One could choose to agree or disagree with either position, but the positions were clear and, more importantly, they were firm. In less than a decade, a seismic shift has occurred that not only creates ambiguity over economic policy but also narrows the distinction in party platform on matters of trade. The choice is no longer between open trade and trade protectionism, but rather between trade protectionism and … more trade protectionism.

Indeed, since the initiation of Washington’s trade war with China, U.S. consumers have been forced to dole out about $215 billion in extra costs associated with the duties importers have to pay. What started out as a strategic move by the Trump administration to renegotiate the terms of NAFTA quickly morphed into a series of protectionist escapades, including a 25% tariff on almost all goods coming in from China and a comparable tariff on imports of steel and aluminum.

These practices were maintained by the Biden Administration. In addition, Congress allowed the Generalized System of Preferences (GSP) – a program that offered preferential duty to developing nations – to expire during the final days of the Trump administration. Since then, there has been tepid impetus by members of Congress on either side of the aisle to resurrect the program. In addition, a host of non-tariff barriers have been imposed by the current government in the form of various safety checks, domestic production quotas and barriers to entry in the U.S. market. Not only did the Biden administration choose not to reverse the Section 301 tariffs against China, but recently it doubled down on them by multiplying the rate as much as four times on some items and allowing pre-existing exceptions to the tariffs to expire.

Refusing to allow itself to be outdone, the Trump campaign has suggested imposing even more tariff barriers in the form of a universal 10% tariff on all imports irrespective of origin and using far broader strokes of tariff increases on goods coming in from China.

As noted above, these extra costs are summarily passed along to consumers who bear the brunt of these protectionist practices. But for each action, there is an equal and opposite reaction. America’s trading partners have expectedly reciprocated with tariffs of their own, making U.S. goods more expensive abroad. The outcome has been a meteoric rise in tariff barriers globally. In 2018, the first full year of the U.S.-China trade war, there were about 750 trade barriers on merchandise goods. In 2022, there were just shy of 3,000. That means it’s much more expensive to do business globally, which is precisely the effect the protectionists are looking to generate: Do more business domestically; less globally.

But there are still thousands of U.S. based businesses that source critical supply inputs from overseas providers. Many of these businesses are also looking to court consumers in international markets. What are these global businesses to do when policymakers in Washington continue to enact legislation and put forward policies that create barriers to trade?

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Much has been written to date about the virtues of trade diversification. Whether it’s the China+1 strategy, nearshoring, re-shoring, friend-shoring or something entirely different, U.S.-based businesses have awoken to the fact that the status quo is no longer a valid option. A 2024 report by the American Chamber of Commerce in China shows 50% of respondents intend not to expand investment or scale back investment with 12% looking to shift investment outside the country. That’s not surprising given that only 19% stated their EBITDA in China was higher than it was globally, down from 26% before the pandemic.

But divesting from China in favor of greener pastures isn’t clear cut. There are critical questions to be asked about the nature of the product and production process, the time sensitivity around getting product to end markets and the rules, regulations, taxes and tariffs that are going to impact landed costs for imported goods. Take for example Vietnam. Once a beacon of hope for product manufacturers looking to hedge their bets against China in the wake of the pandemic’s production shutdowns, Vietnam is beginning to look increasingly risky. The country’s political leadership has become unstable after a corruption purge saw an exit of the most likely successors to its aging leader. Moreover, Vietnam’s sudden spike in exports to the U.S. has put it on the radar of the United States Trade Representative, the Department of Commerce and U.S. Customs and Border Protection as a potential point of transhipment and circumvention of Section 301 duties and anti-forced labor legislation.

India too has been a darling of the diversification crowd. With its high-skilled labor it quickly became the choice alternative to China for hi-tech manufacturing, particularly consumer electronics goods. But its political stability is also beginning to show cracks in the aftermath of a recent election in which the ruling party saw its support slip significantly.

The Critical Questions

For corporate decision makers, knowing where to direct their investment dollars can often be a game of chance. The trick to success isn’t finding a single alternative, but multiple. Strategically setting up production in multiple locations that offer the ability to scale up or down to meet the needs of the business. To do this successfully, however, critical questions must be asked that go beyond production capacity. For example:

• Is the skill of the workforce commensurate with the requirements of production?
• Is the country’s road, energy and port infrastructure able to support a spike in volumes?
• Is there political, geopolitical, geographic or climatic risk?
• Does the country have free trade agreements with industrialized nations that allow you to integrate production through free trade zones or free trade agreements.
• Is there risk of a trade war or trade barriers between this country and the end market?
• Is there flexibility in modes of transport (e.g., can you ship via air instead of ocean, if necessary)?

