Nonetheless, former President Donald Trump tapped into a growing popular resentment of trade and has continued with his hallmark assertion “that foreign countries . . . have been ripping us off for years” and they “come in and take advantage of our country.” The Joe Biden administration has continued in the same vein, claiming that trade has “contributed to the hollowing out of the American industrial base and vital U.S. jobs, and harmed many of our communities and working families, undermining support for democracy itself.” With such portrayals, it is hard to see how anyone would favor trade.

In a speech at the Brookings Institution in April 2023, National Security Advisor Jake Sullivan cited trade liberalization—together with markets allocating capital efficiently and productively and the notion that all growth is good growth—as assumptions whose limits were laid bare by the “the shocks of a global financial crisis and a global pandemic.” He proclaimed that a new consensus is needed to “build a fairer, more durable global economic order, for the benefit of ourselves and for people everywhere.”

Smart industrial policy to advance national security, address climate change, and promote innovation can have its place. But it is a mistake to give short shrift to markets, trade, and growth, as they are the very mechanisms that raise incomes, a necessary part of addressing the unfairness issues cited by the last two administrations. Two phenomena are at play: a misperception and a misplaced perception.

Misperception

The misperception is the apparent view of Biden administration officials that the usual levers of fiscal and monetary policy were not working properly. During the Great Recession, the prime age employment-population ratio—which tracks the proportion of all Americans between the ages of twenty-five and fifty-four who are employed—tumbled from 80 percent in January 2008 to 75 percent by October 2009 and took nearly a decade to recover. Journalist Matthew Yglesias has suggested than rather than admit the Barack Obama administration stimulus measures were inadequate, the notion took hold that the sluggish labor-market recovery was due to something more “profound and conceptual.” Perhaps this is why officials rolled out a “worker-oriented trade policy” that has maintained the Trump administration’s tariffs, eschewed new market-opening arrangements, promoted onshore production, and expanded Buy American provisions.

But, in fact, the economic machinery of the United States works fine. As the COVID-19 pandemic dropped the prime age employment-population ratio down to 70 percent, the Biden administration’s massive stimulus package and a forward-looking Federal Reserve headed off another slow labor-market recovery. The prime age employment-population ratio popped back up to 80 percent within two years, faster than forecast. Whatever merits the worker-oriented trade measures could have had to create jobs, they are not appropriate in a relatively tight labor market with unemployment at 4.2 percent.

Misplaced Perception

The misplaced perception is that trade has few benefits when they are overwhelmed by other unfavorable economic conditions. Intuitively this makes sense. When Walmart shoppers’ savings on purchases of a tradable items—produced abroad or in the United States—are more than eaten up by rising rent and medical costs, awareness of any benefits from trade quickly evaporates like water on a hot rock.

This dynamic was evident during the Great Recession. Those who believed trade was good for the country collapsed from 78 percent to 58 percent and never fully recovered. When the pandemic undercut the economy, the 79 percent who thought foreign trade presented an opportunity for growth in 2020 slipped to 61 percent, according to a Gallup poll. 

Even though more recent headline data suggest that the economy is doing well, a May 2024 Pew survey reported that only 23 percent of respondents believed that economic conditions in the country were excellent or good. It is no wonder that 59 percent of respondents believe that the United States has lost more than it has gained from increased trade with other nations, a 3 percent increase from 2021.

Pre-distribution

Rather than build policy on the misperception and misplaced perception described above, Washington policymakers should do more to help ordinary Americans by taking measures to increase the supply of goods and services that are currently constrained by regulation or market concentration and contribute to raising costs. Unlike distributional policies, where the government makes direct payments such as unemployment insurance to address unequal growth outcomes, in these so-called pre-distribution measures the government helps raise real incomes in the first instance by strengthening market forces that reduce costs, such as lowering the price of drugs.

The Biden administration deserves credit for seeking to lower costs in some pre-distribution areas such as housing and medical care and for creating the Competition Council to tackle exploitive practices such as junk fees and noncompete clauses. But more could be done. Journalist Derek Thompson has proposed an “abundance agenda” to reduce price pressures in areas of constrained supply by easing regulatory burdens. Vanderbilt University’s Accelerator Program has chipped in, listing forty new ideas to promote competition.

International trade policy also has a role to play to lower prices in pre-distribution areas. For example, under a process known as foreign peer approval, the Food and Drug Administration could address shortages of a drug it has already approved by allowing the importation of the same drug produced abroad and approved by a foreign drug agency. Other examples where trade policy could support pre-distributional policies are by lowering tariffs on housing construction goods; expanding visa extensions for qualified doctors, construction workers, and others; lifting the recent pause in processing new visa applications for international nurses; and signing on to the new Agreement on Climate Change, Trade, and Sustainability providing for duty-free treatment of environmental goods (excluding unfairly subsidized goods).

Dispelling the misperception that the machinery of the U.S. economy is defective would be the first step toward a discussion of more effective policies that embrace trade. Using trade measures to reduce pre-distribution costs would help lift real incomes and improve the economy’s overall performance. When paychecks go further to meet family needs, perhaps the population would have a rosier view of the economy and discard the misplaced perception that trade presents a threat. Politicians would have less of a foothold to exploit trade for populist purposes.

Time to turn the page on international trade.

James Wallar is a former U.S. Treasury official and advisor to the CFR RealEcon initiative.

To read the article as it was published on the Council on Foreign Relations webpage, click here.

The post Misperceptions and Misplaced Perceptions: Time to Turn the Page on International Trade appeared first on WITA.

In light of the increasingly contentious nature of the US-China relationship, it is worth examining Americans’ views about economic ties between the two countries. Fortunately, recent Cato Institute polling data (full survey crosstabs (XLS)) covers this very topic. Here are the China-specific results:

• 55 percent of survey respondents agree that “The US trading with China helps increase global stability and peace” versus 45 percent who disagree. Specifically, 11 percent strongly agree and 45 percent somewhat agree; 29 percent somewhat disagree and 16 percent strongly disagree.
• Digging into the crosstabs, it is clear there is a strong partisan split on this question. Sixty-eight percent of Democrats and those who lean Democratic agree that the US-China trading relationship helps increase global stability and peace versus 45 percent of Republicans and those leaning Republican. 45 percent of independents also agreed with the statement.
• The next China-related question asked respondents whether China generally practices fair or unfair trade with the United States. Fifteen percent of those surveyed said China practices mostly fair trade with the US versus 59 percent who believe China practices mostly unfair trade. Another 25 percent said they didn’t know.
• Unlike the previous China question about global stability and peace, there isn’t much of a partisan split on this issue. Twenty percent of Democrats/​those leaning Democratic, 10 percent of independents, and 13 percent of Republicans/​those leaning Republican believe China practices largely fair trade with the United States. In comparison, 52 percent of Democrats/​those leaning Democratic, 53 percent of independents, and 71 percent of Republicans/​those leaning Republican believe China practices mostly unfair trade.
• Cato asked respondents, “based on what you know, approximately what percent of goods imported into the United States come from China?” It turns out the overwhelming majority vastly overestimated China’s share of US goods imports: 5 percent of respondents said less than 5 percent; 13 percent said 15 percent (the correct answer); 31 percent said 25 percent; 28 percent said 50 percent, 18 percent said 75 percent and 4 percent said 95 percent. There’s not much of a partisan split on this question.

The last question is straightforward enough—and the respondents’ overestimates are understandable given US policymakers’ overwhelming focus on China when discussing matters of international economic policy—but the first two are more nuanced, so let’s dig in.

