What explains the stark inconsistency between what the people say they want and what the Republicans and Democrats, and especially those who wear those party labels in elected and appointed office in Washington, seem determined to give them?

According to the national survey, 66 percent of Americans believe global trade is good for the American economy; 64 percent believe it has increased material abundance in their own lives by increasing the variety of the products they can buy; 58 percent say it has improved their standard of living; 63 percent want to increase trade with other nations; 57 percent say doing so is good for their communities; and 53 percent have a favorable view of free trade.

Seventy-five percent of Americans worry that tariffs are raising consumer prices. Two-thirds of them, 66 percent, would oppose paying even $10 more for a pair of blue jeans due to tariffs—even if those tariffs are meant to help US blue jean manufacturing. In addition, three-fourths, 75 percent, worry that special interest groups are lobbying the government to impose tariffs or other restrictions on trade.

Virtually none of this is reflected in the current trade policies of our major political parties. Under the thrall of Donald Trump, Republicans have largely abandoned their longstanding historical support of free trade. Likewise, the decades-long struggle between free traders and protectionists for ascendancy in the Democratic Party has apparently ended in triumph for anti-trade protectionists. Although some Democrats are hoping Kamala Harris would step back as president from the most trade-restrictive and trade rule-scoffing of the policies of President Joe Biden—which are basically the same as those followed while in office by former President Trump—these wistful hopes seem mainly to be founded on wishful thinking.

Instead of pursuing the generally pro-trade sentiments of most of the American people, as demonstrated in the Cato survey, Republicans and Democrats alike are headed in the opposite direction. Trump is doubling and tripling down as “Tariff Man” with ever-evolving proposals for higher and higher tariffs on worldwide imports. The Democrats have had a hard time keeping up with his tariff-happy tweets, but they, too, are imposing and promising more regressive taxes on the American people in the form of tariffs.

Neither party seems to think trade is good for the American economy, neither appears to want to increase trade, and neither is trying to conclude or is committed to concluding more international trade agreements. Worst of all, Republicans and Democrats are united in ignoring international laws on trade and in impeding and undermining the World Trade Organization and its rule-based trade dispute settlement system.

Why this disjunction between the two parties and most of the people on trade? Put simply, both parties have been captured by minorities with minority views. Neither party is representing the broadest measure of their membership or the broadest extent of the American people. Both are responding mostly to their political “base,” which ignores a lot of other Americans—more moderate and centrist members of both parties and the independent voters who comprise a growing portion of the American electorate and are likely to be more favorable to more trade.

The Pew Research Center has found that only six percent of Americans and 12 percent of Democrats are of the “progressive left,” which is leading the charge against trade within the Democratic Party. The Republican Party has been captured by Trump and other anti-trade tribunes of economic nationalism, but there remain millions of traditional Republicans who, though exiled from Republican decision-making, nevertheless are still within the American electorate. Moreover, Gallup polling shows that a record 49 percent of Americans “see themselves as politically independent—the same as the two parties put together.” These many millions of Americans have been pushed aside in the policymaking of American politics.

In all their policymaking, both parties are now pulled by their “base” to the extremes. Republicans are pulled to their political right, where trade protectionism and other manifestations of the economic nationalism of Donald Trump prevail. Democrats are pulled to their political left, where progressivism is increasingly equated with protectionism and other forms of economic nationalism. The embrace by both parties of different versions of an interventionist and trade-discriminatory industrial policy by the federal government is one consequence of this pull to the extremes. With trade and numerous other issues, the center is not holding in American politics because, except in periodic general elections, it is not present and so is not heard in policymaking.

In the US House of Representatives and in many state legislatures, this hollowing out of the American political center is a result of gerrymandering in drawing the lines of congressional and legislative districts, which empowers the political extremes at the expense of the political middle in the electorate. This gerrymandering by both parties diminishes the political legitimacy of our democratic republic while advancing minority views that are translated into policy, including in international trade. Meanwhile, the vast center of the American electorate is increasingly left unrepresented. Where both parties once competed to be responsive to the political center in the country, now they often seem to ignore it, especially in their legislative and executive decision-making.

Instead, as the voters surveyed by Cato rightly fear, policymakers and decision-makers who should be pursuing the public interest increasingly hear and heed the voices and the views of self-seeking private interests. In trade, this includes those labor unions with workers in trade-challenged declining industries in politically pivotal states, and threatened businesses in those industries in those states that cannot—or will not—meet the challenge of global competition and thus seek to be sheltered from such competition behind protectionist trade barriers. Because these key states, such as Pennsylvania, Michigan, and Wisconsin, are crucial to the outcome of presidential elections and to control of Congress, popular calls for more openness to trade from other sectors in other states go unanswered.

Among the quibbles and qualifications to the overall desire of most Americans for more trade, as evidenced by the Cato survey, is the fact that most Americans want to make certain that trade policy benefits Americans. A majority of Americans, 56 percent, support putting tariffs on goods from foreign countries if those countries impose restrictions on goods from the United States.

This support plummets, however, if these retaliatory tariffs increase domestic prices, decrease innovation and US business growth, or decrease jobs in other American companies that rely on the imports affected by the tariffs. Overall, 61 percent of Americans believe US businesses must “learn how to become strong and compete globally without any government handouts or taxpayer subsidies”. Despite this, both parties are increasingly addicted to subsidies and other handouts, including protectionist tariffs.

Another qualification to the support of most Americans for more trade is the question of trade with China. Few Americans—only 15 percent—think that China has acted fairly in trade with the United States. Not surprisingly, both parties have “get tougher” policies on trade with China. However, 81 percent of Americans surveyed by Cato overestimated the share of imports the United States receives from China. (The correct answer is about 15 to 16 percent.) If the broad middle of the American electorate were better heard in American policymaking, a more temperate—and less bellicose—view might be evidenced in policymaking on China trade, perhaps leading to mutually beneficial solutions that have eluded the two trading partners thus far.

Like the overall support of most Americans for trade, these and other nuances in this majority support are blurred in the broad brush of pure protectionism that is manifested more and more in the trade policies of both parties. Hence the widening gap between what the American government, and the politicians who populate it, are saying and doing on trade and what most Americans seek in trade.

On trade policy, those who are leading us, and those who would lead us, are not giving voice to the views of the majority of the American people who generally support trade. Unless this changes, the result will be an American economy and an American future smaller than what they would be if the majority views were heard and reflected in US trade policy.

To read the blog as it was published on the CATO Institute webpage, click here.

To view Cato Institute 2024 Trade and Globalization National Survey as posted by CATO click here

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Such challenges pose obligations, burdens, and expectations for countries like Canada that rely greatly on global trade for their economic growth and prosperity. Canada must prepare for an increasingly contested, complicated, and fractious global trade landscape that will only become more onerous to engage, negotiate, and leverage.

Four megatrends are dominating global trade:

First, U.S.-China security competition continues to cast a shadow over the trading system, affecting and rewiring regional economic partnerships. This seemingly persistent rivalry is compounded by muscular industrial policies from both countries and other powers (such as the European Union), further distorting trade patterns. Both ‘friend-shoring’ and ‘near-shoring’ could accelerate, despite constraints, with countries such as Mexico, South Korea, Thailand, and Vietnam benefiting disproportionately.

Yet, the adverse impacts could also be widespread, as this competition navigates terrains spanning semiconductors, artificial intelligence (AI), and electric vehicles. The battle for chip supremacy will reverberate across industries, affecting technological innovation and the climate transition. A potential restructuring of the global economy into blocs could reduce global GDP over the next few years.

Second, besides U.S.-China competition, other geopolitical fault lines (in Ukraine, the Middle East, and the South China Sea) will further stress world trade. Trade between regions is slowing as intra-regional trade grows. Southeast Asia, in particular, continues to benefit from this dynamic, at least for now. U.S. tariffs and export controls are pushing multinational firms to relocate manufacturing from China to Southeast Asia, boosting foreign direct investment and creating more jobs.