This is by no means an exhaustive list, but it does offer a snapshot of often overlooked considerations. The reference to political risk is particularly critical in the lead up to the 2024 U.S. presidential election where both parties find themselves looking to score points with voters who are increasingly wary of globalism and celebrate reversion to domestication and self-sufficiency. As popular as that concept might be today, its long-term implications may be quite the opposite of what those voters might expect. The International Monetary Fund estimates the spike in trade barriers will ultimately result in a 7% decline or $7.4 trillion dollars in global economic output. In the U.S. specifically, the Tax Foundation estimates the China tariffs will shave 0.21% off GDP and eliminate about 160,000 jobs. Still, politics is a game of emotion, not numbers. And gauging how policy will be shaped by policymakers is never a precise science.

Some U.S. importers hoped Chinese companies setting up shop in Mexico could help them circumvent Section 301 tariffs and also take advantage of duty exemption through the United States-Mexico-Canada Agreement (USMCA). But the recent tariffs being imposed on Chinese EVs coming into the U.S. from Mexico may be a harbinger of more to come. And within days of those tariffs being put in place, the European Union followed suit with the same tariff policy on Chinese EVs. Canada is anticipated to be next in line.

Tariff Engineering

Often likened with “creative accounting” tariff engineering is frequently misinterpreted as a not-so-ethical practice. In reality, there’s nothing inherently wrong with it and many companies employ tariff engineering as a means of reducing their duty spend and optimizing their supply chains.

For the uninitiated, tariff engineering is a process by which a company that sources its product components from multiple points of origin and transports those components elsewhere for final manufacturing, shifts the form of each component to avoid paying more in duty than necessary. For example, a sandal manufacturer might source its leather, rubber and foam cushioning from three different countries and import all products into Vietnam for final production. Vietnam might have a 10% duty on each of these materials individually but might have only a 5% duty on a finished sandal sole and a 3% duty on a finished sandal strap (versus the unfinished leather). In this case, it might make more sense for the manufacturer to assemble the sole of the sandal at one point of origin before importing it into Vietnam, and similarly finishing the strap at another point of origin before import. The result is fewer dollars spent on transport, a reduction in customs paperwork and reduced spend on customs duties. Now multiply that sandal by a million units and the cost-savings potential becomes clear.

Yet, few companies have the capacity or expertise to calculate the various scenarios for duty costs when configuring their supply chains, resulting in overspend. In today’s world, time taken to make these calculations as part of a broader computation on landed costs can have meaningful impact to balance sheets. The trick is doing the calculations correctly and ensuring the products are classified correctly (a practice that is often treated with a degree of apathy until it’s too late).

Doing the math on tariffs and duty spend and running multiple scenarios allows companies to develop practical contingencies that can respond to likely or foreseeable shifts in trade and regulatory policies and coincides neatly with the diversification practices noted above.

No Panacea

For U.S. importers with overseas interests looking for a cure-all remedy to the disruption caused by America’s recent rejection of globalism, the bad news is there isn’t one. That isn’t alarmism or fatalism, it’s unvarnished truth. Every industry and every product will require its own solution because every country places varying degrees of protection against products depending on what serves the political and economic interests of that country. The ideal diversification model for an apparel company is likely never to mimic that of a smartphone maker, which will vary wildly from that of a pesticide producer. Each must evaluate its own production models with careful attention to existing and future costs, risks and, most importantly, agility.

With the outcome of the upcoming election still very much up in the air, and increasingly populist rhetoric from both candidates on the issue of trade, it’s anyone’s guess what the trade landscape might look like a year from now. As any business decision maker knows all too well, bodog casino it’s what you don’t know that will hurt you. That’s why hedging bets and avoiding too much dependence on any one source or market may very well become the new normal for international businesses.

In the interim, the chess board of global trade is all set up to play. The next move is corporate America’s.