First, there is a large body of scholarly work about whether economic integration tends to reduce conflict and helps facilitate peace and stability between trading partners. This idea can be traced at least as far back as Montesquieu who wrote in the 1700s that peace is the “natural effect of trade.” This belief has been a pillar of U.S. international economic policy—and foreign policy more broadly–since the leadership of Secretary of State Cordell Hull in the 1930s and especially in the aftermath of World War II.

While I’m inclined to think the American public’s instincts are correct and trade does tend to promote peace, it’s also clearly not a panacea given prominent counterexamples (including World War I and Russia’s 2022 invasion of Ukraine). That said, policymakers pushing for a hard decoupling with China risk a greater likelihood of conflict.

On the issue of abusive Chinese trading practices, public skepticism is well-founded. The issue, however, is complicated. Although it’s true Beijing engages in numerous troublesome international economic practices that hurt American firms (which my Cato colleague Scott Lincicome and I documented in a paper last year), a lot of US-China trade is fairly conducted. That said, even though policymakers have (largely) diagnosed the problems correctly, their “solutions” have done little to alter Beijing’s behavior while imposing substantial costs on American citizens. A course change is desperately needed.

The US and China trade a lot with one another, but, ultimately, two-way trade (imports and exports) with China is just 11 percent of all US trade. As Lincicome recently noted, “contrary to so much of the protectionist spin you read these days … the vast majority of US trade (goods and services; imports and exports) involves countries other than China.” Indeed, too often China is invoked as a pretext for old-fashioned protectionism against other countries. Yet the American public largely supports more trade with the rest of the world (55 percent of poll respondents had a positive opinion of international trade compared to 12 percent unfavorable), particularly allied countries.

More broadly, Cato’s poll results demonstrate that Americans generally do not worry too much about international trade and globalization. A mere 1 percent of respondents said that international trade was in the top three most important issues facing them (perhaps surprising given the rhetoric from Donald Trump’s presidential campaign, which has focused heavily on across-the-board protectionism).

Yet Cato’s polling shows that aggressive protectionism is not popular with the American public, especially if it comes with higher prices and other tangible costs (spoilers: it does). Politicians hoping to appeal to Americans on the issue of international trade should focus their efforts on boosting trade ties with friendly nations not pushing unpopular protectionism.

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

The post What Americans Think about Trade with China—and Trade More Broadly appeared first on WITA.

Xi’s visit also conveyed a broader Chinese goal in the Rare Earths sector that goes beyond mining: maintaining leadership in the downstream industrial supply chains of processing, refining, and magnet production. While the semiconductor war gets more attention, there is another tech battle underway in the rare earths supply chains as China continues to tighten its control over what it calls a “state resource” and its supporting technologies. 

The Western rush to build China-free supply chains with both upstream and downstream industries is masking the bigger technological challenge of establishing a sustainable processing capacity. Given the stakes, a targeted approach is required to solve the processing tech puzzle through investments in R&D, international partnerships, and diffusion of alternate methods. 

Rare Earths, Rarer Tech? 

In 1992, while visiting Baotou, Inner Mongolia, one of China’s biggest rare earth mines, Chinese leader Deng Xiaoping famously said, “The Middle East has oil, China has rare earths.” He was referring to the country’s resource endowment of over 30% of the world’s reserves. But unlike the Middle Eastern oil producing countries who primarily drill and export crude, China built an entire ecosystem around the rare earths, from mineral production and processing to manufacturing finished products, and most importantly, rare earth magnets.

China has maintained leadership at every step up the ladder. Though its global production share dipped from a staggering 97% in 2011 to around 70% in 2022, it still controls over 85% of processing capacity. China has an effective monopoly over processing major heavy rare earths – Dysprosium (Dy) and Terbium (Tb), and Light Rare Earths – Neodymium (Nd) and Praseodymium (Pr).

Environmental impact is often cited as one of the main reasons for China’s emergence as a rare earth powerhouse, but the technological aspect is less discussed. From 1950 to October 2018, China filed over 25,000 rare earth patents, surpassing the US’ 10,000. Over decades, Chinese engineers perfected the solvent extraction process to refine REEs which plays a critical role in ensuring China’s primacy. Though the technology originated in the United States, environmental and regulatory concerns made domestic rare earth development unfeasible. 

Rare earths are clumped together in rocks, making their processing a complex undertaking. “All of them behave the same way, with very minor differences in chemistry. That means they bond with the same things under the same conditions, and they’re not going to separate from each other readily,” explained Dr. Isabel Barton from the University of Arizona. 

New Tech for Old Problems? 

Given the challenge of accessing China-controlled solvent extraction tech and its environmental costs, multiple research projects are underway to search for cleaner and more sustainable processing methods. One of them is a DARPA-funded program called EMBER (Environmental Microbes as a BioEngineering Resource) to use microbes to process and refine rare earths. A biologist and the Principal Investigator of the project, Marina Kalyuzhnaya, called it an “intensive program” and argued that a biological approach could play an important role. “The goal is to separate REEs, and biology might be specific enough or selective enough to keep individual minerals out of the complex mixture.” She added that the goal was to create “something completely sustainable” but conceded despite exciting breakthroughs, scalability for the project is at least 4-5 years away.

A Vision for Targeted Diversification 

Apart from investing in new tech, the US and other western governments have taken multiple national and international steps to diversify supply chains. Despite the efforts, Benchmark Minerals, a mining advisory firm, projects by 2028, China’s share in processing of both heavy and light rare earths would only drop marginally.

There are many reasons for the sobering predictions. For one, Western governments are trying to focus on all stages of supply chains simultaneously without prioritizing one over the other, causing inefficiency and resource wastage. Two, current policies divert attention from the bigger technological challenge of establishing sustainable processing and refining capacities outside of China. 

To resolve this, there is an urgent need to increase R&D investments for cleaner processing solutions that match or even surpass China’s cumulative investments. The US also needs to address the processing know-how gap as a strategic technological challenge and not just a pollution problem. While state-led investments to spur private interest is essential, the bid to onshore all components of the REE supply chains would be counterproductive in the long run. The US, along with its allies should create an REE-specific strategy and foster development of regional nodes. It took China nearly three decades to dominate REE supply chains; a well-executed diversification effort may not take as long. 

To read the column as it was published on the New Security Beat webpage, click here.

The post Mine the Tech Gap: Why China’s Rare Earth Dominance Persists appeared first on WITA.

Night really does follow day! On Tuesday (20 August) the European Union announced its planned anti-subsidy tariffs on Chinese electric vehicles, a hefty 36.3%.  

On Wednesday (21 August), China retaliated by opening an investigation into EU subsidies for cheese. Affected parties – the European Union, EU member states, dairy producers exporting to China – have twenty days to respond. 

Clever move? 

This move by China is either very clever or very stupid. Or possibly both. Let’s unpick it.  

The first observation to make is that the EU will not have been taken by surprise by the opening of this cheese subsidy case. China invariably retaliates when its trading partners impose restrictions on its exports. In its announcement of the investigation China in fact refers to consultations having taken place with the Commission two weeks ago.  

It is not impossible that it was even choreographed between China and the Commission, so that the Commission can demonstrate to EU member states that there will be a high price to pay if in November the EU imposes definitive duties on electric vehicles.

EU dairy producers in many member states pay the price for a trade spat in a wholly unrelated sector.  

Why cheese? European wine and charcuterie producers must be heaving a sigh of relief as I write, as they were assuming they would yet again be the target of the obligatory retaliation.  

