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

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

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

A BIT OF HISTORY

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

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

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

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

THE CHALLENGES FACING TRADE POLICY TODAY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

THE PATH FROM HERE:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CONCLUSION

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

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

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

To read full memorial lecture, see below.

Harrell Greenwald Memorial Lecture June 13 PDF

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While China’s support for Russia is widely reported, Hong Kong’s substantial contributions to Russia’s war efforts are less known. Recent reports have identified Hong Kong as a prominent node in Russia’s illicit procurement network, acting as a transshipment hub for diverting Western-made microelectronic components to companies affiliated with the Russian military. Since Russia’s invasion of Ukraine, Hong Kong has doubled its integrated circuits exports to around $400 million worth of semiconductors in 2022, second only to China and far exceeding any third country in the volume of semiconductor trade with Russia. Many of these transactions violate U.S. export control regulations against Russia, and multiple individuals and entities operating from Hong Kong have been sanctioned for their involvement in the Russian military’s procurement network.

Hong Kong’s complicity in sanctions busting is not merely a byproduct of being one of the busiest shipping hubs in the world; it is a direct consequence of Hong Kong’s increased subservience to China, now that Beijing has wiped out the last vestiges of autonomy in the special administrative region. In today’s Hong Kong, the government follows Beijing’s orders in virtually all matters of governance, particularly for issues with geopolitical salience. High levels of semiconductor trade between Hong Kong and Russia, as well as the Hong Kong government’s public scorn for Western sanctions, have made Hong Kong’s allegiance clear: it sits firmly in the camp of an emerging China-Russia axis.

RUSSIA’S SEMICONDUCTOR SUPPLY CHAIN

Numerous reports indicate that despite sweeping Western sanctions, Russia’s defense industrial base has successfully established alternative routes to import dual-use components needed for manufacturing military equipment. Lacking scalable domestic substitutes, Russia relies on foreign-made microelectronic components to produce a range of military gear, including weapons like drones and cruise missiles. Examining Russian weapons captured in Ukraine, the Royal United Services Institute (RUSI) discovered in August 2022 that the majority of microchip components in Russian systems originated from the United States, East Asia, and Western Europe. Tracing the supply chain of microelectronics, RUSI concluded that “third-country transshipment hubs and clandestine networks operated by Russia’s special services are now working to build new routes to secure access to Western microelectronics.”

A leader in low-end microchip manufacturing and the world’s top chip importer, China is now the foremost supplier of semiconductors to Russia. In 2022, as Western countries restricted technology supply, Russia’s semiconductor imports from China skyrocketed, jumping from $200 million in 2021 to well over $500 million in 2022, according to Russian customs data analyzed by the Free Russia Foundation. Importantly, the Sino-Russian technology trade involves not only Chinese-made components but also products manufactured by top U.S. chipmakers such as Intel, Advanced Micro Devices, and Texas Instruments. Nikkei Asia recently reported that exports of U.S. chips from Hong Kong and China to Russia increased tenfold between 2021 and 2022, reaching about $570 million worth. By one figure, China and Hong Kong together accounted for nearly 90 percent of global chip exports to Russia in the period between March and December 2022.

China’s support to Russia’s war effort is unsurprising. The two countries are aligned in their ambition to undermine the U.S.-led international order. Before the war, Beijing and Moscow declared that the countries’ friendship had “no limits,” and a Chinese top diplomat has recently reaffirmed that Sino-Russian relations are “reaching new milestones.” The summit between Chinese President Xi Jinping and Russian President Vladimir Putin in Moscow, held in March 2023, further consolidated the importance of this strategic partnership. Less examined is Hong Kong’s role in Russia’s technology supply chain.

While most countries have begun to recognize Hong Kong’s loss of autonomy following the passage of the Hong Kong national security law in 2020, the city is still often treated as separate from China in economic and trade data. This is as much a matter of convention as an acknowledgement of Hong Kong’s unique function to China: the former British colony is highly integrated into the global economy, serving as China’s window to the world. Hong Kong’s connectivity with the world has allowed unscrupulous actors to hide their footprints amid the busy international flows. Its prominence in Russia’s technology supply chain exemplifies this point. Researchers and journalists have found that some Hong Kong–based companies have diverted significant quantities of Western-made electronic components to Russia since its invasion of Ukraine. Macro-level data bear out Hong Kong’s importance to Russia’s defense-industrial base (although export statistics vary depending on the source). The Free Russia Foundation found that Hong Kong doubled its semiconductors and integrated circuits exports to around $400 million in 2022, putting it second only to China’s $500-million-plus exports. China and Hong Kong far exceed any third country in the volume of microchips trade with Russia.

