There was a time when cars manufactured in China were ridiculously unsafe. They tended to crumple in a collision like they were made of cardboard. But over the past 20 years, the Chinese have learned a lot from the American and European car companies that started manufacturing in China, thanks to local rules that require foreign companies to partner with a Chinese company.

That requirement has sparked a transfer of information and technology unlike any in modern history. Today the Chinese are making cars that are as good or better than those from companies like Mercedes, Ford, Volkswagen, or GM, and the Chinese new car market dwarfs all others. Last year, there were 27 million new cars sold in China, 13.75 million cars and light trucks sold in the US, and 9.25 million cars sold in the EU.

Now the Chinese automakers are ready to start exporting cars to foreign markets, but are finding Europe much more welcoming of Chinese made cars than the US, which has been having an on again, off again trade war with China since a former failed president bragged that trade wars were easy to win.

Tariffs play a major role here. The EU import duty on foreign made cars is 10%, and all cars — foreign and domestic — are eligible for EV purchase incentives. In the US, the import duty is 27.5% and only cars that follow stringent rules regarding the sourcing of battery materials and components are eligible for federal EV incentives. In addition, cars must have their final assembly point in the US, Canada, or Mexico.

Some political leaders in the EU are beginning to question whether lax import rules will lead to a swarm of Chinese cars coming to the Continent that overwhelms domestic manufacturers. The latest offering from Volvo — which is owned by Geely, a Chinese company — is instructive. The new Volvo EX30 is a world class electric car, albeit a smallish one, and its price of just $34,995 in the US is a shot across the bow of every other car company.

5.4 million battery-electric vehicles were sold in China last year, which is two-thirds of all EV sales in the world. China also controls 76% of global battery cell production capacity and has a dominant position in every aspect supply chain for raw materials used to manufacture all those batteries. That offers the country’s carmakers a strategic advantage and the ability to build EVs at prices that few can match.

China & Europe Collide

That’s a potential headache for European automakers. The EU proposes to ban cars with conventional engines by 2035. Who is going to supply customers with affordable cars when that happens? The Chinese, says Politico. Last quarter, for the first time in history, China surpassed Japan to become the world’s leading auto exporter, according to China’s General Administration of Customs. “The quality and value for Chinese cars has improved by leaps and bounds, especially in the last three years,” said Michael Dunne, an independent automotive consultant active in the US and China.

Chinese exports were only 3.5% of European auto sales last year, according to S&P Global. But Transport & Environment estimates that Chinese companies could make up 18% of the EV market in Europe by 2025. Germany’s national statistics office said in May that imports of electric vehicles from both Chinese companies, including companies like Volkswagen who import cars manufactured in China to Europe, represented 28% of all its EV imports in this year’s first quarter — three times more than during the same period in 2022.

“They are leveraging their specific product know how over incumbent European brands that employ a lot of people to make engines,” one senior automotive manager told Politico. To match that kind of efficiency, “VW would have to lay off half of its staff.”

The risk to Europe’s economy is extreme, Politico says. Cars are the continent’s largest industry and biggest employer and account for 10% of manufacturing activity. Until now, car exports from Europe have generated a trade surplus of between €70 billion and €110 billion every year over the past decade for the European economy, but there is a real danger that surplus could diminish or even disappear as Chinese electric cars go from a trickle to a flood.

The prospect of that trade surplus evaporating is leading to growing pressure on the European Commission to boost tariffs on foreign cars. Automakers in France want higher trade barriers, but the big German manufacturers, which are reliant on sales of their cars in China, worry that protectionist tariffs could bring retaliation from Beijing.

William Todts, the head of Transport & Environment, wants as many people as possible to switch to EVs, but not if it destroys the continent’s most important industry. “The goal is not to obstruct ambitious car and battery makers: the world sorely needs them. It’s to ensure intense but fair competition,” he wrote recently, adding that if the EU doesn’t act to block unfair competition from both China and the US, “Europe may well be on course to become a dumping ground for subsidized Sino-U.S. EVs and batteries.”

America Fears China

The generous incentives for electric cars and trucks baked into the Inflation Reduction Act are designed primarily to blunt the ability of Chinese companies to flood America with cheap electric cars. It is also intended to boost domestic (read non-Chinese) sourcing of battery materials.

The political winds in America are dramatically anti-China at the moment. “Mention the word ‘China’ to a member of the House or Senate, Democrat or Republican, the executive branch, they will give you the same look and say, ‘No, not welcome here,’” said Michael Dunne.

An example of the anti-China sentiment can be found in the experience of Microvast, a Texas company that won a tentative $200 million grant from the Biden administration to build a battery component factory in Tennessee. The government said the goal of the award was “bolstering domestic supply chains for lithium ion batteries and creating well paying jobs in the United States.”

Last month, the Energy Department announced with little explanation that it would not award the money after all. The proposed grant had drawn ferocious criticism from congressional Republicans because of the company’s ties to China, including a Microvast subsidiary there.

