Saums, Kathy Heetderks and Liz Jaeger each of whom helped build out robust schedules of meetings. Thanks to our incredible Board of Directors who provided perspective, advice and encouragement: Katrin Kuhlmann, Ann Martin, Sabeen Malik and Kira Alvarez. And special thanks to Phil Roos and GrowthWorks who conducted our focus groups with creativity and clarity and who continued to find a way for us to operate safely during COVID.

To read the full report from Listening For America, please click here.

The post Connecting People with International Trade – August 2021 appeared first on WITA.

The post The Hidden Costs of Global Supply Chain Solutions appeared first on WITA.

The Golden State has been among the strictest states in terms of COVID-19 distancing measures. It was the first state to impose a statewide stay-at-home order and closure of “non-essential” businesses in March 2020, and it reimposed them in December 2020 after never fully reopening in between. Even after the CDC lifted mask requirements, restrictions remained: Masks were still mandated in indoor workplaces for example—even for those who were vaccinated—unless everyone in the workplace was fully vaccinated.2 Small businesses and working-class people have borne the brunt of the state government’s economic shutdown. COVID-19 restrictions on economic activity have also had serious repercussions in Californian ports, hindering international trade responsible for hundreds of thousands of California jobs.

To read the full report from The Heritage Foundation, please click here.

The post Trade and Prosperity in the States: The Case of California appeared first on WITA.

These observations are highly pertinent and connect to another major EU commitment: becoming a stronger geopolitical power. Linking these issues, this compilation explores how the EU could—through its external policies—be an effective geopolitical power in dealing with climate change and ecological shifts.

Extensive analytical work has accumulated on climate security and mainly makes the general case for why the EU needs to take climate factors more seriously within its foreign policies. But after more than a decade of policy efforts, the EU already has a dense network of ongoing initiatives that fall to some degree within the scope of climate security. Given this, the priority should no longer be restating the basics of why climate represents a geopolitical challenge. The EU has already moved some distance along this policy curve. Rather, it should be to assess the more precise ways in which the EU is approaching climate security.

The following six chapters here assess different elements of the climate security challenge. Through these different contributions, a core argument emerges: the EU needs a broader understanding of climate geopolitics to extend and improve its already rich array of policy initiatives in this area. It essentially needs to transition from its current conceptualization of climate security to a more ambitious notion of ecological security.

To read the full report from the Carnegie Endowment Europe, please click here.

The post The EU and Climate Security: Toward Ecological Diplomacy appeared first on WITA.

The private sector is ramping up fast COVID-19 vaccine production, thereby narrowing the gap between vaccine supply and demand. The purpose of this note is to report the latest estimates of how much of the vaccine shortage will be eliminated this year, given what is known today about existing vaccine production capacity, announced capacity expansion this year, and sobering lessons learned from attempts to boost production during the first five months of this year. The projections reported here do not include any extra production that might result from the adoption of a TRIPS waiver at the World Trade Organization.

Inevitably, any forward-looking exercise like this involves making forecasts—details of which can be found in the box below. How good are previous forecasts using this approach? Figure 1 shows the total production levels forecasted in February 2021, the observed outcomes, and contrasts them to the vaccine manufacturers’ projections. The latter were way off. However, Airfinity’s forecasts closely track the substantial vaccine production increases observed in March and April 2021. The average percentage forecast error fell from 20.1% in March to just 9.8% in April.

Using the same method, and taking account of the fact that 18 vaccines are in phase III trials and given what is known about the likelihood of their approval and related production plans, it is possible to project out COVID-19 vaccine production through to the end of 2021 (see Figure 2). By the end of December 2021, the total number of doses produced is projected to be 11.14 billion, exceeding the 10.82 billion doses needed.

Production in the third quarter of 2021 is expected to be in excess of 3 billion doses, whereas in the fourth quarter production is expected to reach just under 5 billion doses. Should these forecasts come to pass, enough vaccine will have been produced this year to reach herd immunity worldwide. Booster shots would add to demand—but the first round of inoculation would not be held back on account of limited production. These findings imply the current vaccine shortage can be eliminated this year.

To read the full report, please click here. 

The post How Much Vaccine Will Be Produced This Year? appeared first on WITA.

However, the EU’s proposed CBAM risks unfairly penalising the exports of developing countries. While all countries should accept responsibility for tackling a shared global threat such as climate change, it is unreasonable to expect poorer countries to shoulder the same burden as those that are richer and have historically contributed a larger share of cumulative carbon emissions. This principle, termed ‘common but differentiated responsibilities and respective capabilities’, has guided the international climate negotiations so far. Under the Paris Agreement, for example, a country’s national circumstances can be taken into account when making its climate commitments. Furthermore, concerns about the CBAM’s impact on developing countries have already been raised in the WTO’s market access committee – with a particular focus on the EU’s public framing of its CBAM as a revenue raising tool, and a contributor towards the EU’s ‘own resources’ (as the EU institutions’ revenues are called), rather than as a means of addressing climate change.

The EU’s CBAM must be designed with developing countries in mind. Goods imported into the EU from the 46 least developed countries (LDCs), as defined by the UN, should be exempt from any CBAM levy. Such an approach would complement the EU’s existing unilateral preference scheme for LDCs, which offers duty and quota-free access to all goods imported from LDCs other than weapons – the ‘Everything But Arms’ (EBA) scheme. Excluding LDCs from the CBAM should not prove controversial with member-states, and is consistent with existing EU approaches to trade, as well as the EU’s broader development objectives.

For lower-middle-income countries such as India, Indonesia and Nigeria, which are much bigger contributors to global carbon emissions, the EU faces a tougher decision. Here the EU should build its approach on its existing unilateral preference schemes covering select lower-middle income countries: the standard Generalised Scheme of Preferences (GSP), which fully
or partially removes tariffs on two-thirds of tariff lines; and GSP+, which offers additional trade benefits to economically vulnerable countries if they implement 27 international conventions relating to the environment, human rights, labour rights and good governance. In line with existing GSP and GSP+ conditions, imported goods could be exempted from the EU’s CBAM only until they account for a significant share of the EU’s total imports. This would avoid penalising nascent industries in lower- middle-income countries, while ensuring that sectors that are already internationally competitive are treated as such.

The exemptions proposed in this paper should not compromise the CBAM’s raison d’être. Emissions from developing countries account for a small proportion of the CO2 embodied in final EU demand. As such, exempting their exporters from the CBAM would not undermine the EU’s attempts to prevent carbon leakage. Equally, even with exemptions, developing countries will still have incentives to transition away from polluting energy sources and processes. As countries and industries develop, they will graduate from exemptions. They would then have two options to remain exempt from the CBAM: either governments could put in place their own internal carbon pricing scheme, equivalent to the EU’s; or industries could use more carbon-efficient means of production than for equivalent goods made in the EU.

To read the original policy brief from the Centre for European Reform, please click here 

The post The EU’s Carbon Border Adjustment Mechanism: How to Make it Work for Developing Countries appeared first on WITA.

The post Strengthening The Global Semiconductor Supply Chain In An Uncertain Era appeared first on WITA.