This research gap is amplified by the significant numbers of pro-market and pro-globalization reforms that many of the emerging Asian and Latin American economies have enacted in the early twenty-first century with the aim of providing MNEs with significant opportunities to fine slice their GVC activities in terms of integrating, coordinating, and communicating with geographically dispersed partners to co-create value and of effectively competing in the global marketplace. The organization of global economic activities under GVCs has enabled global learning and the rapid expansion of ideas through the exchange of technology and human capital, thus contributing to lower production costs, higher specialization levels, and more innovative products and services. The resulting vibrant international economic activities have also promoted societal welfare and fostered wealth and job creation. Furthermore, GVCs’ role is becoming extremely important in achieving sustainable economic growth and development and given these benefit, several international organizations have made GVCs as part of their policymaking agenda. Various countries from Asia to Latin America have benefited through their insertion into GVCs. For instance, the participation of southern-based small suppliers in GVCs has been noted to be crucial in improving their so-called economic upgrading prospects through the flow of valuable knowledge from lead firms – MNEs. Economic upgrading refers to a process whereby economic actors – countries and firms – move to higher value activities in GVCs. It is also considered to be their passport to entry into international markets.

To address the aforementioned gaps in the extant literature, our study built on the nexus between the de-globalization and GVCs literature to investigate the impact of international trade protectionism on the reconfiguration of GVCs and further explore its boundary conditions. Specifically, we aimed at answering the following two fundamental questions: (1) “What are the implications of international trade protectionism for GVCs?” and (2) “What risk mitigation response strategies are suited to manage trade protectionism and develop resilient GVCs?” In answering these two questions, we focused on a set of US protectionism measures enacted during the Trump era and maintained by the current administration of President Biden, and discussed their implications for the reconfiguration of GVCs in terms of their control and coordination. This context is important in light of the aggressive protectionist measures enacted by the US against China and other trading partner countries – which have led to the decoupling of value chain activities. For instance, the USA has withdrawn from the Trans-Pacific Partnership agreement, renegotiated free trade agreements with Mexico and Canada under the umbrella of NAFTA, and enacted a range of new tariffs on goods and services. In addition, MNEs, as lead firms from the US, are the major actors behind the global organization and coordination of GVCs; thus, such context provides important insights into the changing geography of GVCs as well as their resilience. To understand the US trade protectionism measures and their implications for GVCs, we examined 174 newspaper articles published between 2016 and 2020 in broadsheet newspapers (The New York Post, The New York Times, and Newsday) and specialist business publications (The Financial Times, The Wall Street Journal, and Bloomberg). In doing so, we made three contributions to the international business literature. Equally importantly, given that the extant IB studies have rarely employed historical accounts to research important IB topics, we deployed unique historical research methods, thus compiling and reconciling empirical evidence relating to US trade protectionism and the reconfiguration of GVCs.

Our findings contribute to the IB, de-globalization, and the GVCs literature in several important ways. First, the IB literature makes the implicit assumption that globalization is relentlessly accelerating. Conversely, our study drew on the de-globalization literature to challenge this implicit assumption. We conceptualized international trade protectionism as a specific form of de-globalization and proposed that it acts as a driver to shape policy reforms and tariffs in order to control the activities of GVCs and spur local economic activities for low-skilled workers, thus leading to the reconfiguration of GVCs from the global to the regional and local scale. Our efforts to identify this link have significant implications for both theory and practice. Our other important contribution to the IB literature is that we took a step toward exploring the potential influence of international trade protectionism on GVCs by taking into account various industries as a boundary condition, as more globalized industries rely far more on global suppliers of components, which certainly poses both more opportunities for and threats to the functioning and coordination of GVCs, an aspect that is virtually neglected in the IB literature. We, therefore, filled this gap in the dominant IB studies.

Second, our study makes important contributions to both the de-globalization and GVCs literature. The de-globalization literature suggests that changes in the global structural and political systems to protect national economies from immigrants have serious implications for IB and the vulnerability of GVCs. Relatedly, the international trade protectionism measures enacted by governments are expected to limit the international transfer of the tacit knowledge that resides in global excellence centers, restrict the free movement of goods and shift production to geographically dispersed locations to reduce costs, and disharmonize those international trade policies that foster inequality and industrial decay. Unfortunately, we lack a systematic understanding of the nature and extent of international trade protectionism and its impact on GVCs. This has been echoed by those scholars who have called for more research on “the potential impact of various expressions of the renewed protectionism, such as Brexit and Trumpism, on GVCs.” Our study hence responds to this call by exploring the potential impacts of trade protectionism on GVCs, with the core argument that trade protectionism poses serious challenges to their activities. It thereby advances the de-globalization literature by not only placing de-globalization in the context of international trade protectionism, which has been little explored but also exploring the consequences of such protectionism.