Ford got similar pushback in February when it said it would work with CATL, the largest battery maker in the world and one that is based in China. Ford insists it is just licensing the technology and that CATL will have no role in the factory. Ford CEO Jim Farley told a financial conference earlier this year, “They have some of the best battery technology. If localizing their technology in the U.S. gets caught up in politics, the customer is really going to get screwed.”

Gotion, another battery company based in China, is experiencing its own set of problems as it tries to establish a battery factory in northern Michigan. Despite the prospect of good paying jobs in an area that desperately needs them, the reception from the locals has been hostile, and that is putting it mildly.

The Takeaway

One solution Chinese companies could try is to build factories in America. After all, that is one of the things the IRA is meant to encourage. Doing so is what helped Japanese companies become successful in the US market. Today Japanese companies are firmly embedded in the US economy, and no one gives it a second thought. If China finds building US factories is too fraught, it could try establishing factories in Mexico to avoid the burden of the US import duty. (To be fair, China has had an import duty of 25% on all cars imported from the US for many years, so it’s not like the US tariff is out of line.)

A utopian would look at the enormous challenges the Earth faces as average temperatures continue their uphill climb and perhaps adopt the wisdom of Rodney King, who so famously said, “Can’t we all just get along?” The obvious answer is obviously no, we cannot. For many years, the US reveled in the fact that low paid minions around the world were keeping the shelves at Walmart stocked with inexpensive goods, but now the wheel has turned and “globalization” has lost much of its allure, and the shoe is on the other foot, so to speak.

How the world handles the challenge of low cost electric cars from China will be indicative of how it deals with more pressing problems. Looking at the current situation, it’s hard to be overly optimistic that humans will be able to put aside their parochial interests for the common good. Perhaps the next species to have mastery over the Earth will be better at pursuing cooperation instead of “winner take all” competition.

The Earth doesn’t care where electric vehicles come from, but humans do. ‘Tis a conundrum for sure.

Steve writes about the interface between technology and sustainability from his home in Florida or anywhere else The Force may lead him. He is proud to be “woke” and doesn’t really give a damn why the glass broke. He believes passionately in what Socrates said 3000 years ago: “The secret to change is to focus all of your energy not on fighting the old but on building the new.”

To read the full article, please click here.

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Overall, total Chinese exports in November fell 8.7% year-on-year to $296.1 billion, more than double the percentage drop that analysts had forecast. It was far worse than a 0.4% year-on-year drop in October, and the worst performance since February, 2020.

The decline was made up above all of a slump across a wide swath of manufactured consumer goods that Americans consume. Exports of high-tech products, for example, declined 23.6% to $74.8 billion. Exports of mobile phones were down 33.3% to $11 billion. Exports of toys declined 21.7% to $3.6 billion, and shipments of textiles fell 14.8% to $11.3 billion.

There was a notable exception. Exports of motor vehicles, a burgeoning industry in China, including the production of electric cars, surged 113.3% to $7.7 billion.

The bleak picture has been attributed in part to China’s strict Covid-19 controls, which has shut down businesses and confined millions of people to their homes.

But the bigger structural problem is that people in the U.S., traditionally China’s top market, have less money in their pockets after their stimulus payments have run out and less capacity to borrow as interest rates spike, and that’s affecting China. Exports to the European Union dropped 10.5% to $44.8 billion, while exports to the U.S. fell 25.4% to $40.8 billion, knocking the U.S. into second place behind the EU among China’s trade partners.

The weaker global economy is why China’s economy is now forecast to expand by only 3% in 2022, below the government’s aim of 5.5%. As banks in Washington and Frankfurt raise interest rates to tame inflation, the picture is expected to get worse before it gets better.

The economic picture is accentuating protectionist sentiment in Washington and beyond, and spooking corporations, including Apple, who are moving their supply chains closer to home, a trend known as “nearshoring” or “friendshoring”, rupturing ties with established manufacturers in China, and further deflating trade.

One exception continues to be ASEAN countries, where Chinese companies have been finding new, enthusiastic buyers for their products. Shipments to ASEAN countries rose 5.7% to $50.3 billion. Perhaps as a response, EU-U.S. trade has been increasing, according to trade statistics.

Beijing responded to the tepid exports by saying it would seek to stimulate domestic demand.

Total imports dropped 10.6% year-on-year in November to $226.3 billion. Imports dropped in almost every category. Inward shipments of motor vehicles, for example, fell 21.2% to $4.2 billion. There were only a few exceptions. Imports of vegetable oil rose 73.7% to $1.4 billion. Imports from the EU declined 16.2% to $22.9 billion, while shipments from the U.S. fell 7.1% to $16.5 billion.

It looks like a bleak picture, but China is such a massive economy that there are always some silver linings, niche areas of the global economy where it has an edge.

The reorientation of global energy markets has created opportunities for China’s petroleum sector. China has emerged as the key swing buyer, and processor and re-exporter, of Russian oil and gas coming on the market as traders prepare for a European embargo. Imports from Russia increased 26.8% to $10.5 billion.