China chose its target carefully. Cheese is a politically high-profile product in European eyes, it comes from a large range of member states – “there’s a cow in every member state” the saying goes. So, the pain will be distributed across the whole of the EU.  

Yet at the same time exports to China – that famously lactose intolerant nation – are limited. In 2023 the EU sent to China just € 190 million worth of cheese. That figure pales in comparison with China’s € 20 billion of electric vehicle sales in Europe now to be hit with a up to 36.3% extra duty.  

This means that the eventual imposition of anti-subsidy duties on Gouda and Pecorino Romano is unlikely to sway member states when they are called on in November to agree definitive duties on Chinese cars.  

China’s announcement is above all political and symbolic, aimed at creating a bit of leverage over the EU but calibrated so as not to represent the opening salvo in a real trade war. 

‘As close as lips and teeth’ 

So far so good. But from another angle one can argue that this Chinese move is misguided and it may come to regret it.  

The investigation was triggered by a request from the domestic industry. 

Knowing how intertwined government and industry are in China – “as close as lips and teeth” as the Chinese proverb has it – it is hardly fanciful to imagine that China’s government instructed industry to lodge the request.  

It is common knowledge that Beijing has a metaphorical drawer of oven-ready dumping and subsidy requests ready to brandish if political circumstances so warrant. 

China has taken great pains in recent years to replace a vacuum left by the United States by arguing that they are reliable multilateralists, wedded to the rule of law.  

An anti-subsidy case launched for purely political and tit-for-tat retaliatory reasons hardly inspires confidence in China’s attachment to those multilateral principles, quite the opposite. It blows China’s narrative out of the water.  Trust, once gone, takes an aeon to restore.  

EU agriculture subsidies proven WTO-proof 

The officials in the Chinese ministry of agriculture will have been tossing and turning in their sleep these last few days. It will be difficult for China to prove that EU cheese benefits from trade distorting subsidies paid to milk producers.  

As an EU official until last year, I was involved in a series of cases in which various trading partners were trying to prove that the income support to farmers paid by the Common Agricultural Policy somehow ended up as a subsidy for the finished product.  

We successfully demonstrated that, in the jargon, there is no “pass through” of money from the primary producers, whether it be with Canada on sugar, the US on table olives, or Australia and Peru on tomato paste or canned tomatoes. In all cases the World Trade Organization or our bilateral dispute settlement courts rejected the other countries’ claims.  

The EU also successfully rebutted claims that direct income support to farmers – who get their dosh irrespective of what they produce or even whether they produce – is product specific and thus a distorting subsidy.  

China will face the same arguments, facts and hurdles in its investigation, along with several WTO precedents and findings that they now cannot ignore.  

The European Dairy Association issued a breezily confident statement declaring the WTO conformity of the CAP toolbox of support schemes from which they benefit. They are right. 

The dog that chased a bus 

Chinese agricultural officials must feel even more ambivalent over the claim – set out in the relevant ministry of commerce notice – that the EU’s environmental payments to farmers represent a distorting subsidy.  

China is following in the EU’s footsteps by progressively paying its farmers to adopt eco-schemes and other forms of environmentally friendly farming practices.  

China would therefore be mortified if its own investigation into EU cheese subsidies were to conclude that green farm payments were trade distorting and thus countervailable.  

This would expose China’s own green subsidy schemes to challenge in the WTO and deal a systemic blow to any country providing green support. China will not want this to happen.  

I am reminded of the story of the dog that used to chase a bus. One day to its surprise it caught the bus. Having caught it, it did not know what to do with it. This is what China may have done in opening this anti subsidy case.  

I am confident nonetheless that if this investigation runs its course, China will determine, will have to determine, that the payment schemes to milk producers do not represent a subsidy to cheesemakers.  

Unless the political relationship with the EU sours dramatically, China will do little more than introduce some minor face-saving duties on cheese, if anything.  

Conclusion? The Chinese action is neither clever nor stupid. Only time will tell. 

John Clarke is a former Director for International Relations at the European Commission and senior EU trade negotiator. He previously headed the EU Delegation to the WTO and UN in Geneva. 

To read the commentary as it was published on the Borderlex webpage, click here.

The post China’s Investigation Into EU Dairy: Careful What You Wish For appeared first on WITA.

The restructuring of global supply chain has multifaceted and complex origins. The COVID-19 pandemic, climate change, automation and geopolitical tensions have all contributed to reshaping companies’ international distribution and trading patterns. Each of these issues alone would make the prospect of improving supply chain resilience daunting. No country alone can easily fix all of them.

Making matters even more complex are the underlying political factors that shape supply chain restructuring. Governments say they want to make supply chains more resilient and sustainable. But they are less clear about whether this means addressing environmental shortcomings and labour abuses, ensuring supplies of critical materials and components are not controlled by adversaries or whether it reveals a desire to shift jobs onshore. Often, it means all of them. 

What is clear is that trading patterns — the best indicator of supply networks — are changing substantially. In a 2023 survey, 67 per cent of global retailers and manufacturers said they had shifted to other suppliers, while two-thirds said that further shifts were likely. This often means sourcing from a different country or shifting to domestic suppliers. According to the Kearney 2024 reshoring index report, North American companies are moving rapidly to reshore operations away from lower-cost Asian countries. US imports from 14 Asian countries fell by US$143 billion in 2023 to US$878 billion.

Global COVID-19 lockdowns severed entrenched channels of product sourcing and laid bare weaknesses in the once-hallowed just-in-time supply chain approach. In 2021 the European Central Bank estimated that from November 2020 to September 2021, world trade would have been 2.7 per cent higher and global manufacturing output 1.4 per cent greater had global supply chains not been derailed by the pandemic.

Crises often induce panic and the initial response to COVID-19 was a classic case of what not to do in such circumstances. Governments’ border closures —made it more difficult to obtain the vital medicines, medical products and care needed to fight the pandemic.

Russia’s 2022 invasion of Ukraine and the subsequent response from NATO and its allies further ignited a desperate search for new sources of oil and gas, grains, fertilisers, iron, steel and critical minerals. With traditional markets slammed shut due to sanctions, Russian producers redirected exports to China, India, Brazil and other emerging countries where their commodities were snapped up quickly.

These shifts largely centred on commodities that are relatively easy to find elsewhere. When Europe turned off the tap on Russian gas, it swiftly turned to liquefied natural gas imports from the United States and elsewhere. But as countries climb the technology ladder, onshoring and friendshoring become more complicated. Vast, US taxpayer-financed measures like the Inflation Reduction Act and the CHIPS and Science Act were designed in no small part to address what US President Joe Biden’s administration sees as supply chain vulnerabilities.

At the heart of the Biden administration’s anxiety is the world’s dependence on TSMC, which supplies 61.2 per cent of the market for high-end semiconductors. Other examples abound. The drive towards electric vehicles (EVs) has been complicated by the fact that supply chains producing EVs—and especially the batteries that power them—are firmly rooted in China.

Of all the factors pushing companies to shift production and supply, growing geopolitical tensions top the list. Writing for the World Economic Forum, Simon Evenett points out that 2023 filings to the US Securities and Exchange Commission, indicate that 75 per cent of internationally active companies believe geopolitical tensions are the most pressing consideration when making business decisions or assessing risk.

These bilateral tensions between the United States and China are particularly vexing for businesses because the economies of the two countries are intertwined, and anticipating the next wave of economic sanctions is challenging. The United States’ disregard of WTO rules also deprives entrepreneurs of the transparency and predictability those rules were designed to provide. The United States has slapped restrictions on exports to China of artificial intelligence, high-end chips and quantum computers while applying import curbs on China’s exports of steel, EVs and solar panels. Washington is also leaning on its allies to follow suit, badgering EU countries to buy less from China and the Netherlands and Japan to cease shipments to China of high-end lithography equipment.