On the other hand, our study also contributes to the GVCs’ literature, which suggests that a clear pattern of dispersed and fragmented international MNE business activities emerges where offshore production sites located in low-cost developing countries are closely linked with consumers in developed markets. The critical role played by GVCs in international business, alongside the populist and nationalist rhetoric that is emerging from developed markets (e.g., the US), has generated a severe backlash against globalization and the very nature of GVCs due to the disappearance of local companies and firing of workers resulting from increased foreign competition. The global integration of value chain activities is disrupted by import tariffs, anti-globalization policies, and restrictions on the migration of skilled labor for the free flow of ideas and knowledge through GVCs. Institutional changes have reversed the globalization trend, with governments implementing protectionist measures and weakening global institutions such as the World Trade Organization. Globalized industries are increasingly more likely to be severely affected by trade protectionism – in the form of increased tariffs and trade restrictions to reduce imports in an attempt to protect domestic sectors and boost local employment, which limits the trade activities of MNEs and restrains the free flow of goods, services, and capital across borders. This situation has been made more complicated, for example, by the US’s ‘America First’ policy stance, resulting in the initiation of strict industrial policies and tariff wars aimed at curtailing imports from Canada, Mexico, Europe, and China. We advance the GVCs literature by connecting it with the de-globalization literature, which had hitherto been largely viewed as separate despite being closely associated. We synthesize the key insights and establish the link between the two streams of literature, proposing that trade protectionism plays a key role in shaping policy reforms and tariffs in order to control GVC activities and spur local economic activities for low-skilled workers.

Besides contributing to knowledge, our study has practical and policy implications. First, it provides insights to MNEs’ decision-makers about changing global market environment. Given the fact that the trade protectionist measures by governments are increasing trade barriers for MNEs and disrupting GVCs, it is vital for MNEs to consider macro-economic factors including protectionism policies that undoubtedly determine the effectiveness of GVCs. This high-level consideration is particularly relevant for those decision-makers of MNEs who are doing the cost–benefit analysis of developing and nurturing GVCs. The consequence of protectionism having disrupted GVCs is that the over-reliance on global partners affected the operations of MNEs, thereby reducing their profitability. Therefore, decision-makers must determine which activities should be outsourced to global partners and which should be assigned to regional partners. By doing this, MNEs can diversify their outsourcing activities at both regional and global levels, therefore achieving profit gains even during disruptive events. Moreover, this study has important implications for policies and policy-makers. On the one hand, there is an urgency for policies that should reduce trade deficits and cut the import tariff revenue losses suffered by MNEs in order to improve their competitiveness. On the other hand, it is vital for policy-makers to pay greater attention to the populace with low education levels and low skill sets, who are vulnerable to ever-changing job environments, since these marginalized low-skilled workers who forced the de-globalization movement desperately need their governments to take actions by, for instance, creating favorable policies to help and protect them as well as providing them with training opportunities.

The remainder of this paper is structured as follows. Next, we review the literature on GVCs and trade protectionism. We then detail our methodology with an explanation of the data collection and analysis process. Subsequently, we present our findings on how US trade protectionism affects the GVC activities of MNEs. Before concluding, we present the theoretical and practical implications of our study as well as its limitations.

To read the full research article as it was published by Springer Nature, click here.

To read the full research article, click here. 

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The post The New Protectionism Between The USA And China And International Trade Policy Amid Worldwide Geopolitical Turbulence appeared first on WITA.

Armed with massive subsidies and tariffs, the US and EU are leading this trend towards protectionism. This may change the global trade system as we know it.

Avantika Goswami, the writer of the DTE report and programme manager for climate change at the New Delhi-based think tank Centre for Science and Environment (CSE), said:

In the race to build low-carbon economies, countries are introducing policies to speed up the transition from fossil fuels, promote manufacturing of clean energy technologies and decarbonise industries. On the face of it, this race appears to be part of the global effort to cut greenhouse gas emissions. But they have also sparked fears of trade wars, as governments on the pretext of climate action try to reshore green industries and dominate the global supply chain of goods and technologies essential to avert a climate catastrophe.