Firms are pivoting by reconfiguring cross-border supply chains, lowering costs, rethinking business financing, localizing innovation in certain markets, reorganizing functions like hiring, reassessing their exposure to geopolitical hotspots, and developing new revenue streams. Risk management for firms will increasingly entail understanding how Indo-Pacific countries, historically not central to global trade, operate and move. Governments and firms must also internalize the notion that economic security is critical and craft a playbook that maintains and protects resilience given unpredictable geopolitical events.

Third, trade patterns, tensions, and preferences intersect, drive, and occasionally conflict with the unfolding energy transition as countries craft policies to mitigate climate change. Climate change is already affecting trade. Firms have to adopt low-carbon business models to become and/or remain globally competitive. Increasingly, sustainability will be commercially priced and included in the cost of doing business. New investment opportunities accompany climate mitigation. Some developed countries are strategically using trade-related environmental policies, littered with requirements to measure and verify the environmental footprint of imports.

These burdens fall on unprepared and unhappy trade partners. It will therefore be critical for governments, firms, and interest groups to share vital information with respect to compliance as policies like the EU’s Carbon Border Adjustment Mechanism (CBAM) become mainstream. The CBAM works like a tax on energy-intensive European imports to ensure domestic manufacturers who produce similar goods are not competitively disadvantaged given their higher domestic standards.

That said, measures like the CBAM could also spur — and provide advantages to — developing economies to decarbonize faster, seizing opportunities in low-carbon energy like green hydrogen, fertilizer production, solar panels, etc. Finally, trade will become crucial in enabling flows of critical minerals, especially given their geographic concentration, to facilitate the spread of clean energy technologies that address issues such as pollution, carbon emissions, and electrification.

Fourth, technology is both enabling and constraining global trade. Although digital technologies are a key driver of trade, most countries have yet to effectively regulate their domestic and external effects. Digital trade measures have to be aligned across borders; this issue will become more important as countries pass laws on issues like data, AI, cybersecurity, and digital competition, which could affect digital trade.

For developing countries to benefit from digital services, they should create and support digital markets and provide adequate policy support related to privacy, consumer protection, and cybersecurity as their firms digitize. Simultaneously, developing countries will have to support broad-based digitalization, connecting citizens who lack broadband access. AI is already speeding up trade processes; it can further simplify supply chain management by enhancing inventory planning, production, and distribution. AI could also transform logistics planning and services as they move to optimal areas given production.

What do these trends portend for global trade?

These four trends could fragment the global economy further, as links and connections attenuate between specific ‘blocs,’ not within. This situation will likely fuel ‘reglobalization,’ splintering the global economy into highly competitive regions where trade and investment are concentrated and trade rules are harmonized. Security tensions and macroeconomic difficulties are compelling countries to bank on regions being and becoming new trade hubs and corridors, rewiring supply chains in the process.

Trade diversification for security reasons is precipitating new regional networks between ‘trusted’ partners that share security and economic concerns. This reality could spell trouble for Canada, which seeks to balance relationships with countries and not tether itself to any one camp. Friend-shoring and near-shoring are changing trade structures as countries reimagine economic partnerships to mitigate various risks.

Firms also appear to be pivoting after being subjected to shocks from the pandemic, the wars in Ukraine and Gaza, tensions in the South China Sea, and tariff rows between the U.S. and China. Countries like the United Arab Emirates and Singapore, which have solid and sophisticated trade infrastructures, will benefit.

Regionalization could thrive once again with potential costs and trade-offs for non-regional partners like Canada that appear strategically and institutionally distant. That Canada is reprioritizing trade within the Americas is positive, but that strategy must not come at the expense of deepening trade links in the Indo-Pacific.

The ‘choppiness’ of geopolitics is fuelled further by the recent industrial policies of China, the EU, and the U.S. Other powers, such as India, are still scarred by the pandemic, the ongoing climate crisis, and persistent supply chain difficulties. World Trade Organization rules have generally limited how countries use policies or subsidies to support specific industries within their borders to increase exports.

Yet, the selective application of these trade rules, due to China’s economic rise and experience, have altered the context around these efforts. National security considerations drive such policies given how specific goods and services can be weaponized by trading partners. According to Global Trade Alert, in 2023, countries used more than 2,500 policy interventions that were trade-distorting and discriminatory.

Considerations for Canada

What distinguishes this round of targeted interventions is that they are driven not by purely economic factors but a desire to strengthen resilience, protect national security, and advance climate mitigation. Resilience, rebuilding, and sustainability are now key trade objectives. These massive interventionist efforts to revive and restructure specific industries are hard for countries like Canada, which has limited fiscal capacity, to match. Canada and other smaller economies will find such policies untenable and unaffordable and will have to rely on other measures to compete.

Where does this scenario leave trade-reliant countries like Canada? Besides deploying capital to help various strategic industries, Canada has to take the lead in drafting, negotiating, and mainstreaming new forms of trade agreements with other ‘likeminded’ trade partners, including Australia, Japan, New Zealand, Singapore, South Korea, and the U.K., as well as with developing countries including Brazil, Indonesia, Malaysia, Mexico, and the Philippines, which find value in reviving and consolidating trade patterns.

Opportunities exist for these countries to drive trade initiatives now that the U.S., China, and the EU are disinclined to seek multilateral solutions to the trade challenges elucidated above. The U.S. has balked on trade given political difficulties while the EU’s trade and technology unilateralism sows resentment amongst its partners far and wide as they begrudgingly comply with European rules. China is not trusted to lead or drive multilateral trade solutions despite Beijing’s interest.

This situation generates space for other countries to explore newer agreements on trade issues like digital trade, green economy, and AI that advance mutual goals. Bilateral trade solutions such as the Australia-Singapore Green Economy Agreement (GEA) could serve as a viable template and example. Canada could benefit from such bilateral, open-ended, flexible agreements that facilitate green trade and investment across sectors to lower emissions.

The need to co-ordinate trade rules and standards is urgent with the regulatory demands for firms rising due to the extraterritorial effects of policies like the EU’s CBAM, General Data Protection Regulation, and EU Deforestation Regulation. Climate change and national security considerations have led to the proliferation of such measures. The competitiveness of firms and economies will become linked to the inking of coordinated trade rules and standards that help firms export goods and services.

Canada must deftly handle this complex landscape. Trade is no longer just trade; it is about establishing and correcting the conditions that enable countries to exchange goods and services and setting appropriate domestic rules to regulate problems and using those measures and market power to force compliance by other countries.

Trade, which plays a central role in Ottawa’s Indo-Pacific Strategy, relies on initiatives like trade missions, gateways, and agreements with India, Indonesia, and other Asian economies. These measures are necessary but insufficient for a region where trade is fundamentally strategic and inflected through issues like security, climate, and technological change. Canada’s trade policy must reflect and advance the ambitions of its climate transition, security concerns and interests, and technological strides. Anything less will not be fit for purpose.

To read the dispatch as it was published on the Asia Pacific Foundation of Canada webpage, click here.

The post Is Canada Prepared for a Transformed Trade Landscape in Asia? Four Megatrends in Global Trade and Their Policy Implications appeared first on WITA.

Global trade recovery remains fragile. Geopolitical tensions, spillover from regional conflicts, rising populism and protectionist policies are putting unprecedented pressure on globalisation.

The prospect of a complete breakdown in relations between the United States and China adds weight to any pessimism. Each day brings further threat — or the reality — of unilateral trade measures. While legitimate concerns may undergird these measures, such as climate considerations, the net effect is chipping away at governments’ faith in the global rules-based trading system. This is creating a vicious cycle of more barriers and more protectionism.

Global business priorities have not shifted since the WTO was founded 30 years ago. Cohesive, multilaterally agreed rules for international trade that provide certainty and predictability remain a fundamental demand from traders around the world.