China is importing more petroleum, and then processing and reexporting refined fuel at a profit, according to trade statistics. Imports of petroleum rose 11.8% year-on-year in November by quantity to 46.7 million tons. By value they increased 26.8% to $31.6 billion.

Meanwhile, China exports of petroleum products, mainly fuels, rose 46.6% by volume to 6.1 million tons. Because of price increases, by value they increased 98% to $5.4 billion. And Russia is becoming a better export market, too. Exports to Russia rose 18% to $7.7 billion.

On Monday, in a video conference, Premier Li Keqiang said the two nations would continue their cooperation.

John W. Miller is Trade Data Monitor’s Chief Economic Analyst, in charge of writing TDM Insights, a newsletter analyzing key issues through trade statistics. John is an award-winning journalist who’s reported from 45 countries for the Wall Street Journal, Time Magazine, and NPR.

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The European Union pitched the council last year. Its leaders realized that it was in the interest of America and Europe—each other’s largest trading partner—to smooth over accumulated differences of opinion and develop a coordinated approach on trade and technology. But a secondary reason for the potential new council might be more consequential: Both sides want to set common technological standards. Doing so would afford the U.S. and EU the ability to deal with the underestimated long-term national security threat posed by China.

The EU’s approach to regulating technology, in particular American technology, is unintentionally exacerbating the China threat. A proposal for sweeping new legislation aimed at American Big Tech may have unwittingly created an opening for China. Introduced last December, the proposed Digital Markets Act intends to promote a level playing field for online services and to prevent anti-competitive practices. Ironically, it might instead enable a country that steals intellectual property as a matter of national policy, blocks access to foreign products, and couldn’t be more opposed to the fundamental values of European democracies.

America traditionally deals with anti-competitive marketplace acts after the fact. But in keeping with Europe’s typically more aggressive regulatory approach, the DMA is designed in anticipation of possible future competitive harm—without specific proof that such harm has occurred. The bill would limit the ability of online “gatekeepers,” such as search engines and marketplaces, to promote their own products. It would downplay security and privacy concerns in order to force app stores to allow apps from other developers using separate payment systems. The DMA would also force gatekeepers to share IP and trade secrets—such as search ranking and click data—with direct competitors.

Just who would the DMA classify as gatekeepers? The law is far from final and doesn’t name explicit targets. But—surprise—it’s Microsoft, Google, Amazon,Apple, and Facebook that would be regulated under its current criteria. No giant European tech firms. Nor any of the Chinese online giants such as WeChat (1.2 billion users around the globe) or its corporate parent Tencent (the largest video game vendor and one of the 10 biggest companies in the world). Far from leveling the playing field, the bill would penalize the business models of successful American tech companies, and naively leave the field open to China. Its companies could exploit the DMA’s arbitrary thresholds to increase their presence in the EU digital economy at the expense of American companies.

The practices targeted by the proposed law are fair topics for debate and regulation. No one’s saying American Big Tech should be shielded from competition. But against China, it’s lopsided competition. Letting that happen is not only unfair, it’s also shortsighted and perhaps dangerous. 

It’s lopsided because of the unique way China enters and then seeks to control overseas markets, the result of a profoundly integrated and coordinated effort by the entirety of the Chinese government and economy. With strategic goals of market domination set by the Chinese Communist Party, the Chinese government puts political pressure on a country to buy Chinese products, a Chinese development bank arranges a low-interest loan, the subsidized state-owned enterprise offers an irresistibly cheap price (and is not subject to U.S. antibribery laws), and even Chinese private sector companies are directed as to how they price and market their products and services. Americans have trouble fully appreciating the scope and effectiveness of China’s system, because this approach seems so different. Our private sector’s success abroad is due far more to superior products than to government promotion.

China requires that its companies turn over data to the government if it asks. The United States and United Kingdom looked at that policy and decided to ban Huawei’s 5G equipment from their networks. If, due to its aggressive tactics, China had an outsized role in the internet on the continent, it would reach deep into European personal and commercial lives. China has a unique way of integrating its payment systems into all online operations. WeChat Pay and Alipay have basically displaced cash in China. If they achieve anything like that prevalence in Europe, the financial and personal details of over 400 million Europeans could be stored on Beijing’s computers. The DMA fits a pattern in which Europeans generally minimize the risks of improper data collection by China for national security purposes (including the advancement of their artificial intelligence programs) and of being locked into Chinese technical standards.

China is perfectly willing to use economic coercion as a tool of statecraft, making market access a means of state ends. When Norway awarded the 2010 Nobel Peace Prize to a Chinese dissident, Norwegian salmon fishermen bore the consequences. China banned their salmon imports and did not relent for six years. Time and again, in disputes with the United States, South Korea, Japan, and others, innocent commercial parties have been held hostage to Chinese government demands. If the DMA succeeds in hampering American tech firms in Europe, and China rushes in to fill the void, Europeans will be vulnerable. WeChat Pay has said it sees Europe as its next key market. It’s not hard to imagine it succeeding. What’s to keep Chinese authorities from threatening to stop commercial payments on that platform until France rectifies some perceived affront to China?