CSE, which helps publish DTE, recently organised an international webinar on the subject, which was addressed by Rob Davies, former minister of trade and industry in South Africa; Paul Butarbutar, executive director, Indonesia Centre for Renewable Energy Studies; Katie Gallogly-Swan, economic affairs officer, UNCTAD; Apratim Sahay, senior policy manager, Green New Deal Network; Sunita Narain, director general, CSE and editor of DTE; and Goswami.

A new trade order

In August 2022, the US passed the Inflation Reduction Act (IRA) — a bill offering about $370 billion in subsidies, mainly through tax credits over 10 years, for renewable energy, electric vehicles, energy-efficient appliances, carbon capture and storage and clean hydrogen.

This has rankled other green technology manufacturing powers like the EU, South Korea and Japan, which fear that their companies may jump ship and expand business in North America.

“Developing countries like India cannot match the IRA’s scale of subsidies. If we take the example of electric vehicles (EVs) in our country, there are three incentive schemes that are offered — the Faster Adoption and Manufacturing of Electric Vehicles (FAME II) with an outlay of Rs 10,000 crore; and two Production-Linked Incentive (PLI) schemes of Rs25,398 crore (automotive sector including EVs) and Rs 18,100 crore (battery storage), respectively,” Goswami said.

There is also the question of access to critical minerals. Prices of minerals in the global market are set by the big players.

China is the biggest buyer today. Once the US enters this race for its own domestic manufacturing on a large scale, India will have to aggressively scale up its EV production to command prices on its own terms.

CSE experts suggest that India should focus on the EV sectors in which it has a ready domestic market — two-wheelers and three-wheelers, which constitute 63 per cent and 34 per cent of the domestic EV market.

It can also become a hub for recycling of spent batteries, which will enable it to recover the processed critical minerals that it is currently lacking. 

In December 2022, the EU reached a provisional agreement on a Carbon Border Adjustment Mechanism (CBAM) — a tax on imports of goods like steel and aluminium from countries with lax emission reduction rules.

The CBAM has been criticised by BRICS countries, and India’s finance minister has warned the country’s firms to reset themselves and be ready for “tariff walls coming up newly in the name of climate change”.

According to UNCTAD (United Nations Conference on Trade and Development), if applied at $44 per tonne, a CBAM will reduce global carbon emissions by not more than 0.1 per cent — but it will have an adverse distributional impact because it will decrease global real income by US $3.4 billion, with developed countries’ incomes rising by US $2.5 billion while developing countries’ incomes fall by US $ 5.9 billion. Other developed countries like the UK may follow suit and implement a carbon border tax.

When faced with the CBAM, developing countries need access to finance and technology to decarbonise their manufacturing sector so that export competitiveness is maintained.

For India, the EU is its third largest trading partner — the DTE report points out that India’s iron and steel and aluminium sectors would be the most exposed to CBAM, albeit to a lesser extent than other countries. India does not have one domestic carbon price – but it has an upcoming domestic carbon market, a national NDC and net zero target, and voluntary climate targets by industrial firms.

Whether or not this patchwork of market-based schemes and climate signals will create a case for Indian industry to avoid the tariff burden from CBAM is yet to be seen, Goswami said.

“A CBAM is directly attacking the market access of developing countries; and it could be expanded to all exports eventually. African countries are emitting the least, and the gain from imposing this tax on them would be minimal in terms of carbon emission reduction. We need to respond to these measures,” Davies said at the webinar.

As per UNCTAD, “policies like IRA and CBAM point to a missing developmental dimension in trade commitments, combined with growing evidence that industrialised economies are outsourcing pollution at the same time as they avail themselves of industrial policy tools to bolster their dominance within emerging green industries.”

Industrialisation has enabled sustained productivity growth in the EU and US, but industrial development has been an uphill battle for developing countries, in part due to trade agreements designed to constrain their policy space.

WTO — heavily influenced by developed countries — treats subsidies, tariffs and export bans as “trade distorting”. Thus, current trade rules prevent developing countries from using local content and technology transfer requirements,or tools like government procurement to stimulate domestic industries.

Now that rich countries are increasingly embracing industrial policy to ensure their economic resilience, it is difficult for them to prevent developing countries from implementing similar policies.