Jill Hurley is Senior Director of Global Trade Consulting at Livingston. As the practice leader, she spearheads U.S. import and export projects, offering comprehensive reviews of clients’ business models for risk assessment, crafting, and implementing import/export compliance programs, conducting audits, navigating export licensing requirements, and providing support in U.S. trade remedy matters.

To read the full article as it was published on Livingston, click here.

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It is hard to think of an issue that brings together the United States’ deeply divided political class more than the need to contain China’s growing influence, whether through trade restrictions, tariffs on Chinese electric vehicles (EVs), or banning TikTok. But while the national-security argument for such protectionist measures is undeniably compelling, it is unclear whether US political leaders and the American public are prepared for the potential economic fallout.

The prevailing belief among policymakers is that the surge of Chinese imports into the US market during the 2000s hollowed out America’s manufacturing base, making the kind of rapid military build-up that enabled the Allies to win World War II all but impossible. In US policy circles, the “China Shock” is often portrayed as a massive error that devastated towns across the Rust Belt and led to a sharp increase in inequality.

Consequently, there is widespread agreement among policymakers and commentators that the US must prevent a “China Shock 2.0” by imposing massive tariffs and trade restrictions on Chinese technologies such as cell phones, drones, and, crucially, EVs, solar panels, and green-energy equipment. President Joe Biden and his predecessor, Donald Trump, the presumptive Republican nominee in November’s presidential election, disagree on most issues. When it comes to dealing with China, however, both appear to be competing for the title of America’s most protectionist president.

But the China Shock narrative that underpins current US trade policy is deeply flawed. While competition with Chinese producers has adversely affected some manufacturing jobs, free trade has undoubtedly created more winners than losers. Moreover, low-income US consumers have been among the biggest beneficiaries of low-cost Chinese imports. Policymakers who believe that unwinding trade with China will not result in price increases and significant political backlash are in for a rude awakening.

To be sure, the economic impact of US trade restrictions could be minimized by rerouting Chinese imports through third-country suppliers, enabling Americans to buy Chinese-made solar panels as though they were produced in India, albeit at a higher price. But while this tariff theater may be popular with voters, it is hard to see how this would improve national security any more than rerouting Chinese fentanyl into the US through Mexico helped solve the opioid crisis.

Moreover, it would take years for “friendlier” countries to develop their own manufacturing bases that can compete with China’s, especially at the low prices offered by Chinese producers. In some sectors like EVs, China’s production capacity has given it an almost insurmountable lead over Western countries. Given this reality, the United Auto Workers’ goal of having Americans buy electric cars produced in high-wage, unionized US facilities will be extremely difficult to achieve, no matter how much Biden or Trump may support it.

A more targeted approach would ideally distinguish between trade involving sensitive military technologies and other goods, but doing so is more complicated than many seem to realize. The convergence of military and civilian technologies has become painfully apparent during the Russia-Ukraine war, with low-cost drones originally designed for carrying packages being repurposed as bombers and private mobile networks playing a pivotal role in major battles. Additionally, as the COVID-19 pandemic has shown, the US and its allies depend on Chinese medical supplies.

For those of us who believe that multilateral cooperation is necessary to address the world’s most pressing problems, from climate change to regulating artificial intelligence, the escalating rivalry between the world’s two major powers is deeply troubling. From the US perspective, China’s authoritarian government undermines the foundational liberal values that underpin the global economic and political order. China’s relentless cyberattacks continue to pose an immediate threat to the US economy and American companies, and a potential Chinese blockade or invasion of Taiwan would have far-reaching global consequences.

From China’s perspective, the US and its allies are cynically trying to maintain a world order established through centuries of European and American imperialism. Much to the chagrin of US diplomats, many other countries appear to share this sentiment, as evidenced by the widespread disregard among developing and emerging economies for Western sanctions against Russia.

Some may hope that China’s economic slowdown will curb its geopolitical ambitions. But its ongoing difficulties are just as likely to push China toward a confrontation with the US as they are to foster cooperation.

Nevertheless, despite what many in the US may think, economic decoupling is not a viable option. Although the Biden administration’s trade restrictions and bellicose rhetoric are a response to Chinese provocations, both countries must find a way to compromise if they want to achieve stable, inclusive, and sustainable economic growth.

Kenneth Rogoff is a professor of economics and public policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics

To read the full commentary as it was published by Project Syndicate, click here.