The WTO, despite its flaws, has proven to be the single cohesive vehicle able to attract multilateral participation — from countries across the world at every stage of development — to address global trade challenges. The need for such an institution has grown with time. For example, effective multilateral dialogue at the WTO level is required to resolve the unintended consequences of novel environmental legislation, such as the EU’s carbon border adjustment mechanism and new rules on deforestation, particularly as they affect small businesses in developing countries.

Against growing threats to the system, the urgency of reforming the WTO grows each day. Its rulebook must be updated to meet the challenges and opportunities of the 21st century — its rules enforced and its agreements effectively monitored. Reform must be tackled consistently with an eye towards lowering trade barriers and upholding current commitments. And this must be done in cooperation with the private sector.

The alternative to holistic reform is almost too awful to contemplate. An April 2024 an International Chamber of Commerce (ICC)-commissioned study found that WTO dissolution would have dire consequences for developing economies, decimating their exports by 33 per cent and lowering GDP by 5.1 per cent by 2030.

In that scenario, the trade-led convergence that has enabled developing countries to grow their economies would disappear. This would also hit producers in advanced economies by reducing supplier access, exposing developed countries to increasing volatility and higher consumer prices.

Countries that do not enjoy elevated levels of integration into global supply chains would be further disadvantaged by any erosion of the multilateral trading system. Given the catalytic role of trade in job creation, the implications for global poverty reduction perspective would be profound.

In this age of digital innovation, the world has never been technically better placed to conduct trade more efficiently. Technology underpins all modern supply chains, including the internet of things, big data, machine learning and artificial intelligence. This shift to digital technology calls for the movement of data and information across borders, with all stakeholders depending on seamless and uninterrupted information flows across companies and countries.

To secure supply chain resilience and efficiency, governments must promote policy coherence and harmonised digital rules, increasing the urgency for robust WTO action. As a start, an agreement containing disciplines that will address digital trade barriers and facilitate digital trade must be reached and implemented at the WTO.

Work is already going into accelerating the development of a globally harmonised, digitalised trade environment. The ICC Digital Standards Initiative is engaging the public sector to progress regulatory and institutional reform, and mobilising the private sector on standards harmonisation, adoption and capacity building.

Trade facilitation remains key to functioning supply chains. Delays at borders hinder cross-border trade at every level, both regional and international. Full implementation of the 2017 WTO Trade Facilitation Agreement — which has already increased trade by over US$230 billion — is more relevant than ever.

Low and middle-income countries have come a long way in fulfilling their trade facilitation agreement commitments, but many still require assistance to finish the job. A failure to connect developing economies to global markets threatens to cut them further adrift, stifling economic opportunity and reversing previous gains. Likewise, lack of implementation undermines supply chain optimisation in these countries, hindering competitiveness.

To support low and middle-income countries in this endeavour, the ICC co-leads the Global Alliance for Trade Facilitation with the World Economic Forum and the Center for International Private Enterprise. With the support of the governments of the United States, Germany and Canada, this entity uses the trade facilitation agreement to address obstacles to trade in an inclusive, sustainable way through public–private partnership. The alliance approach to meaningful trade facilitation initiatives involves buy-in and ongoing engagement from both government and business, from project inception through to post-completion, recognising a shared responsibility in promoting frictionless trade.

This spirit of public­–private cooperation must be brought to bear against today’s drift away from agreement and adherence to international rules and regulations. The WTO remains the best conduit for multilateral trade cooperation and future initiatives hinge on its reform and strengthening. Business as the real engine of economic growth and innovation needs to be engaged as a genuine partner — one that delivers on the concept of multi-stakeholder cooperation.

John WH Denton AO is Secretary General of the International Chamber of Commerce (ICC), Paris.

To read the full article as it was published by East Asia Forum, click here.

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The Commission’s actions on EVs may not be the last taken against clean technology from China, with trade measures having recently been considered for two more major pillars of Europe’s energy transition. 

An anti-subsidy probe into Chinese solar panel manufacturers bidding for a public project in Romania was closed after the targeted companies withdrew from the process. 

An investigation into Chinese wind turbine suppliers is ongoing. Both were launched under the new Foreign Subsidies Regulation. 

The risks of tariffs on decarbonization technologies

The EU is anxious to protect its companies from what it sees as unfair competition. It has bitter memories of the early 2010s, when cheap Chinese panels all but destroyed the European solar industry. 

The EU is right to identify clean technology as a crucial strategic industry, and to take action to mitigate the negative consequences of surging imports from China. Against a volatile geopolitical backdrop, it can be worth paying a premium for goods made at home. 

But decarbonization technologies like solar panels, wind turbines and electric vehicles share a characteristic that sets them apart from other traded goods. When swapped for fossil fuel alternatives, they reduce the quantity of planet-warming gases being pumped into the atmosphere. They are needed in vast quantities, and in very short order, to give any chance of avoiding the worst impacts of climate change. 

The EU has a legally binding target of net zero greenhouse gas emissions by 2050, and an intermediate target of at least a 55 per cent reduction by 2030, relative to 1990 levels. A target of 90 per cent has been proposed for 2040. 

These targets are ambitious, even if they are insufficient to limit warming to 1.5°C. With 2022 marking a reduction of 32.5 per cent, accelerated and sustained action will be needed. This implies deploying mass-market clean technology products like solar panels and electric vehicles in very large numbers. 

The costs of European manufacture

The EU wants these to be manufactured within its borders. In her 2023 State of the Union address, Commission President Ursula von der Leyen was unequivocal: the EU’s clean tech future should be made in Europe. 

The Green Deal Industrial Plan, announced in early 2023, seeks to do this by cutting red tape, increasing access to finance, boosting skills, and promoting fair trade. The Net Zero Industry Act sets a target for the EU to manufacture at least 40 per cent of the so-called strategic net zero technologies it deploys each year, by 2030. 

The Act proposes to achieve this through measures including requiring public authorities to consider non-price ‘sustainability and resilience’ criteria when procuring renewable energy. This would in theory increase the attractiveness of goods made on European soil. 

However, this requirement can be disregarded if it implies ‘disproportionate’ additional costs. It is therefore doubtful it will be enough to offset the large difference in production costs between Chinese- and EU-made solar panels, for example. 

Building the factories needed to hit the Act’s manufacturing targets for solar panels and batteries is estimated to require nearly $70 billion by 2030. 

But unlike in the United States, where the Inflation Reduction Act offers lavish subsidies, the EU’s Green Deal Industrial Plan provides little in the way of new finance. 

The Plan loosens state aid rules, enabling member states to subsidize green industry, and proposed a new EU-level fund for investing in strategic clean technology projects. 

However, the return of EU-wide fiscal rules will restrict government spending, including on the transition; the European Sovereignty Fund was scaled back and ultimately became a platform to mobilize private finance. 

Current levels of investment in the EU’s transition fall far short, with the annual climate investment deficit estimated at €406 billion, or 2.6 per cent of GDP – implying that climate finance will need to roughly double to meet 2030 targets. 

A June 2023 report by the European Court of Auditors found ‘no information that sufficient financing will be made available to reach the 2030 targets’. Climate-focused public spending is also likely to get squeezed by an increasing focus on security and defence.

With financial resources constrained, and the timeframe tight, the unit cost of each product needed to achieve the transition becomes an extremely important variable. 

And when it comes to cheap, clean technology, China is the undisputed world leader. Two decades of consistent and targeted industrial policy, combined with the benefits of a huge domestic market, mean that China today produces extremely competitively priced, high-quality, low-carbon goods. 

In 2023, solar modules in China were being manufactured at a cost of $0.15 per watt, compared to $0.30 in Europe. In France in 2023, the cheapest electric vehicles were priced between €22,000 and €30,000 ($24,000 – $32,500) while in China, over 50 electric models were retailing locally for less than CNY 100,000 ($15,000). Analysis by think tank Transport & Environment found that European automakers have prioritized large, premium electric vehicles at the expense of compact, affordable models. 