Unsurprisingly, China’s trade with the United States has taken a tumble. US exports to China fell to US$148 billion in 2023 from US$154 billion in 2022. Chinese exports to the United States shrank even more, plunging to US$427 billion from US$536 billion in 2022. But many of the goods previously shipped from China now come from Mexico, Thailand or Vietnam.

The commercial partnership between China and Russia, meanwhile, is burgeoning. Since 2020, Russia has risen from China’s ninth largest trading partner to its fifth largest. In 2023, trade between the two was up 26 per cent to US$240 billion.

Underpinning the drive for the reconfiguration of supply chains is the ill-defined notion of national security. As the global economy fragments, resorting to the national security rationale provides governments with a relatively straightforward explanation for contravening international obligations. But lumping government responses under one umbrella does little to address the underlying problems that require changes to supply chains. Each factor warrants a tailored policy response. Unfortunately, what we have seen is a myriad of ad hoc policies driven by nationalist politics. 

The OECD has proposed sound advice to its 38 member countries—keep markets open and enhance the tools, like e-commerce, that can facilitate more efficient movement of goods and services. But striking multilateral trade agreements has never been more difficult. The WTO failed to dissuade big players like the United States, India and the European Union from hoarding vaccines during the pandemic. Then in March 2023, India and Indonesia forced the near-term termination of a 25-year-old WTO prohibition on duties on e-commerce transmissions. 

International organizations have likewise proven ill-equipped at addressing the question of national security. The handshake agreement at the WTO not to invoke national security when creating barriers to trade, nor to challenge such measures when they were invoked, is in tatters. The UN Security Council is frequently paralyzed by its permanent members’ vetoes. 

In an era when international cooperation is viewed with deep suspicion, uneasiness about global supply chains is understandable.

Improving and strengthening supply chains depends first and foremost on identifying and explaining why restructuring is required. If the motivation is greater environmental protection, then many developing countries providing raw materials that have woeful environmental and labour standards would be unlikely partners. If the issue is geopolitics, then heavy reliance on China is problematic. If the real objective is to bring production and supply inside a country to generate jobs, governments must ensure that the domestic workforce is sufficiently trained and the infrastructure adequate for these new demands.

Some countries, notably the United States, say they want all of these things. What is undeniable is that the only way these diverse and sometimes conflicting objectives can be met is through a cooperative approach. Organizations like the World Bank, the WTO and the OECD can provide such frameworks. But a broader policy alignment is not yet evident. No single nation—no matter how powerful—can prevent the next pandemic, combat climate change or ease rising geopolitical tensions. Restructuring supply chains in isolation is a fool’s errand.

Keith Rockwell is a Senior Research Fellow at the Hinrich Foundation and a Global Fellow at the Wilson Center. 

To read the full analysis as it was published on East Asia Forum, click here.

The post Supply Chain Changes Need a Globally Coherent Policy Response appeared first on WITA.

It is hard to exaggerate the significance of President Joe Biden’s May 14 announcement of tariff increases on a range of imports from China. The move opens a new front in the Biden administration’s China de-risking strategy. It also puts into sharp relief the challenging trade-offs involved in the growing policy arena of economic security.

In the May 14 announcement, President Biden directed U.S. Trade Representative Katherine Tai to impose a set of staged tariff increases on about $18 billion worth of imports from China in an array of “strategic sectors”: steel and aluminum, semiconductors, electric vehicles (EVs), batteries, critical minerals, solar cells, ship-to-shore cranes, and medical products. The decision was based on the mandated four-year review of the tariffs imposed by former President Donald Trump in 2018 under Section 301 of the Trade Act of 1974.

The White House said the tariff increases were designed “to protect American workers and American companies from China’s unfair trade practices,” including forced technology transfers and theft of intellectual property. It also cited China’s “growing overcapacity and export surges that threaten to significantly harm American workers, businesses, and communities.” The products subject to the increased tariffs were “carefully targeted at strategic sectors—the same sectors where the United States is making historic investments under President Biden.”

The May 14 action marked a departure for the Biden administration. Its previous efforts to reduce risks and vulnerabilities in the U.S. economic relationship with China had been focused on the export side of the ledger, primarily denying Beijing access to sensitive U.S. technologies. The new measures target the import side, restricting China’s access to the U.S. market. Although Biden surprised many analysts after he entered office by leaving former President Trump’s earlier duties in place, tariffs had not been the favored arrow in the de-risking quiver of the current administration until now.

Few would argue with the diagnosis of the underlying problem that the Biden administration is trying to remedy. For at least two decades, China has tolerated or encouraged intellectual property theft and forced technology transfers from the United States and other advanced economies. There is a clear line from those practices to China’s development of competitive technology products such as telecommunications hardware and electric vehicles. Beijing’s massive industrial subsidies have also been well documented and have contributed to overcapacity in a number of key sectors. With domestic demand in China weak, overcapacity there will inevitably be offloaded onto world markets, creating the risk of a “second China shock.” One worrisome harbinger has been the surge of Chinese car exports over the past few years, from around one million vehicles in 2020 to nearly five million in 2023.

Nor can anyone fault the Biden administration for concluding that mere jawboning is unlikely to change China’s behavior. For years, successive U.S. administrations have challenged Beijing, directly and indirectly, on its problematic industrial and technology-transfer policies. As recently as last month, Treasury Secretary Janet Yellen was in Beijing warning her counterparts about the risks posed by Chinese overcapacity.

Nevertheless, the Biden administration’s approach to this intractable problem is rife with trade-offs. The least of these is arguably the direct cost to American consumers. In theory, tariffs represent a tax on downstream consumers of the targeted products (as starkly shown by a new paper from the Peterson Institute for International Economics, which finds that presidential candidate Trump’s proposed 10 percent across-the-board tariffs and 60 percent tariff on imports from China would cost the average American household around $1,700 a year). The Biden tariffs cover only $18 billion worth—or around 4 percent—of imports from China, reflecting limited existing trade in many of the targeted products: few Chinese EVs are sold in the U.S. market today, and steel from China accounts for only about 2 percent of total U.S. steel imports. So the immediate price impact is likely to be small. But will tariffs have to rise further to give domestic manufacturers more space to compete, and will this have the desired effect or just reduce competition in the U.S. market while ratcheting up costs to consumers?

Another trade-off that has been widely noted in the wake of the May 14 tariff announcement is between the Biden administration’s goals of reducing economic dependencies on China and mitigating climate change. While massive subsidies and forced technology transfers may have enabled their success, the fact is that many Chinese EVs, batteries, and other clean-energy products today are highly competitive in price and quality; allowing them into the U.S. and other markets could help the Biden administration’s efforts to reduce emissions. The administration has struggled with this trade-off throughout its term, excluding Chinese solar modules and cells from earlier tariffs to ensure a sufficient supply while domestic producers built up their capacity.

Alongside the economic trade-offs of the May 14 tariffs are significant diplomatic ones. The Biden administration has gone to great lengths to strengthen ties with traditional allies in Europe and Asia, and to win over new partners around the world. Since Chinese overcapacity has to go somewhere, a tariff wall around the United States is likely to produce trade diversion to Europe, Japan, Korea, and other markets, increasing the pressure on those countries to take similar measures to limit Chinese imports. These partners are also worried about retaliatory steps by China that could have global effects, such as further restrictions on exports of critical minerals like graphite and gallium that are mostly processed in China.