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Until now, US restrictions on trade with China had been justified on national-security grounds, to prevent the Chinese military from acquiring sensitive technologies. While one could debate whether this policy made sense, it at least seemed to fit into a longer-term strategy. But these latest protectionist measures have nothing to do with China’s military capabilities. Instead, they aim solely to prevent cheaper, often better, green technologies from reaching US consumers.

The connection to the US election is obvious. Biden has been trying to head off Donald Trump by playing to the same protectionist sentiments that Trump, the presumptive Republican nominee, has been stoking for years. It was Trump, after all, who put the world on a new protectionist path when he imposed sweeping tariffs on steel, aluminium and many imports from China. Keen not to be outdone by Biden, he has already said that he would double the tariff on Chinese EVs from Mexico and apply additional ones to an even wider range of products.

Even taken in isolation, such measures are expensive and counterproductive. Tariffs impose higher costs on consumers and reduce competitive pressures, and thus innovation. In this case, they will also impede the transition to a net-zero-emissions economy. There are no economically redeeming features to the policy. Worse, the latest round of protectionist measures is part of an increasingly disturbing and dangerous trend. Step by step, major powers are unravelling an international economic order that delivered enormous gains over many decades through trade integration and globalisation.

These were hard-won gains. The first great wave of globalisation ended with World War I and was followed by trade wars and deep depressions throughout the interwar period. Although trade integration resumed after World War II, facilitating the reconstruction of Western Europe and Japan, its scope remained limited. It was not until the late 1980s and early 1990s that the next great wave of globalisation began, with global trade finally returning to its pre-1914 levels.

The rapid expansion of trade and investment flows over the next three decades would prove spectacularly successful across practically every macroeconomic metric. Roughly one-third of everything that has ever been produced was produced during this period, leading to the rise of a new global middle class. Poverty was dramatically reduced and the gap between rich and poor countries started to close for the first time since the start of the Industrial Revolution.

But over the past decade or so, debates about trade have changed. The new emphasis is on economic security, derisking and supporting domestic industries through massive industrial-policy subsidies. We seem to be going backwards, raising the risk of a return to the trade wars of earlier, darker times.

The International Monetary Fund and the World Trade Organization have both published extensive studies showing that deeper economic fragmentation would reduce global GDP by 5 to 7 percent, with a disproportionately large share of the burden falling on less developed countries. These are huge figures with huge consequences. The Sustainable Development Agenda that United Nations member states champion every year will become more of a grandiose dream than a practical objective. In the absence of a growing, still-integrating global economy, most of the 17 goals will become more difficult, if not impossible, to achieve.

One can easily imagine a better, more sensible scenario in which the United States returns to defending the rules-based global economic order, China rebuilds its credibility by adhering to the rules of the game, and the European Union lives up to its ambition to be a global champion of free trade. In doing so, each would advance its own interests, as well as benefiting the rest of the world.

Yet the trend is moving in the other direction. While Biden and Trump vie to establish their protectionist bona fides, Europe, too, has started to regard Chinese EVs as a threat, rather than as an opportunity to accelerate its green transition. Add to this China’s own talk about creating a self-sufficient ‘dual circulation’ economy, and India’s ongoing subsidies and resistance to trade, and you have the makings bodog online casino of a more radically fragmented global economy.

With these major powers rejecting the principles and policies that previously brought unprecedented economic gains, one must hope that policymakers everywhere will have the courage to step back and consider the bigger picture. History shows what we are risking by throwing globalisation into reverse. We must not go down that path again.

Carl Bildt is a former prime minister and foreign minister of Sweden.

To read the full article as it appears on the Australian Strategic Policy Institute blog, The Strategist, click here. 

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Glen Hodgson is CEO of Free Trade Europa, a free-market think tank committed to trade, liberalization, and the rule of law across Europe. Brooke Medina is Vice President of Communications at the John Locke Foundation, a free-market state-based think tank in Raleigh, North Carolina.

To read the full article, please click here.

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The good news is that the Camden Conference is back in person. The Opera House has come alive after going dark for two years in the COVID Era, It was quite wonderful to see old friends and to catch the energy in the air again from yet another global challenge, namely, Global Trade and Politics: Managing Turbulence. One might be daunted by such a topic, but once again the Conference’s able and hardworking Program Committee, chaired by Charlotte Singleton, was up to task, bringing together as fine a group of panelists as I have seen in many years of Conference attendance. Such brilliance was needed to illuminate what is a dense and difficult thicket of issues.