All else being equal, anything which stems the flow of the cheapest low carbon products will increase the cost of the transition and slow it down, increasing the risk of the EU missing its emissions reduction targets. 

These are not the only risks, however. If solar panels and wind turbines become more expensive, it will ultimately feed through into higher electricity prices, increasing the cost of living for citizens and exerting a downward pull on the fragile competitiveness of European industry.

To read the full expert comment as it was published by Chatham House, click here.

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The Effects of Weather Disruptions on the Supply Chain

For many businesses, the supply chain is an international issue. Domestic interactions can be costly, so outsourcing labor and resources across the sea is often an unavoidable task. For example, flood-related damage in China has a huge effect on crop yield, forcing the country to face a hefty $25 billion economic blow. This means businesses in the Western Hemisphere that rely on Chinese agricultural exports may not be able to produce necessary items for grocery stores or, say, create holistic wellness items.

These types of events force businesses to look elsewhere for the materials, labor, and other areas of the supply chain they need to amend. For reference, let’s take a look at the restaurant industry. Climate change, among other factors like COVID-19, has given way to increased food costs. Essential items, like grain and meat, have risen in price. Avian flu and temporary price increases at the beginning of 2023 caused restaurants to eliminate a good portion of meat-based meals from their menus.

Supply issues like these mean employees are also not being offered wages in alignment with recent inflation and the rising demands of their jobs. This gives way to larger economic issues that can potentially restructure the way we do business globally.

How Extreme Weather Events Affect Transportation Costs

Climate change and extreme weather events don’t only affect things like food production. It plays a huge role in the cost of transportation. Transportation is a necessary part of doing business. You need a method of transferring resources to a processing plant and then the completed product to a warehouse where it is shipped to yet another location.

Ultimately, climate change affects multiple areas of transportation in the global market. Since burning fossil fuels contributes to climate change, it causes a cyclic effect on transportation costs. Extremely hot weather can affect the performance of oil refineries, which then causes a delay in fuel production, making gas prices higher.

Also, there is the matter of delivery fees, which affects both businesses and consumers. Consumers tend to foot the bill for delivery fees since it can be a huge financial blow for businesses to take care of this fee themselves. Unpredictable weather can affect air freight schedules, and unusual snowfall can prevent trucks from making deliveries in a timely manner. Evolving climate conditions force consumers to eventually pay more in delivery fees.

To lower transportation costs, businesses should consider using energy-efficient vehicles to stave off the growing fuel costs. Should this not be an option, you can also consider using a diesel delivery service, which ensures all trucks are receiving high-quality fuel on a set schedule.

Combating Climate Change

Though climate change isn’t something that can be altered by a single person or entity, businesses can still do their part to create a more sustainable global market through several strategies and innovative technologies.

First, consider optimizing your supply chain by staying local. Use local vendors to create a reserve inventory and try not to outsource a large portion of your business operations overseas. This will reduce fuel costs and benefit the local economy at the same time. Second, invest in sustainable technological practices. Using solar power for warehouses can have a significant impact on energy costs and lower greenhouse gas emissions.

Agricultural industries can make adjustments to livestock handling as well to reduce negative environmental impact. Exploring lab-grown meat or creating an emphasis on plant-based meat alternatives for the restaurant and food industry can make a huge difference in issues like water pollution as well as toxic emissions.

Reducing your carbon footprint may not seem like the most cost-effective solution at first, but doing your part to combat climate change will only fare your business well in the long term. Consumers will be more apt to purchase your products or services if they see your practices are environmentally friendly. You will also end up financially benefiting from stable supply chain costs as climate change efforts increase.

The Big Picture

Eco-friendly business strategies are essential for increased performance and keeping costs stable across the board. Staying well-informed about sustainable supply chain practices and the location and environment of all areas of your business cannot be understated. At the end of the day, switching over to energy-efficient transportation options and investing in climate-friendly tech is just good for business – it provides a chance for future generations and industries to thrive.

To read the full article, click here.

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• For 2023, we are downgrading our forecast for world merchandise trade volume growth to 0.8 per cent, less than half the 1.7 per cent growth we forecast last April.
• However, the outlook for next year has not been downgraded and remains relatively strong. We predict 3.3 per cent trade growth in 2024, slightly higher than our estimate of 3.2 per cent in April.

So what has led to this revised forecast?

The global situation over the past year

The downgrade is not entirely surprising as we had already considered the risks to be mostly on the downside in our April forecast.

Several factors have contributed to this revision. The global economy has been grappling with rising inflation and high interest rates since the fourth quarter of 2022, particularly in the European Union and the United States.

While falling energy prices and the end of Chinese COVID-19 pandemic restrictions raised hopes of a quick rebound, strained property markets have prevented a stronger recovery from taking root in China. Added to these factors, the ongoing Ukraine conflict also continues to weigh on the global economy.

The trade slowdown in the first half of 2023 appears to have involved a large number of economies and a wide array of goods, specifically certain categories of manufactured goods such as iron and steel, office and telecom equipment, textiles and clothing, although sales of passenger vehicles have surged in 2023.

The stronger growth predicted for 2024 is likely to be driven by increased trade in goods closely linked to the business cycle, such as machinery and consumer durables, which tend to recover when economic growth stabilizes.

Figures for world GDP growth at market exchange rates, anticipated to be 2.6 per cent in 2023, show little change since the April forecast. However, shifts in the regional composition of growth could influence trade.

Specifically, GDP growth rates for North America in 2023 and 2024 have been revised upwards, from 1.5 per cent and 1.0 per cent, respectively, in April, to 2.2 per cent and 1.4 per cent in the current report. Meanwhile, estimates for Asia for 2023 and 2024 have been revised downwards, from 4.2 per cent and 4.3 per cent, respectively, in April, to 4.1 per cent and 4.0 per cent. European GDP growth in 2023 should come in at 1.0 per cent, up slightly from 0.9 per cent in the April forecast, while growth in 2024 should be 1.4 per cent, down from 1.8 per cent previously. Finally, output in the Commonwealth of Independent States (CIS) region is expected be stronger than previously forecast, both this year and next year.

In terms of imports, demand appears to be weakening in manufacturing economies, with import volumes in 2023 expected to contract by between 0.4 per cent and 1.2 per cent in North America, South America, Europe and Asia. Meanwhile, imports appear set to rise sharply in regions that export fuels disproportionately, thanks to the increased revenues flowing from higher prices.

Effects of trade fragmentation on the global economy

Many people may be wondering how much of the current trade slowdown is due to trade fragmentation, possibly as a result of rising geopolitical tensions, and how much is due to tighter financial conditions as countries around the world raised interest rates to fight inflation. The report suggests that, while we do see initial signs of fragmentation, we do not see evidence of broad-based de-globalization.

For example, the share of intermediate goods in world trade, which provides an indication of the health and extent of global supply chains — a key indication of the extent of trade fragmentation — fell to 48.5 per cent in the first half of 2023, having averaged 51.0 per cent over the previous three years. While this suggests that supply chains may be contracting, it may also simply reflect higher commodity prices as these have a greater influence on the cost of intermediate goods than on final goods costs.

A possible indication of an increase in near-shoring is the recent decline in the share of Asian trading partners in US trade in parts and accessories, which is an important component of intermediate goods. However, while this share fell from 43 per cent in the first half of 2022 to 38 per cent in the first half of 2023, it remains close to the pre-pandemic (2019) share of 39 per cent.

Similarly, the share of politically like-minded trading partners (as measured by United Nations voting patterns) in US total trade recently rose to 77 per cent in the first half of 2023, from 74 per cent in the first half of 2022. Again, while this could signal increased friend-shoring, in fact the 2023 share is very close to the 2019 share of 77 per cent.