China, Europe, and the United States have much to gain from each other, especially when fair competition drives innovation. Demonizing China is counterproductive if not risky. But it’s equally a mistake to not candidly face the threats posed by a powerful nation that does not share our democratic values. At a minimum, these issues need a frank and honest airing. The EU-US Trade and Tech Council could be a vehicle to persuade Europe it isn’t fully appreciating those national security threats.

Glenn S. Gerstell served as the general counsel of the National Security Agency from 2015 to 2020, and is currently a senior adviser at the Center for Strategic & International Studies.

To read the full commentary from Barron’s, please click here.

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Waiving patent protections is certainly no panacea. What is needed most urgently is a massive drive of technology transfer, capacity expansion, and supply line coordination to bring vaccine supply in line with global demand. Dispensing with patents in no way obviates the need for governments to fund and oversee this effort.

Although focusing on these immediate constraints is vital, we cannot confine our attention to the short term. First of all, the COVID-19 pandemic is far from over. Although Americans can now see the light at the end of the tunnel thanks to the rapid rollout of vaccines, most of the world isn’t so lucky. The virus is currently raging in India and throughout South America, overwhelming health care systems and inflicting suffering and loss on a horrific scale. And consider the fact that Australia, which has been successful in suppressing the virus, recently announced it was sticking to plans to keep its borders closed until mid-2022. Criticisms of the TRIPS waiver that focus only on the next few months are therefore short-sighted: this pandemic could well drag on long enough for elimination of patent restrictions to enable new vaccine producers to make a positive difference.

Furthermore, and probably even more important, this is almost certainly not the last pandemic we will face. Urbanization, the spread of factory-farming methods, and globalization all combine to increase the odds that a new virus will make the jump from animals to humans and then spread rapidly around the world. Prior to the current pandemic, the 21^st century already saw outbreaks of SARS, H1N1, MERS, and Ebola. Everything we do and learn in the current crisis should be viewed from the perspective of getting ready for next time.

THE NATURE OF THE PATENT BARGAIN

When we take the longer view, we can see a fundamental mismatch between the policy design of intellectual property protection and the policy requirements of effective pandemic response. Although patent law, properly restrained, constitutes one important element of a well-designed national innovation system, the way it goes about encouraging technological progress is singularly ill-suited to the emergency conditions of a pandemic or other public health crisis. Securing a TRIPS waiver for COVID-19 vaccines and treatments would thus establish a salutary precedent that, in emergencies of this kind, governments should employ other, more direct means to incentivize the development of new drugs.

Here is the basic bargain offered by patent law: encourage the creation of useful new ideas for the long run by slowing the diffusion of useful new ideas in the short run. The second half of the bargain, the half that imposes costs on society, comes from the temporary exclusive rights, or monopoly privileges, that a patent holder enjoys. Under U.S. patent law, for a period of 20 years nobody else can manufacture or sell the patented product without the permission of the patent holder. This allows the patent holder to block competitors from the market, or extract licensing fees before allowing them to enter, and consequently charge above-market prices to its customers. Patent rights thus slow the diffusion of a new invention by restricting output and raising prices.

The imposition of these short-run costs, however, can bring net long-term benefits by sharpening the incentives to invent new products. In the absence of patent protection, the prospect of easy imitation by later market entrants can deter would-be innovators from incurring the up-front fixed costs of research and development. But with a guaranteed period of market exclusivity, inventors can proceed with greater confidence that they will be able to recoup their investment.

For the tradeoff between costs and benefits to come out positive on net, patent law must strike the right balance. Exclusive rights should be valuable enough to encourage greater innovation, but not so easily granted or extensive in scope or term that this encouragement is outweighed by output restrictions on the patented product and discouragement of downstream innovations dependent on access to the patented technology.

Unfortunately, the U.S. patent system at present is out of balance. Over the past few decades, the expansion of patentability to include software and business methods as well as a general relaxation of patenting requirements have led to wildly excessive growth in these temporary monopolies: the number of patents granted annually has skyrocketed roughly fivefoldsince the early 1980s. One unfortunate result has been the rise of “non-practicing entities,” better known as patent trolls: firms that make nothing themselves but buy up patent portfolios and monetize them through aggressive litigation. As a result, a law that is supposed to encourage innovation has turned into a legal minefield for many would-be innovators. In the pharmaceutical industry, firms have abused the law by piling up patents for trivial, therapeutically irrelevant “innovations” that allow them to extend their monopolies and keep raising prices long beyond the statutorily contemplated 20 years.

Patent law is creating these unintended consequences because policymakers have been caught in an ideological fog that conflates “intellectual property” with actual property rights over physical objects. Enveloped in that fog, they regard any attempts to put limits on patent monopolies as attacks on private property and view ongoing expansions of patent privileges as necessary to keep innovation from grinding to a halt. In fact, patent law is a tool of regulatory policy with the usual tradeoffs between costs and benefits; like all tools, it can be misused, and as with all tools there are some jobs for which other tools are better suited. A well-designed patent system, in which benefits are maximized and costs kept to a minimum, is just one of various policy options that governments can employ to stimulate technological advance—including tax credits for R&D, prizes for targeted inventions, and direct government support.