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Exceptional policy support prevented a global economic depression, even as the pandemic took a heavy toll on lives and livelihoods. The global reaction, as seen in major shifts in travel, consumption, and trade, also made the world a more economically imbalanced place as reflected in current account balances—a record of a country’s transactions with the rest of the world.

In our latest External Sector Report we found that the global reaction to the pandemic further widened global current account balances—the sum of absolute deficits and surpluses among all countries—from 2.8 percent of world GDP in 2019 to 3.2 percent of GDP in 2020. Those balances are set to widen further as the pandemic continues to rage in much of the world.

If not for the crisis, global current account balances would have continued to decline. While external deficits and surpluses are not necessarily a cause for concern, excessive imbalances—larger than warranted by the economy’s fundamentals and appropriate economic policies—can have destabilizing effects on economies by fueling trade tensions and increasing the likelihood of disruptive asset price adjustments.

A year like no other

The dramatic fluctuations in current account deficits and surpluses in 2020 were driven by four major pandemic-fueled trends:

• Travel declined: The pandemic led to a sharp decrease in tourism and travel. This had a significant negative impact on the account balances of countries that rely on tourism revenue, such as Spain, Thailand, Turkey, and even larger consequences for smaller tourism-dependent economies.
• Oil demand collapsed: The collapse in oil demand and energy prices was relatively short lived, with oil prices recovering in the second half of 2020. However, oil-exporting economies, such as Saudi Arabia and Russia, saw current account balances decline sharply in 2020. Oil-importing countries saw corresponding increases to their oil trade balances.
• Medical products trade boomed: Demand surged by about 30 percent for medical supplies critical for fighting the pandemic, such as personal protective equipment, as well as the inputs and materials to make them, with implications for importers and exporters of these items.
• Household consumption shifted: As people were forced to stay home, households bodog poker review shifted their consumption away from services toward consumer goods. This happened most in advanced economies where there was an increase in the purchase of durable goods like electrical appliances used to accommodate teleworking and virtual learning.

All of these factors contributed to some countries seeing a wider current account deficit, meaning they bought more than they sold, or a larger current account surplus, meaning they sold more than they bought. Favorable global financial conditions, with the unprecedented monetary policy support from major central banks, made it easier for countries to finance wider current account deficits. In contrast, during past crises where financial conditions sharply tightened, running current account deficits was harder, pushing countries further into recession.

On top of these external factors, the pandemic led to massive government borrowing to finance health care and provide economic support to households and firms, creating large uneven effects on trade balances.

The outlook

Global current account balances are set to widen even further in 2021 but this trend is not expected to last. The latest IMF staff forecasts indicate that global current account balances will narrow in the coming years, as China’s surplus and the US’ deficit falls, reaching 2.5 percent of world GDP by 2026.

A reduction in balances could be delayed if large deficit economies like the US undertake additional fiscal expansions or there is a faster-than-expected fiscal adjustment in current account surplus countries, like Germany. A resurgence of the pandemic and a tightening of global financial conditions that disrupt the flow of capital to emerging markets and developing economies could also affect balances.

Despite the shock of the crisis and possibly due to its worldwide impact, excessive current account deficits and surpluses were broadly unchanged in 2020, representing about 1.2 percent of world GDP. Most of the drivers of excess external imbalances pre-date the pandemic and include fiscal imbalances as well as structural and competitiveness distortions.

Rebalancing the world economy

Ending the pandemic for everyone in the world is the only way to ensure a global economic recovery that prevents further divergence. This will require a global effort to help countries secure financing for vaccinations and maintain healthcare.

A synchronized global investment push or a synchronized health spending push to end the pandemic and support the recovery could have large effects on world growth without raising global balances.

Governments should step up efforts to resolve trade and technology tensions and modernize international taxation. A top priority should be the phasing out of tariff and non-tariff barriers, especially on medical products.

Countries with excess current account deficits should, where appropriate, seek to reduce budget deficits over the medium term and make competitiveness-raising reforms, including in education and innovation policies. In economies with excess current account surpluses and remaining fiscal space, policies should support the recovery and medium-term growth, including through greater public investment.

In the years to come, countries will need to simultaneously rebalance, while ensuring that the recovery is built on a solid and durable foundation.