These findings are in line with the results we presented in the 2023 World Trade Report on 12 September 2023. While they do not yet suggest broad-based de-globalization, nevertheless, we will continue to monitor these trends carefully going forward.

To read the full edition of the WTO’s “Global Trade Outlook and Statistics” which is referenced above, click here. 

To read the full blog by Ralph Ossa, click here.

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As rumors percolate about possible new U.S. export controls and outbound investment restrictions targeting China, it’s a good time to take stock. Since 2017, the U.S. government has implemented a vast array of policy changes with the intent of diversifying supply chains, more effectively competing with China, and safeguarding national security. These policies – including tariffs, export controls, and chips manufacturing incentives – have had a significant impact on U.S.-China technology competition and have, in many ways, already achieved the U.S. government’s stated goals.

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The modern era of trade can be traced to an important meeting between Winston Churchill and Franklin Roosevelt on a battle cruiser in Argentia Bay, Newfoundland, in August 1941, early in the Second World War. The two statesmen had been close observers of what had already been a catastrophic period comprised of unprecedented bloodletting in World War I followed by a global economic depression. They saw trade as a means to restore both peace and prosperity to the world. Theirs was a utopian vision – “to further the enjoyment by all states, great or small, victor or vanquished, of access, on equal terms, to the trade and to the raw materials of the world which are needed for their economic prosperity”. This policy, which they issued as a press statement, was of sufficient importance that it was forever known as the Atlantic Charter.

When the war was won, the vision was gradually made into reality. Twenty-three nations signed the first-ever multilateral trade agreement, the General Agreement on Tariffs and Trade (GATT), to be administered by an International Trade Organization (ITO). The ITO never came into being, but the parties to the GATT kept up their efforts, decade after decade, liberalizing trade under a system of agreed rules. There were eight great rounds of multilateral trade negotiations, each one becoming more complex, until the last, the Uruguay Round, which lasted eight years, from 1986 to 1994. The number of participants grew dramatically to 128 and they agreed to try again to create a World Trade Organization (WTO), this time successfully.

The world economy benefitted enormously. Trade flourished, economies grew, and peace reined among the major powers (until the Russian invasion of Ukraine). Before the multilateral trading system existed, real GDP took seven decades to quadruple, moving from US$1.92 trillion in 1870 to US$7.81 trillion in 1940. Over the next seven decades, world GDP grew by 14 times, from US$7.81 trillion in 1940 to USD 108.12 trillion in 2015. With the help of trade, hundreds of millions of people have been lifted out of poverty. Human life expectancy has increased over this period by 62 per cent due significantly to the organization of the world economy in favour of openness and living up to internationally agreed rules.

Today, the WTO consists of 164 members, and its rules govern 98% of world trade. An additional 24 countries are pursuing WTO membership. The organization has, however, been experiencing internal problems and facing external challenges. The members all recognize that reform is needed. Over the last quarter-century of the WTO’s life, the number of truly multilateral trade agreements they have negotiated, that is with all signing on to binding obligations, just number two – one on trade facilitation (lowering administrative burdens at the border), and an incomplete agreement limiting subsidies to fisheries. Binding dispute settlement applicable to all, a distinguishing feature of the WTO compared with other international arrangements, is no longer functioning. Transparency in terms of reporting measures affecting trade is inadequate.

Even so, world trade is served by ongoing WTO functions. Members large and small come before a committee of the whole to have their trade policies reviewed. Governments for most of their trade live up to their international obligations. Assistance is given to the least developed. Tariffs generally do not exceed agreed levels. Groups of members seek to reach an agreement on important new subjects such as rules for the burgeoning world of digital trade, while others created an alternative dispute settlement mechanism.

Revitalizing the World Trading System is a guidebook to the WTO. It traces the organization’s history from the outset in 1995 when it came into existence, through 12 Ministerial Meetings, at which decisions were taken or failed to be taken, that defined the role of the organization in international trade. The book describes the subject areas governed and to be governed by the rules of the trading system, including agriculture, services, e-commerce and more. It places the reader in committee and working party meetings to see how members express their concerns and how they respond to the concerns of others. Key moments in trade history are witnessed, such as bringing China into the WTO, and hearing what the representatives of members and China said at that time. In other committees, members discuss product standards that will channel trade, and the reader is present for their deliberations.

The book considers both the value and the values of the WTO. It addresses the challenges the world has faced (such as the COVID-19 pandemic) and will face. Future challenges include the trade aspects of climate change (moving food from areas of plenty to areas of need), the development of the digital world, future pandemics, how to best bring about economic development through trade, how to support peace among conflict-affected countries, and the accession process for bringing additional countries into the organization.

The book offers ideas on how to make the WTO more effective in meeting global needs. It recommends solutions to restore binding dispute settlement, reinvigorate rule-making and multilateral trade negotiations, and strengthen the executive functions performed by the Secretariat. It also provides practical advice for trade negotiators based on a lifetime of practitioner experience as a former US trade negotiator, a trade lawyer, and a former international civil servant as Deputy Director-General of the WTO.

World leaders, including Nelson Mandela, Bill Clinton, and Tony Blair, came together in Geneva in 1998 to celebrate the 50th anniversary of the multilateral trading system embodied in the GATT and express their hopes for the future of the then-new organization, the WTO. The year 2023 is the 75th anniversary of the system, and it needs world leaders to once again focus on the kind of world they wish for and the role of international trade in delivering it. Revitalizing the World Trading System is designed to assist their negotiators in thinking through how to achieve this objective.

Ambassador Alan Wm. Wolff is a Distinguished Visiting Fellow at the Peterson Institute for International Economics, and was co-Acting Director General (2020–21) and Deputy Director-General of the World Trade Organization (2017–21). He is a leader in the field of international trade, with over five decades of experience as a lawyer and trade negotiator. He is a member of the Council on Foreign Relations (CFR) and the Friends of Multilateralism Group (FMG).

To read the full article, please click here.

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There are six major drivers of global commodity markets covering energy, metals and agriculture. These are: economic growth; geopolitics; monetary policy; currency; weather; and financial investment/funds.

To the above, we can now add two more drivers. Logistics as the 7th driver and technology as the 8th.

While the first six are self-explanatory, challenges of logistics came to the fore during the last three years when the Covid pandemic struck, soon followed by the Russia-Ukraine war. The world witnessed shipping dislocations and supply chain disruptions, while sanctions forced countries to look for new suppliers and new markets.

Russia and Ukraine are important exporters of oil, gas and coal; metals like palladium, platinum, nickel, enriched uranium, iron ore as well as grains (wheat, barley, maize), vegetable oil and fertilisers.

Logistics challenges

Logistics challenges immediately impact on the world commodity markets because of their disruptive effect. Technology too has emerged as a driver. Energy transition and decarbonization mean embracing green technologies that will have a significant impact on world commodity market covering fossil fuels and industrial metals.

But technology is a slow driver with its impact felt over time. Movement towards Electric Vehicles (EVs), solar power and so on means that energy transition would be metals intensive while demand for fossil fuels (crude oil, coal) may reduce over time.

We have seen how geopolitical developments have resulted in imposition of sanctions, protectionism, resource nationalism and occasionally, weaponisation of commodities. These developments are changing the global commodity trade landscape.

There is interdependence among nations for sourcing and marketing of goods either as raw material or as finished products. This has fostered substantially liberal trade flows resulting in formation of global value chains. Now, geopolitical events (political instability, war-like situation, strife) have resulted in dislocation of the established value chains. Sanctions have polarized nations, adversely affected settled trade flows and even led to trade controls.

So, countries are forced to diversify their supply sources and destination markets to de-risk trade and ensure continuity. We find redirection of merchandise trade with new origins and new destination markets. We also find countries are forced to compromise. For instance, the rift between China and Australia is settled because neither can afford a stand-off.