PUBLIC HEALTH EMERGENCIES AND DIRECT GOVERNMENT SUPPORT

For pandemics and other public health emergencies, patents’ mix of costs and benefits is misaligned with what is needed for an effective policy response. The basic patent bargain, even when well struck, is to pay for more innovation down the road with slower diffusion of innovation today. In the context of a pandemic, that bargain is a bad one and should be rejected entirely. Here the imperative is to accelerate the diffusion of vaccines and other treatments, not slow it down. Giving drug companies the power to hold things up by blocking competitors and raising prices pushes in the completely wrong direction.

What approach to encouraging innovation should we take instead? How do we incentivize drug makers to undertake the hefty R&D costs to develop new vaccines without giving them exclusive rights over their production and sale? The most effective approach during a public health crisis is direct government support: public funding of R&D, advance purchase commitments by the government to buy large numbers of doses at set prices, and other, related payouts. And when we pay drug makers, we should not hesitate to pay generously, even extravagantly: we want to offer drug companies big profits so that they prioritize this work above everything else, and so that they are ready and eager to come to the rescue again the next time there’s a crisis.

It was direct support via Operation Warp Speed that made possible the astonishingly rapid development of COVID-19 vaccines and then facilitated a relatively rapid rollout of vaccine distribution (relative, that is, to most of the rest of the world). And it’s worth noting that a major reason for the faster rollout here and in the United Kingdom compared to the European Union was the latter’s misguided penny-pinching. The EU bargained hard with firms to keep vaccine prices low, and as a result their citizens ended up in the back of the queue as various supply line kinks were being ironed out. This is particularly ironic since the Pfizer-BioNTech vaccine was developed in Germany. As this fact underscores, the chief advantage of direct support isn’t to “get tough” with drug firms and keep a lid on their profits. Instead, it is to accelerate the end of the public health emergency by making sure drug makers profit handsomely from doing the right thing.

Patent law and direct support should be seen not as either-or alternatives but as complements that apply different incentives to different circumstances and time horizons. Patent law provides a decentralized system for encouraging innovation. The government doesn’t presume to tell the industry which new drugs are needed; it simply incentivizes the development of whatever new drugs that pharmaceutical firms can come up with by offering them a temporary monopoly. It is important to note that patent law’s incentives offer no commercial guarantees. Yes, you can block other competitors for a number of years, but that still doesn’t ensure enough consumer demand for the new product to make it profitable.

DIRECT SUPPORT MAKES PATENTS REDUNDANT

The situation is different in a pandemic. Here the government knows exactly what it wants to incentivize: the creation of vaccines to prevent the spread of a specific virus and other drugs to treat that virus. Under these circumstances, the decentralized approach isn’t good enough. There is no time to sit back and let drug makers take the initiative on their own timeline. Instead, the government needs to be more involved to incentivize specific innovations now. As recompense for letting it call the shots (pardon the pun), the government sweetens the deal for drug companies by insulating them from commercial risk. If pharmaceutical firms develop effective vaccines and therapies, the government will buy large, predetermined quantities at prices set high enough to guarantee a healthy return.

For the pharmaceutical industry, it is useful to conceive of patent law as the default regime for innovation promotion. It improves pharmaceutical companies’ incentives to develop new drugs while leaving them free to decide which new drugs to pursue – and also leaving them to bear all commercial risk. In a pandemic or other emergency, however, it is appropriate to shift to the direct support regime, in which the government focuses efforts on one disease. In this regime, it is important to note, the government provides qualitatively superior incentives to those offered under patent law. Not only does it offer public funding to cover the up-front costs of drug development, but it also provides advance purchase commitments that guarantee a healthy return.

It should therefore be clear that the pharmaceutical industry has no legitimate basis for objecting to a TRIPS waiver. Since, because of the public health crisis, drug makers now qualify for the superior benefits of direct government support, they no longer need the default benefits of patent support. Arguments that a TRIPS waiver would deprive drug makers of the incentives they need to keep developing new drugs, when they are presently receiving the most favorable incentives available, can be dismissed as the worst sort of special pleading.

That said, it is a serious mistake to try to cast the current crisis as a morality play in which drug makers wear the black hats and the choice at hand is between private profits and public health. We would have no chance of beating this virus without the formidable organizational capabilities of the pharmaceutical industry, and providing the appropriate incentives is essential to ensure that the industry plays its necessary and vital role. It is misguided to lament that private companies are profiting in the current crisis: those profits are a drop in the bucket compared to the staggering cost of this pandemic in lives and economic damage.

Brink Lindsey is a vice president at the Niskanen Center

To read the full commentary, please click here.

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Inside the concrete compound on the shores of Lake Geneva that houses the World Trade Organization is a colourful classical Chinese garden. Bearing elegant rock formations, arches and calligraphy, the Gusu Garden was a gift from China in 2013 to commemorate its entry into the WTO.

The post How China’s Economic Heft Can Reshape The WTO And Global Trade For The Better appeared first on WITA.