Katie Gallogly-Swan of UNCTAD echoed these sentiments expressed in DTE: “We need to reframe the trade rules for a time of climate change and address the long-standing concerns of developing countries. We need to strengthen the core principles of ‘special and differential treatment’ at WTO and ‘common but differentiated responsibilities’ in the UNFCCC process. A more positive agenda would support developing countries’ priorities, additional financing, green technology transfers, capacity building supporting environmentally sustainable economic diversification, and adequate policy and fiscal space to support their own integrated policies to advance towards their climate and developmental goals.”

Sunita Narain from CSE said: “We should look at what rules will work for us best (the developing world), and work for us in a climate-constrained world. We need to make sure we can combat emissions, and at the same time, have economic growth. In doing so, maybe for the first time we will end up making a trade deal which does not work against the environment, but for it; a deal that works for people.”

To read the full article, please click here.

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Before continuing, it is important to define some terms. Globalization occurs when societies around the world begin to interact and integrate economically and politically. The intercontinental trade experienced during the Age of Sail and via the Silk Road are early examples of globalization. Globalization really took off after World War II and received a recent boost with the widespread adoption of the internet. Importantly, globalization in common discourse includes both the voluntary economic activities between peoples of different nations and the involuntary geopolitical activities of governments.

In contrast, Ian Bremmer defines globalism as an ideology that calls for top-down trade liberalization and global integration backed by a unipolar power. Statists believe that market exchange between people is literally impossible without government; only when a group claims a legal monopoly on violence and then builds infrastructure, provides security, documents property titles, and serves as the final arbiter of disputes can a market come into existence. Globalism is the application of this perspective to international trade. Globalists believe that top-down global governance enforced and secured by a unipolar superpower enables globalization.

But, like statists on a more local scale, the globalist view is logically and historically flawed. Global trade was well underway before the first major attempt at global governance, the League of Nations, in 1919. The league’s stated aim was to ensure peace and justice for all nations of the world through collective security. Falling apart at the outset of World War II, it failed miserably. But globalism as an ideology found its footing after the war. Europe was devastated. This left the US and the USSR as the only two countries with the ability to exert power globally.

So began the fastest era of globalization in history. Trade exploded as people moved on from the war. The globalist project also got off the ground with the founding of the United Nations and the World Bank. Globalism was limited only by the ideological differences between the two superpowers. The USSR wanted to support revolutions while the US aimed for top-down trade liberalization—which drove the recent allies apart and plunged the world into the Cold War.

In the United States, the neoliberals and neoconservatives dominated the political mainstream through their shared mission to bring markets and democracy to the world at gunpoint and financed by US taxpayers. Fortunately for them, the rate at which their interventions at home and abroad were wrecking US society was slower than that of the Soviets. The abolition of prices and private property eventually led to the collapse of the USSR in the early 1990s. With its main adversary defeated, the United States had achieved one of the central tenets of globalism, unipolarity.

From the outset, the US establishment gorged itself on its new globe-spanning influence. Through new international organizations like the World Trade Organization, “free trade” agreements were introduced. Some ran for hundreds of pages, yet all free trade really requires is an absence of policy. The United States sailed its navy around the world’s oceans promising to secure shipping lanes like a global highway patrolman. Through the promise of US military security and the bankrolling of international governance organizations, US taxpayers were forced to subsidize global trade.

As Murray Rothbard highlights in Man, Economy, and State with Power and Market, there is no such thing as international trade in a truly free market. Nations would still exist, but they would be pockets of culture instead of economic units. Any state restrictions on trade between people based on location are a violation of their liberty and a cost to society. Most free-market economists understand this and advocate against state restrictions accordingly. But subsidies to international trade are also antithetical to the free market. The proper free-market position is the complete absence of policy on both sides. No restrictions and no subsidies. Let people freely choose who they do business with. There should be no hand on either end of the scale.

Economic integration was far from the only focus of the US regime during its unipolar moment. Too many people had gained wealth, power, and status during the Cold War as part of the US war-making class. Despite the USSR’s total collapse, the last thing the United States wanted to do was declare victory and give up its privileged position. Instead, the United States scrambled to find a new enemy to justify the continuation of those privileges. Their eyes settled on the Middle East where they would, in time, launch eight unessential wars that killed any notion of a “rules-based international order.” US unipolarity proved Albert Jay Nock correct; governments are only as peaceful as they are weak.

This institutional desire for war would sow the seeds of destruction for the United States’ unipolar moment. As the United States eviscerated any notion that it stood for a rules-based order through its adventurism in the Middle East, tension was brewing in Eastern Europe and East Asia. To the doubtless joy of weapons companies and foreign policy elites, the Russian and Chinese governments were transformed back into the United States’ enemies.