Growing cartelisation

Geopolitics has also strengthened cartelisation. We have OPEC + that includes Russia. China has brokered peace between Saudi Arabia and Iran which is a major development, the impact of which may be felt over time.

The adverse effects of geopolitical instabilities have been exacerbated by the recent banking crisis and US debt ceiling issue. After several rate hikes by the US Federal Reserve and other central bankers to tame inflation recession fears have come to the fore.

Clearly, the global policy context is becoming increasingly complex. Countries are forced to take sides. There is a possibility that the world may be fracturing into a US-led bloc and a China-led bloc.

The IMF has flagged the issue of forced polarisation among nations calling it ‘geo-economic fragmentation’.

In all of these, there is one common global challenge that’s climate change. Climate mitigation has to be a global effort. The moot question is: ‘Are we all in it together?’

For green transition, critical raw materials are concentrated in a few countries like China. Resource crunch may impact the pace of transition in India. For instance, India has turned from a net exporter of refined copper until 2018 to the position of a net importer of copper in the last five years. Copper is a critical metal for energy transition and electrification.

Finally, we have to accept that we live in a VUCA world (Volatility, Uncertainty, Complexity and Ambiguity), which will linger for longer. Geopolitical stresses can escalate. But it is for all of us to ensure that such stresses do not derail global cooperation on climate efforts.

If we don’t sail together smartly, we will sink together!!

The writer is a policy commentator and commodities market specialist. The article is based a keynote speech the author recently delivered at an international conference in Dubai . Views expressed are personal

To read the full blog post, please click here.

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It is an honor for me to give the 2023 John D. Greenwald Memorial Lecture. Although I never had the pleasure of meeting John, as someone who has been involved in American trade policy for the last 15 years I feel his legacy. In government, John was instrumental in developing international trade rules through his role at USTR and then as the first head of Import Administration at Commerce in the 1980s. In private practice he developed a reputation as one of Washington’s great trade lawyers. I suspect that if John were still with us he would have a lot to say about the state of American trade policy. Unfortunately for you my remarks will be neither as insightful nor as witty as his would have been, but you’re stuck with me this morning and I’ll do my best.

When I was at the White House in 2021 and 2022, I saw the Biden Harris Administration’s trade policy from the trenches. We spent time talking about U.S. tariffs on China, though I bet some of you have noticed the Administration has yet to make any final decisions on that. We put together agendas for the U.S.-E.U. Trade and Technology Council. I battled the Europeans over aspects of Europe’s Digital Markets Act and Digital Services Act. And towards the end of my time in government, I took plenty of incoming from America’s allies about the industrial policy provisions of the Inflation Reduction Act.

One of the luxuries of being back in the private sector is the freedom to think about trade not just from the trenches, but at a strategic level. So, I will use my time with you this morning to offer a set of broader thoughts about the state of American trade policy today. And then I’ll offer some recommendations for where U.S. trade policy might go from here.

A BIT OF HISTORY

In the decades since the Second World War, the U.S. has seen major developments in trade policy principally during periods when there has been both a clear geopolitical and a clear economic logic to trade deals. For example, in the immediate aftermath of WWII, the period that created the GATT, there was a geopolitical imperative to rebuild the West and strengthen allied economic ties for the looming Cold War. And there was an economic imperative to prevent a return to the protectionism widely seen as an exacerbating factor in the Great Depression.

Similarly, in the 1990s, following the collapse of the Berlin Wall, Democrats and Republicans alike bought into a geopolitical view that establishing a global trading regime would help bring former adversaries like Russia and China into the fold, potentially even promoting political liberalization. The prevailing economic consensus here in Washington, meanwhile, held that greater trade liberalization would benefit U.S. consumers by driving down costs, benefit innovation by forcing companies to be disciplined by the global market, and benefit workers by opening foreign markets to high value goods and services. And thus we saw a decade that produced NAFTA, the WTO, and China’s entry into the global trading order.

In the years following 9/11, geopolitical logic drove deals that had little economic significance, because they were with small economies, but which were important to American diplomacy, particularly in the Middle East—FTAs with Bahrain, Jordan, Morocco, and Oman. A desire to shore up American relations with democratic states in Latin America combined with an economic desire to open markets to U.S. products, meanwhile, drove trade dealmaking in Latin America. At the same time, during this era, from an economic perspective the U.S. used trade deals to continue pursuing the economic goals that had risen to influence domestically in the 1980s and 1990s—open markets, opposition to subsidies, and light touch regulations.

Now, to say that these were productive periods for U.S. trade policy is not to say that trade was politically easy: I remember Ross Perot’s 1992 campaign diatribe about NAFTA triggering a “giant sucking sound” of U.S. jobs fleeing to Mexico. The final House vote to grant China PNTR status in was 237-197, a comfortable but hardly overwhelming majority. But across the 1940s, the 1990s, and the 2000s, there was a comparatively broad consensus in the U.S. foreign policy establishment about the geopolitical logic of trade and a comparatively broad consensus among the economic policy establishment about the economic logic of trade.

THE CHALLENGES FACING TRADE POLICY TODAY

I suspect that few of you in this room think that we are in a similarly productive period for American trade policy today. Since the domestic political collapse of the Trans-Pacific Partnership in 2016 and 2017, and the collapse in both the U.S. and Brussels for the mooted U.S.-E.U. “Trans-Atlantic Trade and Investment Partnership” agreement, Washington has turned sharply against trade deals and in certain respects against trade liberalization at all.

It is easy to attribute the current challenges in U.S. trade policy to politics on both sides of the partisan aisle. But while politics is important, I think that changing political views are fundamentally driven by deeper underlying shifts in substantive ideas of both geopolitics and economics that need to be unpacked and incorporated into American and international trade policy.

The first shift is set of changes in domestic economic policy preferences. Simply put, a growing bipartisan cohort in Washington rejects the type of economic model that served as the basis for American trade policies since at least the late 1980s. As former NEC Director Brian Deese argued last year, and as National Security Advisor Jake Sullivan argued last month, this Administration—and a growing share of Americans—is reembracing industrial policy to drive a manufacturing and middle-class employment revival here in America. And certain of the policy tools we are deploying to drive this industrial policy cut against rules we have agreed to since the 1990s.

Take the CHIPS Act and the Inflation Reduction Act. These acts channel hundreds of billions of dollars into domestic manufacturing in ways that, particularly with respect to the IRA, simply violate commitments the U.S. made in the WTO and in various FTAs. There is growing interest among both Democrats and Republicans in industrial policy measures to further support critical minerals mining and processing and, potentially, to support pharmaceutical and medical manufacturing in the U.S. I do not profess to know the end point of this embrace of American industrial policy—and candidly, while I welcome it, I also worry about overreach. But clearly if U.S. trade negotiators are going to board planes at Dulles to go haggle over new deals, we need to figure out a negotiating mandate with respect to industrial policy and subsidies different from the ones we embraced over the past few decades.

Moreover, subsidies are hardly the only policy area where domestic economic policy preferences are in flux.
Look at digital and technology issues. Since the rise of the internet in the 1990s, the U.S. had a clear domestic digital and technology agenda that we sought to multilateralize across trade agreements. We promoted a free, open, and interoperable internet and we advocated against data localization and other restrictive measures internationally. We provided liability protections for tech platforms pursuant to Section 230 of the Communications Decency Act of 1996 and, in trade deals, advocated that foreign governments adopt similar laws. We generally fought for light-touch antitrust laws and enforcement, both domestically, and internationally.

Today, our domestic views on have changed. There is a broad domestic rejection of Section 230 immunity as it stands today, even if no one seems to know quite what should replace it. Current U.S. policy towards TikTok and other Chinese apps, data security measures that the CFIUS committee frequently requires in mitigation agreements, and other tech policy developments show that the U.S. no longer adheres to longstanding views about the truly free flow of data across borders. Antitrust regulators feel a growing appetite for aggressive enforcement of antitrust law. Trade policy proposals on the digital and tech sector will have to take these shifts in domestic policy preferences into account.