Allies are also worried about the implications for the international economic order of a U.S. drift toward protectionism. Unilateral Section 301 tariffs such as those announced on May 14 are generally viewed as inconsistent with U.S. obligations in the World Trade Organization (WTO). While this concern carries little weight in Washington, where the WTO is generally viewed as ineffective and not fit for purpose, the institution and the trade rules it notionally safeguards are seen in most other capitals as a critical underpinning of a rules-based order. The practical concern is that U.S. actions inconsistent with existing rules give other countries license to violate them as well.

As an aside, an official from a foreign embassy in Washington contacted for this article noted that, for all the suspicion with which Section 301 is viewed in her capital, it would have been more troubling if the Biden administration had used Section 232 of the Trade Expansion Act of 1962—which authorizes trade restrictions to address threats to national security—to justify the new tariffs, which were ostensibly designed to address disruptions to U.S. commerce, not national security. Ironically, Section 232 action would have been more likely to pass muster in the WTO, which historically has taken an expansive view of member states’ rights in national security.

Could some of these trade-offs have been avoided if the Biden administration had taken another tack? Given that China has long been pursuing a non-market, export-powered model of growth that is widely viewed as disruptive to the global economy, the administration might have worked through institutions like the G7, the Organization for Economic Cooperation and Development, and the International Monetary Fund to build an international coalition demanding that Beijing change direction and, once that proved ineffective, authorizing collective action to rein in China’s exports. This approach would have taken more time and had less immediate political benefit domestically but might have posed fewer trade-offs for broader U.S. interests.

There is little doubt that global risks—including ones stemming from China’s mercantilist policies—have increased in recent years, and that government intervention in markets to mitigate those risks is in many cases warranted. But as the U.S. government pursues economic security policies such as those announced on May 14, it needs to thoroughly weigh the costs and benefits and consider alternative approaches that could make the trade-offs less pronounced.

To read the full article as it appears on the Council on Foreign Relations’ website, click here. 

The post Weighing Biden’s China Tariffs appeared first on WITA.

The requirement for this report is contained in Section 181 of the Trade Act of 1974. The relevant part requires USTR to

“identity [sic] and analyze acts, policies, or practices of each foreign country which constitute significant barriers to, or distortions of—(i) United States exports of goods or services (including agricultural commodities; and property protected by trademarks, patents, and copyrights exported or licensed by United States persons), (ii) foreign direct investment by United States persons, especially if such investment has implications for trade in goods or services, and (iii) United States electronic commerce.”

That is not all it requires, but it is the key element—USTR is to report on trade practices in foreign countries that “constitute significant barriers to, or distortions of” U.S. exports of goods or services. In its press statement announcing this year’s report, however, USTR laid out a somewhat different set of criteria:

“The NTE Report has received unprecedented attention this year because we are taking steps to return it to its stated statutory purpose. We respect that each government—including our own—has the sovereign right to govern in the public interest and to regulate for legitimate public policy reasons. Over the years, the NTE Report expanded from its statutory purpose to include measures without regard to whether they may be valid exercises of sovereign policy authority. Examples include efforts by South Africa to render its economy more equitable in the post-Apartheid era; import licensing requirements for narcotics and explosives; and restrictions on imports of endangered species. By carefully editing and returning the NTE Report to the statute’s intent, USTR is making it a more useful document that enumerates significant trade barriers that could be addressed to expand market opportunities and help our economy grow.”

This is a terrible idea on several levels. First, the “stated statutory purpose” is the first quote above. I can confidently say that none of the people who prepared this report, including Ambassador Tai, were out of grade school in 1974, and they don’t have much credibility in discussing what Congress intended. I was working in Congress at that time, and I’m reasonably confident that the authors’ interests were more prosaic—they simply wanted to identify trade barriers that hurt Americans.

The new criteria ignore whether a policy is a barrier and instead focus on whether the other countries’ policies were undertaken for legitimate public policy reasons and were “valid exercises of sovereign policy authority.” That completely misses the point of the statute. The issue is not whether trade measures were legitimate or valid for the implementing country, but how they affect us. In other words, Section 181 is as much about us as it is about them, meaning barriers that adversely affect Americans should be listed. Whether they are good for the country imposing them is irrelevant to USTR’s mandate. I could understand USTR saying that it would not try to tear down a particular barrier because the United States regarded it as a legitimate public policy, but to deny it’s a barrier and encourage countries to continue it undermines the statute’s intent. It also undermines the trade rules we have spent 75 years building. There is a big difference between saying, “I don’t like what you’ve done, but I’m not going to do anything about it,” and “I’m fine with what you’ve done—keep on doing it.”

This new approach is particularly harmful to the digital sector, which, notably, is specifically mentioned in Section 181. As usual, Jake Colvin at the National Foreign Trade Council said it best:

“Specifically, in failing to call out significant barriers to American e-commerce and digitally-enabled exports, the Biden Administration is wasting an opportunity to stand up for U.S. innovation and inviting discrimination against American companies and workers by our economic competitors. By refusing to catalog local content requirements and other key foreign trade barriers, USTR is also willfully ignoring its congressional mandate to identify ‘significant barriers’ to U.S. exports of goods and services, foreign investment and electronic commerce.”

Over the past three years, the Scholl Chair has done a lot of work on digital trade issues, and we are about to publish a policy tracker that help readers stay on top of digital policies in some 30 countries. We are doing this because of the enormous growth in digital trade and digital services over the past two decades and because of the sector’s importance to the U.S. economy. U.S. companies are leaders in this space, and it is in the nation’s interest to maintain and grow that lead globally. Instead, the USTR’s failure to even identify barriers, much less go after them, undermines our companies, hurts our economy, and ignores USTR’s own mission of advancing U.S. trade interests and promoting international trade rules. It appears the agency has moved from simply missing opportunities, as with the Indo-Pacific Economic Framework for Prosperity, to doing actual harm to our economy, which should be cause for all of us to be concerned. 

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

To read the full National Trade Estimate Report on Foreign Trade Barriers published by the Office of U.S. Trade Representative, click here.

To read the full commentary by William Alan Reinsch as it appears on the CSIS’ website, click here.

The post Moving from Missed Opportunities to Actual Harm appeared first on WITA.

The international trading system is gearing up for another test of its resilience. In late February, trade ministers will meet in Abu Dhabi for the thirteenth ministerial conference (MC13) of the World Trade Organization (WTO) in hopes of concluding several ongoing trade negotiations and laying the groundwork for institutional reform. The list of agenda items is vast—WTO reform, a waiver for COVID-19 therapeutics and diagnostics, e-commerce, fisheries subsidies, agriculture, and investment for development—and consensus among WTO members remains far off.

That some WTO members have vehemently opposed the increasingly popular concept of plurilateralism is of particular concern. Plurilateral negotiations are open to all parties, but in practice are carried out by only those members who are particularly interested in the issue at hand. These negotiations have become the most pragmatic method of reaching agreement on new rules in an organization such as the WTO, which has grown far beyond its initial capacity. But some countries, such as India, have strongly objected to any discussions that do not involve the entire 164-country WTO membership. Their objections are directly undermining efforts by the United States to make the WTO “more relevant to today’s challenges,” and potentially scuttling efforts to update international trade rules to address modern concerns. If the United States is as committed to the WTO as it claims to be, then it needs to convince those recalcitrant members to drop their obstructionist approach. India particularly is a heavyweight player in the WTO, and it should also, on its own, take the opportunity to chart a new course and productively engage in trade discussions where it has otherwise been absent.