This trade is carried out both through unofficial crossings (where goods are smuggled across the border) and over official border points – where goods are not declared. Considered a legitimate source of livelihood this trade not only supplies the borderlands, but is also a vital supply line for the wider region.

Different reasons account for the informality of cross border trade. These include cumbersome border procedures, shortages of particular commodities on either side of the border, and different taxation levels (with the consequent price difference offering attractive margins for smugglers). Added to these is corruption, and harassment of traders by state officials. For these reasons many traders avoid border controls altogether.

Uganda’s central bank has been collecting data on undeclared goods passing through official border points. Between 2010 and 2018, Uganda’s informal exports to the DRC nearly doubled, from US$ 143.2 million to US$ 269.8 million. Given that formal exports to the DRC for those years respectively were US$ 184 million and US$ 204 million, these figures highlight the importance of informal cross-border trade.

The COVID-19 pandemic has disrupted cross-border mobility worldwide and its policy consequences are therefore particularly visible around borders.

But, what has been the impact of the pandemic on informal cross-border trade along the Uganda-DRC border? Our new research in a number of key border points found that cross-border trade has been severely affected, with knock-on effects on various aspects of lives far beyond the borderlands. For example, as north-eastern DRC largely depends on imports from Uganda for much of its commodities (such as salt, sugar or soap), their supply in basic goods was strongly affected.

However, we also found that players in the informal trade adapted to various changing COVID-19 policies and contexts, including differences in pandemic responses in Uganda and DRC.

COVID measures

Uganda has imposed some of the strictest COVID-19 lockdown rules in the world. At the start in March, 2020, Uganda ordered a stay-at-home lockdown and the closure of all its borders – except for cargo truck drivers. Soon after, it suspended all public transport and non-food markets, and a nationwide curfew.

This led to a severe disruption in supply and distribution channels – both formal and informal. Uncertain supplies and speculative behaviour led to increasing and fluctuating prices throughout the borderlands region.

In order to reduce risk, most informal traders deal in a variety of items. These traders adjusted in a variety of ways. As the initial ban in Uganda excluded food markets, traders would shift from nonfood to food items. Yet, particularly in the initial phase of the lockdown, this was not easy, as it remained difficult to transfer goods across the border.

Second, the cost of trading increased as truck drivers had to undergo screenings leading to long waiting times. Formal exports and imports were “slowed down or completely halted by the COVID-19 restrictions.” This had a range of impacts, such as the loss of perishable and short-life items due to the restrictions on demand and supply.

Border areas are traditionally vulnerable to economic, political and mobility-related shocks. Cross-border trade run mostly by small-scale traders with fragile supply chains is especially prone to insecurity and upheaval.

The COVID-19 control measures in Uganda therefore had a severe impact on informal cross-border trade. Many traders lost merchandise, such as agricultural produce or livestock, that they were unable to sell. This led to increased financial stress among informal traders, who then often relied on informal loans, resulting in spiralling debt.

Surviving COVID-19 restrictions

While Uganda employed a heavy-handed approach, with the military shutting off official and unofficial border crossings, this was not the case on the Congolese side of the border. Congo’s president did announce the closure of the country’s borders and a state of emergency in March 2020. But these directives remained largely ineffective with Congolese authorities making no effort to limit crossings.

This allowed some limited opportunities for informal cross border trade. For example, while markets were forcibly closed on the Ugandan side of the border, they remained open on the Congolese side. As a result, many small-scale Ugandan traders shifted to the DRC to reside there. Many were unable to return due to the closed border, and often stayed in precarious conditions.

To move goods across the border, traders on either side of the border would pay truck drivers to transship goods. Overall, these were fairly small quantities, but still allowed traders to survive. But there were risks too. Traders complained about being duped or shortchanged by truck drivers entrusted with moving or sourcing goods. For example, a driver entrusted with buying Congolese coffee for sale in Uganda may deliver inferior quality beans.

Moreover, traders complained that Ugandan security officials were more vigilant in levying trade taxes but also irregular “foreigner taxes”, more so in the Rwenzori border region.

Informal trade is here to stay

Many COVID-19 border restrictions for traders in Uganda have now been lifted. In theory, travellers need to present a COVID-negative test issued no more than 120 hours before travel – but in practice this is not enforced for small-scale traders. Most security personnel have also been withdrawn from unofficial border crossings, through which cross-border mobility has improved again.

In sum, our research  demonstrates once more how informal border trade is a historically grounded reality, constituting an important source of livelihood, and supplier of goods, for many far and beyond. Formalisation of these dynamics should therefore not be seen as the solution, as it will threaten trade operations and endanger the economic viability of border communities.

Instead, what is key here is improving the trade environment for these traders. This can be achieved by tackling various other financial and non-financial obstacles, such as harassment by security officials. Doing so will help to deepen regional integration and foster development in these border communities.

To read the original blog by the The Conversation, please click here.

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According to the U.S. Department of Commerce, in 2019, U.S. exports of goods and services totaled $2.5 trillion and supported 10.7 million U.S. jobs. Of the 288,000 U.S. companies that exported goods in 2019, 97.4% were small and medium-sized enterprises (SMEs).  