To read the full commentary from IMF Blogs, please click here. 

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To read the original commentary from New Republic, please visit here

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True, there were other aspects of globalization that bore little relation to market capitalism. The globalization of science and information broadened access to knowledge in unprecedented ways. Through increasingly international civic action, climate campaigners and human-rights defenders coordinated their initiatives as never before. Meanwhile, governance advocates argued early on that only the globalization of policies could balance the forward march of markets.

But these other sides of globalization never measured up to the economic dimension. The globalization of policies was especially disappointing, with the 2008 financial crisis epitomizing how governance had failed.

This phase of globalization is now ending, for two reasons. The first is the sheer magnitude of the challenges that the international community must tackle, of which global public health and the climate crisis are only the most prominent. The case for joint responsibility for the global commons is indisputable. Achievements here have been meager so far, but global governance has won the battle of ideas.

The second reason is political. Country after country has witnessed a rebellion of the left-behind, from Brexit to the election of Donald Trump as US president to the French “yellow vest” protests. Each community has expressed unhappiness in its own way, but the common threads are unmistakable. As Raghuram Rajan has put it, the world has become a “nirvana for the upper middle class” (and of course the wealthy), “where only the children of the successful succeed.” Those left out increasingly end up in the nativist camp, which offers a sense of belonging. This calls into question the political sustainability of globalization.

The tension between the unprecedented need for global collective action and a growing aspiration to rebuild political communities behind national borders is a defining challenge for today’s policymakers. And it is currently unclear whether they can resolve this contradiction.

In a wide-ranging recent paper, Pascal Canfin, chair of the European Parliament’s Committee on the Environment, Public Health, and Food Safety, makes the case for what he calls “the progressive age of globalization.” Canfin argues that the fiscal and monetary activism endorsed by nearly all advanced economies in response to the pandemic, the growing alignment of their climate action plans, and the recent G7 agreement on taxing multinational firms all indicate that the globalization of governance is becoming a reality. Similarly, the greening of global finance is a step toward “responsible capitalism.”

One may question the scale of the victories that Canfin lists, but he is right that advocates of global governance have recently seized the initiative and made enough progress to regain credibility. Progressive globalization is not a pipe dream anymore; it is becoming a political project.

But although the globalization of governance may appease the left, it will hardly alleviate the woes of those who have lost good jobs and whose skills are being devalued. Workers who feel threatened and find protectionist solutions attractive expect more concrete responses.

In a recent book, Martin Sandbu of the Financial Times outlines an agenda for restoring economic belonging while keeping borders open. His idea, in a nutshell, is that each country should be free to regulate its domestic market according to its own preferences, provided it does not discriminate against foreigners. The European Union, for example, may ban chlorine-washed chicken (which it does), not because the chicken is produced in the United States but because the EU does not trust the product.

Similarly, any country should be able to ban timber resulting from deforestation, or credits provided by undercapitalized banks, provided the same rules apply to domestic and foreign firms. Transactions would remain free, but national standards would apply across the board.

This is a sound principle. But while application to products is straightforward and is actually in place, doing the same for processes is notoriously difficult. A given good or service ultimately incorporates all the standards in force along its value chain. True, multinationals nowadays are compelled to trace and end reliance on any child labor among their direct or indirect suppliers. But it would be challenging to proceed in the same way with regard to working conditions, union rights, local environmental damage, or access to subsidized credit.

Moreover, attempting to do this would stir up fierce opposition among developing countries, whose leaders argue that subjecting them to advanced-economy standards is the surest way to make them uncompetitive. Previous attempts to include social clauses in international trade deals failed in the early 2000s.

A major test will come in July, when the EU is set to announce its plans for a mechanism that will require importers of carbon-intensive products to buy corresponding credits in the EU’s market for emissions permits. As long as decarbonization does not proceed everywhere at the same pace, the economic case for such a border-adjustment system is impeccable: the EU wants to prevent producers from evading its emissions limits by moving elsewhere. But it is bound to be controversial. The US has already indicated its concerns about the idea, China is wary, and developing countries are sharpening their arguments against it.

The upcoming negotiations on the issue will be hugely important. At stake is not just whether and how the EU can move ahead with its decarbonization plans. The more fundamental question is whether the world can find a way out of the tension between scattered national and regional preferences and the increasingly urgent need for collective action. Climate has become the testing ground for it.