I could also describe shifts I see underway in domestic preferences of other areas of economic policy. My point is not to drone on with a litany of the shifts we see in Americans’ domestic economic preferences, but rather to simply suggest that trade policy will have to take these changes into account if we are going to get back into the business of comprehensive trade agreements.

The second strategic shift that trade policy needs to accommodate is the reemergence of great power geopolitics in international relations. Between China’s geopolitical rise and growing global aspirations and the global revisionism of Moscow, the geopolitical unipolarity assumptions of the 1990s have been upended.

The reemergence of geopolitics poses a conceptual challenge to key aspects of the global trading order, particularly to the WTO as a global baseline for global trade. To be direct, there are few American policymakers who today would argue that the structure of U.S. tariffs on China should be substantially identical to the structure of U.S. tariffs on, say, Germany, or another allied but non-FTA country. But of course a foundational premise of the WTO is that the U.S. would treat China and Germany equally when it comes to tariffs and to certain other measures.

I don’t profess to know whether Congress will revoke China’s PNTR status, a topic that seems increasingly up for debate. And I don’t know how the Biden Administration will eventually adjust specific tariffs on China as it finishes its required four-year review of the Section 301 tariffs that Trump first imposed in 2018. But however those debates land, I am quite confident that so long as the U.S. identifies China as our leading geopolitical competitor, we will not return to a world in which the U.S. puts China and its NATO allies on the same trade footing.

Admittedly, the European Union and other G7 partner countries have been wary of tariffs on China. But the G7 too has moved away from the concept of MFN trade policies when it comes to Russia, which, while formally still a member of the WTO, seems unlikely to again get accorded MFN treatment by the West for many years. And listening to friends in Europe, I wonder if the ground is shifting there as well with respect to at least some tariffs on China.

This resurrection of geopolitics has driven the third major shift, which is the securitization of trading relationships. U.S. and G7 policymakers today focus as much on the security aspects of trade as they do on economic efficiencies.

For example, we see a strong desire by both policymakers and businesses to “derisk” supply chains. We no longer trust geopolitical competitors to be reliable suppliers of essential goods. We want to see an increase in domestic production, but we also emphasize “friendshoring” as a way of building resilience and shoring up geopolitical alliances. While policymaking has yet to fully identify the policy tools that will effect friendshoring, friendshoring is going to be an ongoing priority not only in Washington, but across western capitols.

The securitization of trading relationships, much like our domestic rethink on technology policy, will also force a re-think on the digital trade agenda. We need a set of rules that protects many of the core values we have long pursued in digital trade but also recognizes a broader range of legitimate national security concerns regarding data.

Finally, we see that the securitization of trading relationships has led to a vast increase in the use of sanctions and export controls—a development that is evident to anyone who practices international trade law today.

Sanctions and trade embargoes of course have a long history–dating to at least the Peloponnesian war in the 5th century BC. But between the end of the Cold War and about 2014, sanctions, export controls, and national security tariffs were largely an afterthought in the global trading system. Sure, companies doing business with places like Iran and North Korea had to comply with embargoes and other sanctions. Companies exporting weapons and certain dual-use items had to comply with U.S. and multilateral export controls regimes. But the vast majority of trade with the vast majority of the global economy took place blissfully free from the national security regulations that can govern trade.

Today the landscape is quite different. The U.S. and our G7 partners have curtailed large swaths of trade with Russia. U.S. export controls on China have significant effects on the U.S.-China technological relationship. CFIUS scrutinizes an ever-larger number of investments in the U.S., not just from China or the Middle East, but even from countries like Japan and the Netherlands. If press accounts are accurate, the U.S. is soon to announce restrictions on outbound U.S. investments in China, a type of capital control the U.S. has not historically enacted outside the context of military conflicts or comprehensive sanctions. For U.S. trade policy to have meaning, it needs to grapple with these tools, rather than simply including blanket national security exceptions that increasingly threaten to swallow the rule.

THE PATH FROM HERE:

So, against this backdrop, what is the path for U.S. trade policy? There is no shortage of initiatives in various stages of development. The Administration has been pursuing the Indo-Pacific Economic Framework. The U.S.-E.U. Trade and Technology Council is a forum to discuss disputes and to seek alignment on regulatory approaches towards issues like AI. There are trade and investment discussions with Taiwan.

There are still occasional discussions of trade agreements with the U.K. and Kenya, though I can imagine anything is imminent. There are trade association and think tank proposals for digital trade agreements. And as Kathleen Claussen, now of this law school, showed in an important article last year, there has been a proliferation of more than 1,000 trade executive agreements that do not require congressional action, many of which are targeted to a handful of specific products or issue areas, that have been effective at facilitating U.S. trade in discrete areas.

In my view, if we want to put some points on the board—to actually develop and implement specific trade agreements and specific trade policies that serve U.S. economic and geopolitical interests—in the near term we should probably de-prioritize big initiatives and instead think small.

In a year when domestic economic preferences are in flux, views of the geopolitical order remain unsettled, and the U.S. is heading towards a 2024 election, the practical reality is that we are going to have a difficult time negotiating meaningful, binding, major trade agreements. For example, I am wholly unsurprised that the proposed digital chapter in IPEF has come in for sharp criticism both domestically and with our IPEF partners. Until we know what we want domestically with respect to tech and data policy, it is going to be a challenge to write international rules of the road.

This is why I think we should start by focusing on targeted specific initiatives and then build from there.

For example, I am bullish on the proposed critical minerals agreements that the Administration is pursuing. These are a good example of targeted agreements that have the characteristics needed for success. For the U.S. to manage the green transition, we need access to minerals and processing capacity abroad. And we want countries we buy from to adhere to high environmental and labor standards, and we want to ensure that the minerals themselves are not under Chinese control. We, the U.S., also now have something minerals exporting countries and other friendly countries in the clean energy supply chain want: access to Inflation Reduction Act subsidies. Basic negotiating theory suggests we should be able to figure out a deal here.

The recently announced U.S.-Taiwan Initiative on 21st Century Trade is also a useful milestone. Yes, if you read the text, it principally deals with customs matters and hortatory commitments regarding good regulatory practices. But it includes useful, practical steps to promote trade with a key geostrategic partner, and creates a foundation for broader negotiations over the long-term.

The U.S. E.U. Trade and Technology Council’s recent focus on AI is similarly welcome. Even if U.S. policy preferences on many digital and tech issues is in flux, AI presents a rare opportunity: it is an issue that both will dramatically impact economic and domestic life across the U.S., Europe, and other G7+ partners, but which has emerged so quickly that national views on what to do have yet to harden. This presents a window to work collectively on AI regulations that, realistically, will matter more for our economies and our democracies many traditional trade agenda items.

I also think the U.S. should pursue agreements with allies and partners to increase transparency regarding industrial policy. We are not the only jurisdiction to re-embrace industrial policy—many of our G7 partners are embracing it as well. I worry that absent close coordination, this risks an uneconomical subsidy race that pays off well for companies but will be inefficient at achieving economic and supply chain resilience goals. Developing an information sharing mechanism with public accountability can help head off a subsidy race to the bottom.

Let me now turn to a question that I know is on many of your minds: what should the U.S. do with its tariffs on China?

For many years the U.S. took the strategic approach that economic engagement with Beijing could serve as a tool to foster economic and potentially even political liberalization in China. Between the 1990s and the mid 2010s, Presidents from Bill Clinton to Barack Obama tried to use the inducement of economic engagement to persuade China to adopt a set of economic reforms. When inducement didn’t work, the Trump Administration tried to use the threat of cutting off economic ties to cudgel China into making changes.

Today, this the strategic approach of using economic inducements and threats to promote change in China has reached the end of the road. China isn’t going to change. And our economic engagement needs to reflect that China is going to be China.