BEIJING PULLING THE STRINGS

What explains Hong Kong’s prominence in Russia’s effort to sustain war in Ukraine? The most immediate factor is Beijing’s increased control over all aspects of the governance of Hong Kong. Historically, Western countries treated Hong Kong’s exports as sufficiently autonomous from China’s strategic objectives. In 1992, the United States and other former Coordinating Committee for Multilateral Export Controls (COCOM) members designated Hong Kong a “cooperating country,” affirming that it possessed the necessary elements of an effective licensing and enforcement system.

The transfer of sovereignty to China in 1997 prompted fears that Hong Kong would become a hub for technology diversion into China and other so-called rogue states like North Korea. The principle of “one country, two systems” was designed to assuage such anxiety by promising that Hong Kong would continue to exercise independent authority over export controls, which the government interprets as a trade matter, meaning that it falls under the legal bounds of Hong Kong’s autonomy. Under the United States-Hong Kong Policy Act of 1992, after China took over Hong Kong’s sovereignty in 1997, the “United States should continue to support access by Hong Kong to sensitive technologies controlled under [COCOM] for so long as the United States is satisfied that such technologies are protected from improper use or export.” As a result, Hong Kong was eligible to import, without license, extensive categories of U.S.-controlled dual-use items and was eligible for license exceptions for some categories. In contrast, China was required to obtain a license to procure items controlled for U.S. national security and was eligible for a license exception only when the destination was verified as civil end users. A 1997 report by the U.S. General Accounting Office (now Government Accountability Office) characterized Hong Kong favorably for having demonstrated “excellent cooperation with the United States on export enforcement activities, including sharing of information and cooperation on investigations, searches, and seizures of suspected illegal shipments.”

However, as Hong Kong’s autonomy has steadily eroded, so has its willingness to comply with Western export control regimes, especially when they contradict China’s strategic interests. Today’s Hong Kong scorns Western sanctions against Russia. After Russia invaded Ukraine in February 2022, Western governments launched a frantic campaign to seize the assets of Russian oligarchs, hoping to deter elites from aiding Russian war efforts. In sharp contrast, Hong Kong’s Chief Executive John Lee, himself sanctioned by the United States for suppressing the 2019 protests, said that the government would not recognize U.S. sanctions against Russia, asserting that Hong Kong has no legal obligation to enforce “unilateral sanctions” after a Russian oligarch’s yacht was spotted in Hong Kong in October 2022. Furthermore, Hong Kong has become a top alternative for Russian companies shut out of Western financial capitals like New York and London. As Bloomberg reported in October 2022, a number of major Russian companies, including state-owned enterprises, have sought to engage with Hong Kong law firms to help anchor them in a “friendlier jurisdiction.” A local research group later found that between February and October 2022, the number of Russia-affiliated businesses registered in Hong Kong reached thirty-five, more than doubled from the same period in 2021.

DOES THE CHINA FACTOR REALLY MATTER?

It is no coincidence that Hong Kong’s noncompliance with Western sanctions has been simultaneous with Hong Kong’s deteriorating political autonomy. Xi is determined to exploit Hong Kong’s advantages to further his strategic ambitions, even if it means tarnishing Hong Kong’s international reputation.

Some might argue that Beijing’s increased grip on Hong Kong has had little effect on the city’s attitude toward Western sanctions. After all, Hong Kong was already a major transshipment hub, even prior to signs of serious deterioration of its autonomy. The volume of dual-use items transshipped through Hong Kong has contributed to conflict and terrorist activities that had less strategic salience to China than the war in Ukraine has. For example, transshipped U.S. electronics components and devices were used to build improvised explosive devices that were deployed against coalition forces in the Iraq war, a conflict for which China largely stayed on the sidelines.

Additionally, Hong Kong’s status as a busy transshipment port to locations around the world naturally increases the risks of illicit technology diversion. Transshipment is notoriously hard to detect from trade data because it requires visibility throughout multiple stages in the supply chain. Due to the sheer volume of transshipment occurring via Hong Kong, it is hard for export control officials to conduct preshipment screening or postshipment checks. It is particularly easy to set up front companies in jurisdictions like Hong Kong. As a manager at a leading U.S. semiconductor distributor explains, “there are many formless shell companies and small trading companies in Hong Kong that serve as receptacles for secondary sales. . . . If you spot one illegal trade, they can just change their name or use their other trading companies’ names.”