With 96% of the world’s consumers located outside of the U.S., exporting is a crucial growth strategy that business owners should consider – especially minority-owned firms. Minority-owned businesses represented approximately 18.3% (1 million) of all U.S. businesses in 2018, according to the U.S. Census Bureau, and statistically are well-positioned to go global. According to the Minority Business Development Agency, they are twice as likely to export, three times as likely to already have international operations, and six times as likely to transact business in a language other than English. 

I have been passionate about increasing the number of minority and women exporters since I joined the U.S. Commercial Service 20 years ago as a global diversity outreach specialist. Now, in 2021, I am energized by the Commerce Department’s economic recovery plan for U.S. businesses and workers, which includes a focus on creating economic prosperity through exports, including minority exporters. The plan will be vital to improving our communities, particularly as they continue their recovery from the COVID-19 pandemic.  

Minority-owned businesses often have cultural ties, language skills, and flexibility that can provide unique advantages when exporting. These firms can readily leverage foreign language capabilities, diaspora, and contacts in foreign markets to sell their products and services overseas. Minority-owned companies are creative, innovative and are represented in every industry sector in the United States. Technology and cross-border eCommerce enable firms to go global from inception. 

Houston-based startup, and U.S. Commercial Service client, IPP Global, is one example of a minority-owned firm that found success in overseas markets. With export counseling and assistance from CS Houston, company executives decided to pursue export opportunities as part of their initial business strategy.

“Our focus went global right away because we noticed there’s a major pull from the African continent,” said IPP Global’s president, Peter Agbro. “There’s a major pull for U.S. technology internationally, and it’s an easy entry because there’s a high demand for U.S. technology as compared to within the U.S. itself. Within the U.S. the technology is abundantly available, and the competition is steep, but outside of the U.S. …competition is less, and there is a high demand for it. We started to plan for export almost immediately.”  

Despite these many advantages, historically, minority-owned SMEs, and other SMEs in underserved communities, continue to face steep challenges growing their business and adding jobs through new export sales. There are many reasons why—SMEs in underserved communities often lack knowledge about export opportunities, lack access to financing, and face difficulties in identifying and vetting overseas customers. Additionally, they often struggle to connect with appropriate service providers and resources that could help to facilitate an export transaction.

While the pandemic has increased complications for exporters, it has also ushered in developments that will help organizations like the International Trade Administration and the U.S. Commercial Service to be more inclusive and connect with more potential clients, including minority-owned businesses, as the U.S. economy recovers from the pandemic. More specifically, using digital tools and virtual services, we can assist more clients and provide more resources to help businesses to recognize their competitive advantages and seize opportunities.

• For example, this past year, we have advised companies to utilize the Single Company Promotion (SCP) as an out-of-the-box marketing option. The SCP provides a U.S. firm with a promotional event such as a technical presentation to help increase awareness of their existing/new products/services in a specific market. The U.S. Commercial Service organizes the event logistics; conducts a targeted direct mail or e-mail campaign; manages the promotional campaign and event-related logistics; and provides a post-event debriefing to discuss next steps.
• Additionally, through its eCommerce Innovation Lab and trained trade professionals, the U.S. Commercial Service offers valuable tools to help companies grow their brand for global sales. The Website Globalization Review Gap Analysis is the first step and provides technical and strategic assessment of a company’s eCommerce sales channel efforts and is aimed at helping companies acquire more international consumers online. 

These are just a few examples of the digital tools and resources that the U.S. Commercial Service has developed to support a more equitable, export-led, economic recovery. If you are a U.S. business interested in developing an export strategy, reach out to your local U.S. Export Assistance Center today.

Nya Igambi is Regional Director for the U.S. Commercial Service’s Southern Network. The Commercial Service (CS) is the trade promotion arm of the U.S. Department of Commerce’s International Trade Administration.

To read the original blog from the International Trade Administration, please click here.

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If you’re unsure how essential exporting is to our economy, consider the facts:

• Businesses that export are less likely to go out of business, record higher revenues, create more jobs, and pay higher wages than those that don’t.
• An average of 12% of the U.S. economy has consisted of exports every year for the past decade.
• The U.S. only accounts for 4% of the world’s population, which means there are plenty of markets and customers to explore.

We previously looked at the unusual export and import trends of 2020 and for 2021 will be issuing monthly updates to help us understand the economy’s performance. 2019 is also an important year for us to study, as it provides a baseline for us to understand the profile of U.S. exporters before the pandemic hit.

What goods & services does the U.S. export?

From mattresses to ice cream to financial services, the U.S. exports a huge variety of goods and services from every sector.

The United States. is globally competitive in many manufactured products. Aircraft, cars and parts, and semiconductors are our largest manufactured goods exports. Other key exports are agricultural products, with 20-25% of all food grown in the U.S. exported, and oil. Just as impressive are U.S. service exports like travel, business services, research, and intellectual property. We are the single largest exporter of services in the world; 14% of all global services exports originate here. Prior to the pandemic, U.S. travel and tourism averaged roughly $200 billion per year, and product R&D and intellectual property licensing combined averaged $144 billion per year.