I do not know what the Administration plans to do at the end of its current four-year review of the Section 301 tariffs. But my recommendation is that the Administration rebalance the tariffs so that individual tariff lines are in the U.S. interest. We should hike tariffs where we continue to have strategic dependencies on China in order to reduce our dependencies for critical goods. And we should reduce tariffs on products that are non-strategic, and on certain intermediate goods where the tariffs have actually undercut U.S. competitiveness in the global market. In a world where China is not going to change, we should actively manage the trading relationship to ensure that it is in our interest.

Now let me turn to some recommendations for the mid-term.

Here, I’d actually start by developing a set of supply chain focused agreements that would go well beyond the “talk-and-coordinate” commitments that appear to be the core of the IPEF’s supply chain chapter.

As has been widely noted, much of the trade we are trying to get out of China is not actually going to come back to the U.S.— it is going to migrate to other partners. We’re already seeing this with Vietnam, a country that has no trade agreement with the U.S. but which exported the equivalent of about a quarter of its GDP to the United States last year. At a policy level the United States has generally welcomed cooperative work on critical supply chains.

There is much we could do in a critical supply chain agreement that focused on a set of mutually agreed critical sectors. We could certainly start with a commitment not to hike tariffs on goods in these sectors, and move, with Congressional authorization, to cutting them. By focusing on a handful of discrete critical sectors we can sidestep the domestic policy and political debates that, as I discussed earlier, will pose significant headwinds to comprehensive deals over the next few years. We could commit to making certain domestic incentives available on a mutually beneficial basis.

Targeted regulatory actions are another area ripe for a supply chain agreement. In sectors like semiconductors, or the green energy transition, we could jointly commit to expedited, though still high standard, permitting processes for major projects.

From a U.S. perspective, we should also think creatively about bringing to bear tools not traditionally integrated into trade talks. For example, assuming we want Congress to chop on a supply chain deal, we could incentivize the U.S. Development Finance Corporation to provide trade infrastructure financing to create better trade infrastructure among trade country partners. Certain projects abroad could be made eligible for DPA Title III funding, which is currently available only in the U.S. and Canada, but which Congress is considering extending to a handful of other allies. We could create a CFIUS white list of companies based in critical sectors and either eliminate or expedite CFIUS screening for cross-border investments in these sectors.

I also recommend a mid-term focus on digital trade issues. I have been skeptical of digital trade agreements before the end of 2024, despite supporting the concept, because I don’t think we have enough domestic clarity on a negotiating mandate for a deal to be both meaningful and successful. But I also think that given the importance of digital issues, over the mid-term we just going to have to figure out what we want and go out to build the rules. Industry and civil society should come together this year and next to develop a set of recommendations to government on how to think about cross border data flows in a geopolitically diverse world where trade is more securitized, and then build support for that across the G7. We will likely already have the Japanese on board as long as we call it Data Free Flow with Trust.

Finally, the mid-term agenda should include an aggressive push both on carbon border adjustment mechanisms and on green subsidies. CBAMs are coming. Politically, back in 2020, the President committed to a CBAM on his campaign. Even some Republicans are eyeing CBAMs as a way putting global pressure on China, which is today by far the world’s largest emitter. Europe is moving forward with a CBAM and will feel increasing domestic pressure to subsidize the green transition in Europe lest is lose vital manufacturing to lower energy cost and high carbon-intensity regions. Economically, if we don’t embrace CBAMs we will not succeed in our global goal of reducing emissions and we will risk undercutting our own manufacturing investments. I am hardly the expert on CBAMs and understand their complexity. But I think they have to be a major focus of U.S. trade policy over the next several years.

If I look out over a longer time horizon, what do I think the future looks like? I’ll readily admit that my track record of long-term prognostication is poor. But I want to highlight two areas that clearly need attention.

First, the WTO. On the current trajectory the WTO is heading towards a future where it becomes somewhat irrelevant to global trade. If we want to reverse this trend, we are going to need to get beyond the current discussion regarding tactical problems, like re-starting a functioning appellate body, important as those issues are. Instead, we need a candid and direct discussion of what we want the future to hold for the WTO. As I said earlier, it is my view that the United States is simply not going to accept WTO rules that require us to treat China and Germany on the same footing when it comes to trade. It is also my view that the U.S. is unlikely to accept a set of rules would fundamentally constrain our shift back towards a period of industrial policy. How do we reconcile these shifts in U.S. views with the rules we agreed to in the 1990s?

I see two potential outcomes. One the one hand, we could reach some kind of global détente where the U.S. and China, or perhaps G7 on one side and China on the other, mutually agree that WTO rules won’t actually govern trade between us, but that the WTO system will govern trade with third countries. Or on the other hand, perhaps we will return to more of a GATT-style arrangement where we have separate but still quite broad trading blocks. Either way, absent some fundamental reassessment, I see a long, slow sunset for the WTO.

With respect to FTAs, we similarly need to have a discussion about what they should look like. In particular, we need domestic soul searching about what we want out of trade agreements beyond geopolitical alliances. We need an economic theory of the case. For example, do we want to encourage our allies and partners to increase their own domestic industrial policy subsidies, and would we be willing to give partner country companies access to ours? In his recent speech at Brookings, National Security Advisor Sullivan talked about the need to allocate capital in ways that focus on the quality of growth, not just the quantity of growth and to drive a new international economic policy agenda. I agree entirely with the thrust of Sullivan’s argument. But we are going to need time to turn his call into proposed trade rules, and then go out and negotiate them.

Moreover, for a trade agreement to work, it can’t just be about what the U.S. wants. One of the perennial complaints I hear from U.S. allies and partners about IPEF is that without greater access to the U.S. market countries have no incentive to make policy concessions to us. This is, I think, a fair criticism. If we aren’t going to include much traditional market access measures in a trade deal, and we want our partners to make tough policy choices of their own, we need to think up some other benefits to put on the table.

A few ideas for consideration. As I mentioned earlier, we could link certain kinds of development assistance more directly to trade deals, at least with respect to developing country partners. A few foreign countries have taken steps to begin to include visa and immigration related measures in trade agreements, an idea that the U.S. could explore. If we are wary of providing market access to countries that are unlikely to meet our overall standards for the environment and labor, perhaps we could figure out ways to offer lower tariffs on imports from specific factories or trade zones that are verified to meet such standards.

We should also start to develop disciplines for national security tools that would limit their use against trade partner countries—something that I expect is of increasing value to our allies. Beyond some sort of trade partner CFIUS white list, we could make commitments to refrain from using sanctions and export controls against a trade deal partner absent prior consultations to seek a negotiated resolution to whatever potential national security concern would trigger their imposition. This might be particularly valuable to partner countries worried about the long-term direction of U.S. politics and foreign policy. For those who are skeptical that the U.S. would ever consider disciplining its list of national security tools, I note that last year, in an Annex to the G7 Leaders Statement, the G7 articulated a set of commitments about its use of sanctions and export controls against Russia that could form the basis for international discussions among close allies and partners.

CONCLUSION

I realize that I have now covered a lot of ground and likely exceeded your patience for my remarks. I’ll dispense with a lengthy conclusion and offer just a brief close before turning to questions.

I am actually quite optimistic about American trade policy. If I look back at previous productive eras in trade policy, such as the late 1940s, the 1960s, or the 1990s, they typically followed times when U.S. went through an intense period of domestic economic reflection and global geopolitical change. I think that today we are in a similar period of domestic economic reflection and global geopolitical change. Certainly, the geopolitical environment is right for another period of productive trade policymaking. What we need now is to have a set of quiet conversations and to get organized about what we want the economic substance of a trade agenda to be. After we do that, I’m confident that our trade negotiators will do what they have long done—go out and write a new set of rules for the world.

Thank you very much. And with that, I’d welcome a couple of questions.

To read full memorial lecture, see below.

Harrell Greenwald Memorial Lecture June 13 PDF

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