It becomes even more challenging to distinguish between transshipment to sanctioned entities and transshipment to legitimate importers if the importing country has a large existing market for dual-use goods. According to trade data compiled by the Observatory of Economic Complexity, Hong Kong has consistently been the world’s top importer of electrical machinery and electronics since 2004. In the global trade of integrated circuits, for instance, Hong Kong imported 24.3 percent (or $162 billion) of the world’s trade in 2020, exceeding even China’s $114 billion imports.

But this line of argument fails to account for the big picture. While the problem of illicit trade has historically bedeviled Hong Kong, the government’s open defiance against Western sanctions since the Ukraine war signals its commitment to a deliberately lax approach to export controls. The sizeable flow of technology from Hong Kong to Russia is the result of an active political choice. The reactions from other major transshipment hubs, such as Singapore and the United Arab Emirates (UAE), illustrate that it is possible to stem the flow of technology to Russia if there is political will to do so. U.S. authorities have long recognized the prominence of Hong Kong, Singapore, and the UAE in illicit trade networks. The three major transshipment ports reacted to Western sanctions regimes against Russia differently according to their geopolitical interests.

Despite being a U.S. security partner, the UAE has joined other Middle Eastern states in refusing to participate in Western sanctions regimes. It has abstained from voting in favor of a United Nations Security Council (UNSC) draft resolution condemning Russian aggression in Ukraine, allowed Russian oligarchs to launder money through its ports, spurned Washington’s request that it pump more oil to diminish Russian oil revenue by reducing global oil price, and refused to crack down on the reexporting of electronic components to Russia. Data show that exports of electronic parts from the UAE to Russia increased sevenfold within a year to almost $283 million in 2022, while microchip exports rose by fifteen times to $24.3 million from $1.6 million in 2021. The Gulf country also sold 158 drones worth a total of $600,000 to Russia.

If the UAE has allowed tech trade with Russia to flourish out of self-interest, Singaporean leaders have pursued a different calculus—choosing to align themselves more closely with the U.S. position. In a statement bodog sportsbook review made on February 28, 2022, Singapore’s foreign minister said, “Russia’s invasion of Ukraine is a clear and gross violation of the international norms and a completely unacceptable precedent. This is an existential issue for us.” In a rare move, the city-state announced sanctions against Russia that included “four banks and an export ban on electronics, computers and military items,” becoming the only Southeast Asian country to impose sanctions against Russia in the absence of binding UNSC approval. According to the Free Russia Foundation, Singapore is among the countries that have most dramatically curtailed trade with Russia. In terms of semiconductors and integrated circuits, Singapore was the ninth-biggest exporter to Russia in 2021. A prominent node in the global supply chain, Singapore accounts for 19 percent of the global share of semiconductor equipment, providing Russia in 2019 with approximately $10.6 million worth of semiconductor devices. This has shifted since Russia’s full-scale invasion of Ukraine, when Singapore chose to side with Western sanctions regimes. In 2022, exports of semiconductors from Singapore to Russia collapsed dramatically down to a negligible level.

Geopolitical interests explain both the UAE’s spike and Singapore’s plummet in exports to Russia. These cases illustrate that changes in economic and technology ties with Russia are largely driven by the countries’ stances on the Ukraine war, which are in turn motivated by their geostrategic calculus. Similarly, Hong Kong’s permissive stance toward trading technology with Russia is a product of Beijing’s geopolitical calculations. Repeatedly, Hong Kong officials have demonstrated that they have no ability to defy Beijing’s will and no interest in doing so, even if it means alienating the international community. If China is determined to help Russia wage war against Ukraine by extending a technology lifeline, Hong Kong will follow suit.

STILL ASIA’S WORLD CITY?

In July 2020, recognizing Hong Kong’s loss of autonomy, former U.S. president Donald Trump announced that Hong Kong “is no longer sufficiently autonomous to justify differential treatment in relation to the People’s Republic of China.” The United States would “suspend or eliminate different and preferential treatment for Hong Kong.” Shortly after, the Commerce Department began rescinding Hong Kong’s export licensing privileges, such as by equalizing the availability of license exceptions for Hong Kong and China. In December, the department declared that it would treat exports to Hong Kong as destined for China, effectively ending Hong Kong’s preferential status in the U.S. export control system. Some of the United States’ closest partners have implemented similar changes.