What countries receive the most U.S. exports?

The largest destination for U.S. goods and services exports are Mexico and Canada, our neighbors and free trade partners in the United States–Mexico–Canada Agreement (USMCA). China, the United Kingdom and Japan also account for large shares of U.S. exports. Combined, these trade partners accounted for 43% of U.S. exports in 2019.

Where are U.S. exporters?

Exporters come from every pocket and community in the United States. Each state exports a variety of goods and greatly contributes to the diversity of American exports. For example:

• Texas is a center of oil and chemical production.
• California’s tech industry and orchards are world leaders.
• New York is a global hub for precious metals.
• Washington is a center of aircraft manufacturing.

Exporting is not just a game for the biggest states, though. Per person, South Carolina, Delaware, and Puerto Rico each export more goods than California.

What about U.S. small business exports?

Small- and medium-sized enterprises (SMEs) are the backbone of the U.S. economy: they create two-thirds of net new jobs and account for more than 40% of the U.S. economy. 97.4% of all goods exporters are SMEs. By export value, large exporters make up two-thirds of goods exports ($996 billion), while SMEs make up the remaining third ($460 billion).

What jobs are supported by exports?

U.S. exporters directly support U.S. jobs. According to ITA’s research, goods and services exports supported about 10.7 million jobs in 2019. Each $1 billion of exports supports about 5,095 jobs. Additionally, export-intensive industries pay more, on average, than those that sell mostly domestically. Workers employed in manufacturing industries that export earn 19% more  than their peers who work in manufacturing industries that don’t export. 

Trade with Mexico and Canada (through USMCA) and Asia support the most goods-related jobs, and trade with Europe supports the most services jobs. More manufacturing jobs are supported by the U.S.-Mexico-Canada free trade zone than by any other region.

To read the original blog by Tradeology, please click here.

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Many people know about ITA’s efforts to promote exports overseas, but ITA is also home to the Enforcement and Compliance (E&C) Unit, which administers trade remedies on imported products that are designed to rebalance the international trading system in the face of unfair trade practices like dumping or unfair pricing.

E&C teams are charged with the critical responsibility to take action when unfair trade practices threaten American competitiveness. The strongest tool that we use to maintain healthy competition in international trade is enforcing U.S. trade remedy statutes, which authorize E&C to investigate and, if necessary, apply antidumping (AD) and countervailing duties (CVD). But what, exactly, are antidumping and countervailing duties, how do they work, and why are they essential to a balanced system of global trade?

Antidumping duties are imposed when a foreign company undervalues its product when selling in the American market; countervailing duties are enacted when foreign governments provide unfair subsidies to an industry, which can result in artificially low prices for imports. These unfair trade practices have the potential to damage the competing U.S. industry. Some industries may be large enough to weather the damages caused by undervalued imports, but small and medium sized businesses are often unable to do so and therefore need effective relief from unfairly traded goods. The U.S. currently has AD/CVD duties in effect on 597 products from around the world – 37 percent of them cover products imported from China, and it is estimated that in recent years, the United States collected approximately $2.3 billion as a result of AD/CVDs. These trade remedies stabilize the market and hold foreign governments responsible for conducting trade in a fair and equitable manner.

Our trade remedy actions are bolstered by the work done by E&C’s Trade Agreements Negotiations and Compliance team which works with foreign governments on behalf of American companies to remove technical barriers to trade, and the Foreign-Trade Zones program which provides companies with a range of benefits, including streamlined customs procedures, to keep their business in the United States.

As our economy begins to rebound from the devastation brought on by the COVID-19 pandemic, trade remedies are essential component of building back better. They defend American jobs, help level the playing field for American businesses and industries, and contribute to a fair and equitable international trading system. If you’d like to learn more about the AD/CVD duties, please visit ITA’s webpage on U.S. Antidumping and Countervailing Duties.

Eric Anderson and Ava Jamerson are International Trade Specialists in the Enforcement & Compliance Office of Communications.

To read the original blog by the International Trade Administration, please visit here

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China’s economy has grown rapidly since its WTO accession in 2001, compounding at 14% per year in nominal USD terms, the measure that is perhaps most relevant to trade and investment flows. While Purchasing Power Parity (PPP) adjustments have their uses, for example in measuring poverty, trade and investment are transacted at market exchange rates and therefore GDP at market exchange rates is the most pertinent measure of potential. At US$14.3 trillion in 2019 (the last pre-COVID 19 year), China was still about 33% behind the United States at US$21.4 trillion (1).

One remarkable feature of China’s ascent has been the bifurcation in the structure of growth on either side of the Global Financial Crisis. At the time of China’s accession to WTO, trade in goods and services was just 38% of GDP but rose dramatically to 65% of GDP by 2006. Since then, it has declined back to 36% of GDP, making China more autarkical now than it was prior to WTO accession. As this ratio implies, both export and import growth have lagged GDP growth substantially post 2006.

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