The outcome will eventually indicate whether the dual agendas of rebuilding economic belonging and managing the global commons can be reconciled. It will take time to learn the answer. The old globalization is dying, but the new one has yet to be born.

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Last week’s report was prompted by two developments: the Covid-19 pandemic, which made us acutely aware of supply chain gaps and vulnerabilities in sensitive sectors, and China’s continuing dominance in production in some of these sectors. The latter is not new, but concern has been growing because of China’s dominant position in some areas like critical minerals processing and its demonstrated willingness to use denial of access as a means of responding to criticism or to further its foreign policy goals. In fairness, the United States probably weaponized trade before they did through our many sanctions programs, but when the shoe is on the other foot, it turns out it does not fit very well.

These developments have also made us acutely aware that our own efforts have been lagging. Manufacturing in some critical sectors has long been declining in the United States, as has our investment in basic research. In fiscal year 2019, federal spending for research and development (R&D) was 0.6 percent of GDP in the United States, the lowest in over 60 years. These challenges are acknowledged deficiencies and have been a wake-up call, to which the Biden administration has responded, first with its Build Back Better program and now with this report.

The 23 recommendations in the report represent a return to what used to be called industrial policy and might now best be described as innovation policy—a greater role for the government in promoting research in essential areas and, if necessary, promoting either onshore production or the development of secure supply chains based on relationships with trusted partners. The United States has done this before, and we are good at it. If we do it correctly, the result will be more resilient supply chains and a more secure America.

Whether their roadmap is the correct one, however, remains uncertain. Many of the recommendations address the need for pouring additional resources into our innovation efforts. Republicans have often opposed these policies in the past as government meddling in the economy and “picking winners and losers.” They may well do so again, particularly if their leadership adopts the position of opposing everything the president recommends, but this time the debate is taking place in the context of national security. We need to up our game, not just because it’s a nice idea, but because our security and ability to compete effectively with China demands it. Republicans in Congress who have taken a hard line on China—and criticized the president (incorrectly) for being too soft—may have difficulty opposing measures intended to do precisely what they have been demanding. More likely, as also happened last week in the Senate, they will moan, whine, delay, and tweak but in the end support ambitious innovation policy programs.

A more complicated question is how these measures interact with trade policy. While the report acknowledges that it is neither possible nor optimal for the United States to make everything it needs, the Buy America and reshoring policies recommended may ultimately make achieving greater supply chain resilience more difficult and more expensive. The old adage, “Don’t put all your eggs in one basket,” comes to mind. One of the best ways to promote resiliency is to diversify sources of supply. While the report demonstrates an understanding of that, some of its proposals run counter to it. There has long been a tension between resiliency and efficiency in constructing supply chains, but the report basically pretends it isn’t there. Resiliency means more redundancy and having secure sources of supply, but secure sources are often not the cheapest, particularly if you compare domestic costs to foreign-sourced costs. Partly for that reason, CSIS has recommended a “trusted partner” approach which seeks to develop deep economic relations with reliable and secure foreign partners rather than trying to achieve autarky as much as possible. The report acknowledges this approach, but it remains to be seen if it is lip service or if a genuine effort to develop those partnerships will occur.

One clue about that is that the administration’s goals include creating jobs domestically and providing more rewards to our workers. Those are also noble goals, but they are not entirely compatible with either resiliency or efficiency. U.S. production will probably be more expensive and in the long run this may make our industries less globally competitive. In some circumstances like semiconductors, that is a price worth paying but in others perhaps not.

It would be helpful as the report’s recommendations are implemented if the administration did two things: first, recognize the tension between resiliency and efficiency rather than pretending we can have our cake and eat it too; and second, undertake the difficult task of defining which industries are essential to our national security. It has long been axiomatic in export control circles that if you try to protect everything you end up protecting nothing. The administration would be wise to take that to heart in its supply chain policy. If everything is critical, then nothing is critical. The essence of a smart supply chain policy is to set clear priorities.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) and is a senior adviser at Kelley, Drye & Warren LLP. Previously, he served for 15 years as president of the National Foreign Trade Council, where he led efforts in favor of open markets, in support of the Export-Import Bank and Overseas Private Investment Corporation, against unilateral sanctions, and in support of sound international tax policy, among many issues. 

To read the full commentary from the Center for Strategic and International Studies, please click here.

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