The Plurilateral Drama and Investment Facilitation

Before the WTO went on holiday break in December 2023, India made a statement during a meeting of the General Council (which includes all members) to highlight what it thought were “sensitivities” surrounding new negotiations. In particular, India called out talks on investment facilitation for development (IFD), which substantially wrapped up last summer, saying that discussion of the topic “does not belong” at the WTO because there “has not been any Ministerial mandate for starting negotiations.” India’s objections stemmed not only from the fact that something related to investment was being discussed at the WTO, but also that a group of members decided to advance discussions on a shared issue of interest without agreement from all 164 member countries.

Over the last few years, India has been joined by South Africa and Namibia in arguing that plurilateral discussions are fundamentally at odds “with the multilateral underpinnings of the WTO.” Furthermore, India has even advanced the notion that plurilaterals undercut the WTO’s uniqueness in “[providing] rights to every individual member to have a say in deciding the negotiating agenda.”

What these countries seem to miss is that plurilateralism offers important benefits. First, the WTO has struggled to negotiate significant multilateral rules since its inception, and the growth in its membership has made such negotiations even more unwieldy. Plurilateral groupings bring together the countries most interested in a particular question, increasing the likelihood, as research has shown, of long-term compliance. An insistence on universal consensus, on the other hand, threatens to bring the WTO to a standstill.

Second, since plurilateral deals have already been accepted into the WTO framework in the past, their existence is not antithetical to the WTO’s purpose, nor do they undermine how the organization functions.

Third, the complaint that objecting members such as India have put forward—that plurilaterals are a tool of developed countries to advance rules in spaces where developing countries have not yet built the capacity to participate fairly—is problematic. To begin with, plurilateral negotiations can be inclusive, as the IFD talks show. All WTO members were welcome to join the talks but not all did. Instead, 110 members participated, making up 67 percent of the organization’s membership. Furthermore, the talks were largely driven by developing states to serve their own interests—improving sustainable, high-quality investment in their countries. The talks did not even include the biggest player, the United States, which chose not to join, though it supported the important effort. As WTO Director-General Ngozi Ikonjo-Iweala stated, by “enhancing transparency, accountability and good governance in investment procedures, the Agreement fosters a business climate more conducive to sustainable development.”

India’s Contradictory Positions on IFD

While South Africa and Namibia have joined India in opposing plurilateral talks, India’s objections have been uniquely baffling and significant.

India claims to champion the Global South. Yet by opposing the developing country-led IFD talks, it is revealing the limits of its leadership. Moreover, India has publicly stated its desire for increasing foreign investment, so it is puzzling that it chooses to oppose these discussions, with some estimates suggesting that the deal could generate global welfare gains between $250 billion and $1,120 billion, primarily benefitting poorer countries.

Such apparent contradictions suggest that India is pushing a legacy strategy at the WTO and is yet to carve out a new approach to today’s challenges or Global South interests. At the last ministerial conference (MC12) in June 2022, for example, India held up discussions on fisheries subsidies—also of immense interest to most developing countries—until the eleventh hour. What finally emerged out of MC12 were watered-down provisions to rein in harmful fisheries subsidies, largely due to India’s insistence that developing countries be exempted from stringent rules. However, most developing countries were keenly interested in including those rules, not least because they could help contain Chinese encroachment into areas they rely on for fishing (notably, China was largely cooperative during negotiations and has already ratified the first agreement).

Ironically, at the end of the marathon negotiations, India’s minister for commerce and industry, Piyush Goyal, stated, “far from being initially projected as a ‘Deal Breaker’ by certain countries, India finally emerged as a ‘Deal Maker’ at the WTO talks.” Commentators were quick to point out that in fact the entire meeting was an exercise in the WTO simply “staying alive.” Haunted by the theatrics of the last ministerial, members have spent countless months preparing fastidiously to secure some deliverables this year.

The problem, however, is that India, a substantive player in the WTO, has not only the ability to prevent WTO deals from becoming law—any addition or amendment to the existing WTO rules requires all members to sign on—but also the clout and visibility. Consequently, its obstruction can lengthen this process, as well as attract more opposition.

What the United States Can Do

At an event in Washington, DC, U.S. Ambassador to the WTO María Pagán spoke about how the WTO could avoid gridlock through responsible consensus, which she described as “the ability to say yes to something that maybe I don’t care that much about, but it doesn’t hurt me. And I’m not gonna hold it back as a chip…until I get…what I want.” Important U.S. allies, such as the United Kingdom, similarly support “the spirit of collaboration and responsible consensus so as to ensure that MC 13 builds on the success of MC 12.”

The United States should embrace this principle if it wants plurilateral initiatives such as the IFD to succeed. This is why some experts have argued for provisional application of the IFD, which would make the agreement legally binding among the parties while they await the formal process for the treaty to enter into force. The idea behind this is that the benefits of the deal are too important to wait for implementation pending consensus from the entire WTO membership.

Likewise, for initiatives that hope to “green” the WTO to make headway, such as tackling plastics pollution, fossil fuel subsidies, and promoting trade in environmental goods and services, the plurilateral approach may be the only avenue to move discussions forward at a speed that meets the urgency of the challenge posed by climate change. The United States should actively push India to change its stance on plurilaterals so that these important issues can be addressed. Furthermore, it is in the interest of the United States to advance negotiations at the WTO to ensure that the organization is fit for purpose and reflects U.S. priorities.

Last week U.S. Trade Representative Katherine Tai went to New Delhi to discuss the U.S.-India trade agenda. In a readout of a meeting between Tai and Indian Minister of External Affairs Subrahmanyam Jaishankar, both “discussed their shared desire to work constructively together to ensure a successful 13th World Trade Organization Ministerial Conference.” A shared desire, however, may not be enough. Getting India to back down from its opposition to progress at the WTO should be at the top of the agenda—apart from anything else, it could persuade South Africa and Namibia to similarly reconsider.

To read the full blog post as it appears on The Council on Foreign Relations (CFR) website, click here.

The post Responsible Consensus at the WTO Can Save the Global Trading System appeared first on WITA.

Excellencies, ladies and gentlemen, good morning! It is a pleasure to share this panel with Vice-President Dombrovskis and Deputy Secretary General Lapecorella.

Let me begin by thanking the organizers for inviting me to this conference and to your beautiful city, particularly as it celebrates its 700th anniversary this year. I very much look forward to discovering more of the rich history and culture of Vilnius during my stay.

I would like to make a few points today. My first point is that in the past few years, we have been living through a trifecta of crises: the COVID-19 pandemic, the war in Ukraine, and the climate emergency. Throughout these crises, trade has been an important shock absorber and enabler of resilience in the global economy.  In short, trade is an essential part of how the world addresses crisis.

In the first half of 2020, COVID-19 pandemic sent the world’s economy into free fall. In Q2 2020, the value of goods trade fell by 23% and services trade by 30% year-on-year. But trade rebounded strongly after the lockdowns, and by early 2021, global merchandise trade was at all-time highs. Over the course of 2021, merchandise trade grew almost twice as fast as global output, making external demand a key engine of economic recovery for countries around the world.

We all remember how export restrictions exacerbated medical supply shortages during the frightening first weeks of the pandemic. But we tend to overlook how trade and cross-border supply chains quickly became a means for ramping up production of and access to personal protective equipment, pulse oximeters, respirators, and eventually vaccines.  Of course, it’s been much easier in the developed world than in many developing countries, which are still in the throes of the crisis – but no matter the level of development, trade has been indispensable to recovery.