Stripping away Hong Kong’s preferential trading status is a good first step in stopping the leakage of sensitive goods to China and its autocratic allies. But unilateral action from the United States is not enough. While these restrictions have slowed the movement of export-controlled goods in and out of Hong Kong—for example, the Commerce Department detected a 17.4 percent decline in shipments under a Bureau of Industry and Security license exception between 2020 and 2021—Hong Kong on the whole remains relatively interconnected with the global economy.

Russia’s permanent seat on the UNSC has guaranteed the failure of any efforts to push for comprehensive UN sanctions and continues to provide political cover for jurisdictions like Hong Kong and the UAE to resist pressure to cooperate with Western countries. This, combined with Hong Kong’s posture as a busy shipping port that is inherently difficult to monitor, has given the Hong Kong government plausible deniability when accused of supporting Russia’s war machine. There is no clear answer to how Western countries should deal with nonaligned countries in the Global South that wish to stay out of what they perceive as a great power competition, but one thing should be clear: Hong Kong falls outside the nonalignment camp, since it has taken the side of the emerging China-Russia axis.

A wider recognition of Hong Kong as a geostrategic asset of Chinese statecraft is in order. Hong Kong’s government is investing large sums in a charm offensive to rehabilitate its international image and attract international business. In a promotional video for the government’s $2 billion HKD “Hello Hong Kong” campaign, Lee claimed, “Hong Kong is now seamlessly connected to the mainland of China and the whole international world.” But the findings presented in this article show that a portrayal of Hong Kong as a neutral trading hub connecting East and West no longer holds up. Western leaders should be aware of the geopolitical costs of Hong Kong’s position as a major center of global trade and the advantages that subsequently accrue to Beijing.

Correction: This piece has been edited to reflect that Chief Executive John Lee said Hong Kong would disregard U.S. sanctions on Russia, not those on China.

Brian (Chun Hey) Kot is a research assistant in Carnegie’s Democracy, Conflict, and Governance Program.

To read the full article, please click here.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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The origins of supply chain management (SCM) are often traced to the 1980s, when U.S. multinational corporations sought to lower production costs by outsourcing and offshoring manufacturing and research and development (R&D) activities to low-cost countries in Asia. Over time, practices that called for continuous flow processing with low inventory levels, just-in-time production and accurate scheduling of transport became common.

During the early 2000s, multinationals encountered supply problems, and researchers wrote books about how to deal with disruptions. In 2019, the Business Continuity Institute estimated that 56 percent of companies surveyed suffered a supply disruption annually. They were mainly due to information technology (IT) and telecommunications outages and to natural disasters.

Human factors also played a role in the latter part of the decade owing to the U.S.-China trade conflict. In the process, corporations shifted from reactive tactics to mitigate the cost of disruptions to more proactive strategies to improve supply chain resilience.

Meanwhile, the COVID-19 pandemic has posed a much greater challenge to multinational corporations: For the first time, they are contending with complex global disruptions with no end in sight. 

When the pandemic first hit in early 2020, shortages of household items such as toilet paper, medical supplies and groceries occurred as people stockpiled items when many businesses and schools were closed. These shortages were alleviated in the summer as the re-opening occurred. Consequently, many people believed the problems had been resolved.

This year, however, attention shifted to soaring prices for lumber, which more than doubled in six months as many homeowners renovated properties or bought new homes. This was accompanied by a surge in prices for used car prices and car rentals that occurred when auto production slowed significantly due to a shortage of computer chips. The chip shortage, in turn, resulted from increased demand for personal electronics such as cellphones and laptops.

As prices of these items surged, Federal Reserve Chairman Jerome Powell reassured consumers and investors that the spike in inflation was temporary and that there was no need for the Fed to tighten monetary policy. This view appeared to be validated when lumber prices tumbled in the second quarter and prices for used cars stabilized the following quarter.

More recently, Powell has begun to change his tune by acknowledging that prices have stayed elevated longer than the Fed had originally envisioned.  Powell told a conference of European central bankers that, “It’s…frustrating to see the bottlenecks and supply chain problems not getting better, in fact at the margin apparently getting a little bit worse.” 

Powell went on to acknowledge that the problems could continue into next year “holding inflation up longer than we thought.” Speaking alongside Powell, European Central Bank Chief Christine Lagarde also discussed global supply shortages, saying, “I’m thinking here about shipping, cargo handling and things like that.”