The Russian invasion of Ukraine in February was a huge win for the US war machine, but it also represented an enormous step backward for globalism. The Russians seceded from the global order the United States had led for three decades. The West’s reaction, grounded in strict sanctions and forced economic divestment, deepened the rift in the global system.

What the future holds is anyone’s guess, but the globalist dream of a singular system of global governance is surely wrecked for the near future as the Russo-Chinese bloc breaks away. There will be pain because so many connections between nations are controlled by governments; however, a significant degree of globalization is still valued by the world’s consumers. The data contradicts any idea that globalization is reversing. It is only slowing as governments attempt to drag consumers along on their quest to divest from the other side.

Despite the claims that globalization is dead, international trade is alive and well. But the drive toward an interconnected world is slowing down as the ideology of globalism experiences its biggest setback in decades. The statist conflation of unipolar global governance and international trade explains where these claims are coming from and why they are flawed.

Connor O’Keeffe is a writer and video producer at the Mises Institute. He has a masters in economics and a bachelors in geology.

To read the full article, click here. 

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We argue that public opinion on free trade is affected not just by domestic factors such as education and gender, but also by the actions of foreign countries. Our central hypothesis is that protectionism from abroad reduces public enthusiasm for free trade in target countries. We argue that this decline in public support for trade reflects individuals’ preferences for two distinct types of reciprocity. Existing research on public attitudes towards international politics highlights the importance of direct reciprocity, which refers to declining support for cooperation with countries that do not cooperate. Along these lines, we expect the public to want to retaliate by raising tariffs on imports from the protectionist country.

To read the full report, click here.

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This analysis considers the most important trade remedy beneficiary industries (at the North American Industry Classification System [NAICS] four‐​digit industry level) among the construction sector’s material suppliers. For each industry, we determined the share of imports subject to new trade remedies measures and then identified changes to the share that are not attributable to industry‐​level economic outcomes related to the construction sector (e.g., previous employment and price dynamics). Finally, we combined these identified changes in trade remedies with disaggregated input‐​output tables to determine the exposure of the U.S. construction sector to trade remedies restrictions won by its domestic suppliers (a.k.a. “upstream protectionism”). We used this measure to estimate the dynamic effects of upstream protectionism on U.S. construction material costs—in other words, to determine how trade remedies affect U.S. prices of key construction inputs like lumber.

We found that upstream protectionism in the United States increases domestic construction material costs. In particular, a uniform 1 percentage point increase in the share of construction material imports into the United States that are subject to new trade remedies (approximately corresponding to a 1.35 percentage point uniform import tariff) increases the domestic price of those materials by 0.9 percent after six months. These results are statistically significant and confirmed by using an alternative measure of construction material costs specific to residential construction. Therefore, U.S. protectionism has increased domestic construction costs, with potentially significant consequences for American homebuyers.

To read the full report from the Cato Institute, please click here. 

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The vigor with which major economies – including Europe, India, China, and beyond – are pursuing data sovereignty policies is concerning, particularly as research on the issue is still emerging. Policymakers are proposing regulations without understanding their inevitable effect – an internet with borders that threatens to reverse trends in growth and equity. A world wherein data cannot cross borders is one where international trade is more difficult, communication is more inconvenient, and opportunities shrink.

This paper by Dr. Deborah Elms of Asian Trade Centre discusses the potential consequences of data sovereignty regulation in Asia and the Pacific. Policies seeking to achieve digital sovereignty are fraught with risks, with small economies and businesses bearing the brunt.

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

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The post Annual Report on the EU’s Anti-Dumping, Anti-Subsidy and Safeguard activities and the Use of Trade Defence Instruments by Third Countries targeting the EU in 2020 appeared first on WITA.

Today, the trade landscape looks like a battlefield. Protectionist policies are on the rise. Global trade governance has been derailed. The two largest economies in the world remain locked in the most significant trade war in 90 years, while smaller trade spats are breaking out across the globe. We are approaching an inflection point. If we hope to continue to derive transformative benefit in the decades to come, trade relationships will need to be reimagined.

In this essay, Hinrich Foundation Senior Research Fellow Stephen Olson notes that hardheaded pragmatism should point us towards a greater emphasis on broad based mutual benefit in our trade relationships. It would be counterproductive to have idealized expectations about a “Kumbaya moment”, but resorting to protectionism and the ‘blame game’ will do little to secure a sustainable future for workers, consumers, companies, and economies.

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

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