The billions of COVID-19 vaccine doses that made normal economic life possible again in so many parts of the world were manufactured in supply chains cutting across as many as 19 countries. There is no doubt that without trade, the economic and health recoveries would have been much slower.  And more trade is needed to boost that recovery in less developed countries.

In 2022, hot on the heels of the pandemic came the war in Ukraine, which has been a shock to the global trading system and the WTO. Ukraine’s GDP contracted by almost a third in 2022, and its exports have collapsed due to the disruption of Black Sea shipping.

But the economic consequences of the war reverberate far beyond Ukraine’s borders. Ukraine and Russia together account for barely 2% of global GDP and only 2.5% of merchandise exports. However, before the war, the two countries exported nearly 12% of food calories traded globally and were among key suppliers of energy, fertilizers, and certain metals. The disruption of shipping in the Black Sea is intensifying the food crisis in many parts of the world. Therefore, it was very disappointing to see the Black Sea Grain Initiative terminated, which is generating instability in markets and threatening the supply of vital humanitarian aid to some of the hardest hit corners of the world.

In addition, integrated and diversified international markets are necessary to help countries cope with disruptions in their access to food and energy from their traditional suppliers. Let me give you a few examples. Ethiopia used to source nearly a third of its wheat imports from Ukraine. The war ended those imports, but Ethiopia was able to replace them with wheat from the US and Argentina. By the same token, imports of LNG from the United States, including through the port of Klaipeda have helped Europe adjust to the loss of piped Russian gas.

The lesson is clear:  with respect to food as well, the free flow of trade is vital to global food security.

And then there is climate change, the single biggest existential threat facing humanity. The IPCC’s latest Report on climate change mitigation has been seen by many as the “last warning” before key Paris Agreement goals fall out of our reach. It is now widely recognized that trade is the missing piece of the puzzle in climate change mitigation and adaptation. Trade can help countries reduce emissions by increasing the availability and affordability of environmental goods, services, and technologies, such as solar panels and wind turbines. In fact, our research at the WTO shows that reducing tariffs and non-tariff measures on environmental goods could increase exports of such products by 5 percent by 2030 and reduce global emissions by 0.6 per cent.

Furthermore, trade helps countries recover from extreme weather events. When crops fail due to drought, heat, cold, or flooding, the ability to switch quickly to imports is vital, without cumbersome procedures at home or restraints imposed by others.

Although the evidence of the benefits of trade abounds, we have witnessed in the last couple of years a drive by many to “onshore”, “nearshore”, or “friend-shore” supply chains and sensitive technology. As governments and business seek resiliency in supply chains, we can all certainly understand, to a degree, the push to do business only with friends and neighbours given global uncertainties, even if it increases costs a little — or even a lot.  But the consequences of taking this too far will be counterproductive — less resilience, more vulnerabilities, and greater exposure to shocks. This is especially true given increasingly frequent and more intense natural and man-made disasters — extreme weather events and climate change, armed conflicts, and pandemics.

Our economists estimate that if the world were to decouple, real GDP loss would be at least 5% on average, and more for developing and least developed countries. And the opportunity cost of decoupling as opposed to further economic liberalization is 8.7% of real income at the global level. By contrast, reinvesting in multilateral trade liberalization can create significant income gains compared to fragmented trade scenarios. Deconcentrated and more diversified global chains, and those that include countries and communities that are now at the margins of the global economy, are key to better resilience, especially in times of crisis. In short, the world needs to re-globalize instead of de-globalizing.

At the WTO, we have a vision for such re-globalization: it will be green, digital, services-based, and inclusive. Last year, global trade in services grew by 15 percent and reached $6.8 trillion, or just over one-fifth of total world trade in both goods and services. We estimate that the share of services in world trade grow further to reach one-third by 2040.  The share of Lithuania’s GDP covered by services has doubled since 2005, which means there is tremendous potential for more growth.

In 2012, digitally delivered services trade constituted 8% of global trade, but today it is 12% and is worth $3.8 trillion. Digital trade has the potential to spur economic growth of smaller economies, particularly in Eastern and Central Europe. Recent research suggests that Lithuania has made significant progress in digitising its economy, with much scope for further work, which would boost innovation and productivity., According to some estimates, digital growth may bring Romania’s digital economy to almost €52 billion by 2030, which amounts to 15 percent of the country’s 2021 GDP. Digital trade can also allow more MSMEs, women, and youth to participate more effectively in regional and global trade and make it more inclusive — better for them, and better for their economies and societies. It can also be a lifeline for countries affected by natural disasters or conflict, and with limited access to infrastructure. For example, in 2022, IT services was the only growing area of exports of Ukraine, reaching the historic high of $7.34 billion.

Technological developments can unlock new opportunities for businesses and individuals around the world. To realize this potential, we need to understand how to harness new technologies so that they translate into job creation and economic growth, as well as help deliver UN Sustainable Development Goals in line with the WTO’s stated mission to improve living standards.  We also need new rules that would reflect current technological and business realities and address the digital divide faced by developing countries as well as underserved communities within the developed world. Many of our Members are actively working on these questions at the WTO as part of the Joint Initiative on E-Commerce.

An open and predictable multilateral trading system, with an effectively functioning WTO as its guardian, are prerequisites for re-globalization. That’s why strengthening the WTO and keeping it fit for purpose is so important to economic health and resilience.

Last year, we had a very successful Ministerial Conference (MC12), reaching outcomes on pressing issues related to the pandemic response, food security, and extension of the moratorium of customs duties on e-commerce. Most importantly, our Members added a new agreement to the WTO rulebook — the Agreement on Fisheries Subsidies, which is the first WTO agreement with environmental sustainability at its core and only our second new multilateral agreement since 1995. We are now actively working to have 2/3 of WTO Members deposit their instruments of acceptance of the Agreement to the WTO so that it can officially enter into force. I would like to thank the EU and its member States, including Lithuania, for being among the first to ratify this historic Agreement and deposit the instrument of acceptance.

The MC12 outcomes were achieved in the midst of a war, a global pandemic, and a food crisis. This success shows that consensus is still possible, even at times of deep geopolitical rifts, and that the WTO plays an essential role for its Members.

But the WTO must do more.  All of our Members agree that we need to reform the WTO across all three of our functions — negotiating, monitoring, and particularly dispute settlement, as we approach our 30th anniversary. We need to arrive at a common understanding of what kind of reform we want to achieve and establish a plan to attain it, knowing that different areas of focus will require different action and timetables. Members are actively working on this goal in Geneva.  The EU is an active participant, focusing the discussion on reforms to improve the WTO’s deliberative function and address trade-related environmental and inclusivity issues, as well as distortions caused by industrial subsidies and other practices. 

Reform of the dispute settlement function is particularly vital to the future of the WTO. As you may know, our second level of review — the Appellate Body — is not functioning due to divergent views among our Members about its role.  As a result, Members that lose at the initial panel stage can appeal into the void of a non-functioning Appellate Body, resulting in a lack of finality.  But to give teeth to the WTO’s rulebook, we need strong enforcement tools, making the need for reform even more acute. 

At MC12, our Members agreed “to conduct discussions with the view to having a fully and well-functioning dispute settlement system accessible to all Members by 2024”. Our Members are engaged intensive and promising discussions to this end. All eyes are on our 13th Ministerial Conference, which will take place in February in Abu Dhabi, and we hope that Members can agree on meaningful outcomes in this area.

At the same time, our Members continue to use the existing system to enforce the rules and bring about results.  For example, the EU has brought a case against China, challenging restrictions imposed by China on Lithuania concerning its recognition of Chinese Taipei, as it is officially named at the WTO.  This case is currently pending before a WTO panel.

In addition to dispute settlement, at the 13th Ministerial Conference, we need to achieve outcomes in other important areas at our upcoming Ministerial Conference:

• First and foremost, we need to complete the second wave of negotiations on fisheries subsidies.
• Members also need to decide on how to address the treatment of COVID diagnostics and therapeutics under intellectual property rules and on extending the Moratorium on e-commerce duties.
• We must also make progress on agriculture, especially issues related to food security.
• And finally, we need workable solutions to concerns raised by developing countries, such as addressing the digital divide and the risk that developing countries will be left behind in an industrial or green subsidies race, excluded from supply chains in a push to reshore or friendshore, or relegated to extractive role.

I count on the continued active engagement of the European Union and its member States, including Lithuania, in addressing these issues.

To conclude, let me leave you with three brief points:

• The WTO and similar institutions are especially needed in times like these, when the existing global international order is under threat and the temptation for unilateral action is high.
• The WTO remains an important — and sometimes the only — forum to manage and deescalate economic tensions, such as through negotiations and discussion in our specialized committees/councils.
• Negotiating agreements at the WTO is a long game, and consensus is difficult to achieve, but the results prove its value.  The WTO is worth investing in and improving. Please help us make sure it continues to be effective and fit for purpose.

To read the full speech, click here

The post DDG Ellard: International Trade and WTO Indispensable to Resolving Global Crises appeared first on WITA.

Rising from the ashes of three disastrous decades of deglobalization, extremism, and world war, our two institutions were built on the idea that thriving international trade goes hand in hand with global prosperity and stability. On balance, the post–World War II record has been impressive. Today fewer than 1 in 10 of the world’s people are poor, a fourfold reduction since 1990, as low- and middle-income countries have doubled their share of global trade. Pivotal to this leap in global income is a twentyfold increase in international trade since 1960.

Yet the tide is turning against economic interdependence and international trade. Trade restrictions and subsidies increased after the global financial crisis, and tensions escalated further as governments responded to the pandemic and Russia’s war in Ukraine by scrambling to secure strategic supply chains and rushing into trade-distorting policies. Taken too far, these measures may open the door to alliance-oriented policies that reduce economic efficiency and fragment the global trading system. They could backfire if short supply chains end up more vulnerable to localized shocks. Foreign direct investment is already increasingly concentrated among geopolitically aligned countries.

Should we abandon the idea of trade as a transformative force for good? Our answer is a resounding “No!” Despite all the talk, trade has continued to deliver even during recent crises. It has great potential to keep contributing to higher living standards and greater economic opportunities for decades to come.

There are at least three reasons international trade is crucial for global prosperity. First, it increases productivity by expanding the international division of labor. Second, it enables export-led economic growth by providing access to foreign markets. And third, it bolsters economic security by giving firms and households valuable outside options when negative shocks hit.

During the pandemic, trade and supply chains became vital to ramping up production and distribution of medical supplies, including vaccines. The power of international trade as a source of resilience has become evident again during the war in Ukraine. Deep and diversified international markets for grain enabled economies traditionally reliant on imports from Ukraine and Russia to make up shortfalls. Ethiopia, for example, lost all its wheat imports from Ukraine but now sources 20 percent of its wheat shipments from Argentina—a country from which it had not imported any wheat before.

Fragmentation’s costs

In this context, fragmentation could be costly for the global economy. A scenario in which the world divides into two separate trading blocs could lead to a 5 percent drop in global GDP, World Trade Organization (WTO) research shows. The IMF, meanwhile, reckons global losses from trade fragmentation could range from 0.2 to 7 percent of GDP. The costs may be higher when accounting for technological decoupling. Emerging market economies and low-income countries would be most at risk due to the loss of knowledge transfer.

Reinforcing the trading system to safeguard the benefits and prevent losses is important. But there is also an exciting forward-looking trade policy agenda that responds to the future of international trade, which we envision to be inclusive, green, and increasingly digitally and services driven.

Trade has done a lot to reduce poverty and inequality between countries. Yet we must acknowledge that it has left too many people behind—people in rich countries have been hurt by import competition, and people in poor countries have been unable to tap into global value chains and are often on the front line of environmental degradation and conflict over resources. As we told Group of Twenty officials in a joint paper our institutions wrote with the World Bank, it need not be this way. With the right domestic policies, countries can benefit from free trade’s great opportunities and lift those that have been left behind.

Addressing these underlying causes of discontent would solve people’s problems more effectively than the trade interventions we see today. Well-designed social safety nets, greater investment in training, and policies in areas like credit, housing, and infrastructure that help, not hinder, workers to move across industries, occupations, and companies could all play a part.

The current push toward more diversified supply chains presents great opportunities for countries and communities that have struggled to integrate into global value chains: bringing more of them into production networks—what we call “re-globalization”—would be good for supply resilience, growth, and development.

Many of today’s most pressing global problems will not be solved without international trade. We cannot overcome the climate crisis and get to net zero greenhouse gas emissions without trade. We need trade to get low-carbon technology and services to everywhere they are needed. Open and predictable trade lowers the cost of decarbonization by expanding market size, enabling scale economies, and learning by doing.

To provide one example, the price of solar power has fallen by almost 90 percent since 2010. Forty percent of this decline has come from scale economies made possible partly by trade and cross-border value chains, the WTO has estimated.

Cooperation’s possibilities

By updating global trade rules, governments can help trade thrive in new areas that would expand opportunities, for emerging market economies especially. Even as goods trade stalls, trade in services continues to expand rapidly. Global exports of digital services such as consulting delivered by video calls reached $3.8 trillion in 2022, or 54 percent of total services exports. 

Some efforts are already underway. A group of nearly 90 WTO members, including China, the EU, and the US, are currently negotiating basic rules on digital trade. Shared rules would make trade more predictable, reduce duplication, and cut the compliance costs that typically weigh heaviest on the smallest businesses.

Similarly, multilateral cooperation and common standards could speed the green transition while preventing market fragmentation and minimizing negative policy spillovers to other countries. Bringing more small and women-owned businesses into global production networks—digital and otherwise—would spread the gains from trade more broadly across societies.

Despite geopolitical tensions, meaningful cooperation on trade remains possible. We saw this last June when all WTO members came together to deliver agreements on curbing harmful fisheries subsidies, removing barriers to food aid, and enhancing access to the intellectual property behind COVID vaccines. Governments can build on those successes at the WTO’s next ministerial meeting in February 2024. And recent work by our institutions points to a way to defuse tensions in sensitive areas such as subsidies through data, analysis, and common perspectives on policy design.

Navigating trade policies through the current turbulent period is challenging. But keeping trade open and looking for new opportunities for closer cooperation will be essential to build on existing gains and to help deliver solutions to climate change and other global challenges.

The IMF, WTO, and other leading international institutions have a critical role in charting a way forward that is in the collective interest. We must cooperate tirelessly to strengthen the multilateral trading system and demonstrate that our own institutions can adapt to a fast-changing world. The IMF has a mandate to support the balanced growth of international trade. The WTO remains the only forum that brings all economies together to advance trade reform. We cannot afford to stand still. 

KRISTALINA GEORGIEVA is the Managing Director of the International Monetary Fund (IMF).

NGOZI OKONJO-IWEALA is director-general of the World Trade Organization.

To read the full blog, please click here.

The post World Trade Can Still Drive Prosperity appeared first on WITA.