A Washington Post article by David Lynch highlights what is going on. Lynch notes that the commercial pipeline that brings $1 trillion of toys, clothing, electronics and furniture from Asia to the U.S. is clogged, and no one knows how to unclog it. The median shipping cost for a container from China to the West Coast recently quadrupled to a record $20,586. He observes that “essential freight-handling equipment too often is not where it’s needed, and when it is, there aren’t enough truckers or warehouse workers to operate it.”

The New Yorker’s Amy Davidson Sorkin explains why the ports of Los Angeles and Long Beach reached the point last week where more than 70 container ships were idling offshore. She writes that labor shortages are at the heart of the problem, as there aren’t enough dockworkers to unload cargo or truck drivers to move the contents to distribution centers: “Just in time delivery works only if you can deliver.” 

The bottom line is that supply disruptions were initially tied to shutdowns of businesses when the pandemic hit. But since then, they have spread to a much broader spectrum of areas and are proving more difficult to tackle.

This poses a dilemma for the Fed and other central banks about how bodog sportsbook review to deal with prolonged supply shortages. One can make the case that central banks should do nothing and allow price increases to dampen demand. The problem with this tact, however, is that if shortages persist into next year, inflation expectations could become entrenched. According to an August survey by the Federal Reserve Bank of New York, for example, inflation expectations of consumers over the next three years have increased to a median of 4 percent, the highest level since 2013.

Another problem with the strategy of doing nothing is that it downplays the role that expansionary fiscal and monetary policies have played in boosting aggregate demand. By now, a significant component of job losses during the pandemic have been replaced, with the unemployment rate down to 5.2 percent.  Moreover, July’s Job Openings and Labor Turnover Survey (JOLTS) indicated that more than four million jobs were available that went unfilled. This is the biggest mismatch on record between jobs that workers sought and what was available.

For the time being, investors have sided with the Fed’s view that higher inflation is temporary. But bondholders may be wavering, as bond yields have increased recently.  

Should they come to believe that inflation of 3 percent – 4 percent is here to stay, the bond market vigilantes may return and force the Fed’s hand to raise interest rates sooner than it wants.  

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While France may be the odd-man-out in the submarine deal, it should recognize that this has nothing to do with a weakened U.S. commitment to transatlantic relations and more to do with its primary focus on balancing and containing China’s growing influence. Along with most EU member states, France has shown an unwillingness to take on China, preferring to forge politically appetizing economic agreements with China even if they come at the expense of long-term strategic interests. 

While the Europeans might defend their approach to China by arguing they want to maintain strategic autonomy, the reality is that on many digital issues, they treat China like a preferred partner while giving the cold shoulder to the United States. The clearest example of this has been in the EU’s approach to digital policy. The EU has launched multiple efforts aimed at the United States, its close ally and partner, from attempting to build a European cloud to counter U.S. cloud providers to repeated attacks on successful U.S. tech companies through new tax, data protection, and competition policies. Most galling of all is the EU’s resistance to the transfer of European personal data to the United States, claiming that the U.S. government is an untrustworthy partner—despite U.S. intelligence agencies supporting counter-terrorism activity in Europe—while seemingly ignoring the risk presented by the Chinese government by not scrutinizing data transfers to China Never mind how the EU overlooks the surveillance activities of its own member states. 

Europe loves seeing itself as a global regulatory superpower when it comes to digital policy. Yet, the EU’s actual impact on global digital regulations—whether on data protection, AI, cybersecurity, or digital markets—will inevitably be limited if it fails to work with like-minded partners to embed its values and approaches in a larger part of the global digital economy. As much as it may try, it can’t enforce its regulations on everyone, certainly not on China. Pragmatic cooperation with the United States (and other like-minded partners) is a way to extend its strategic influence and promote its interests and values. The contrast with digital authoritarian and protectionist countries could not be clearer in terms of what other values and rules may fill the vacuum in the absence of global leadership. 

While some EU officials have stated that they do not want the TTC to focus on confronting China, ignoring the challenge posed by China’s rise is both impractical and imprudent. From AI to supply chains to intellectual property to 5G to cybersecurity, digital trade and technology policy will be heavily shaped by China’s actions and ambitions. Thankfully some EU member states, like Denmark, recognize what’s at stake and remain committed to transatlantic cooperation. Both U.S. and European strategic interests require limiting Chinese innovation mercantilism and digital authoritarianism—when the EU does not work with the United States on this goal, it should not be surprising to see the U.S. government focus attention on other allies and partners who want to build this multilateral coalition. Hopefully, other EU member states, and the European Commission, put France’s emotions to one side and get back to focusing on the region’s interests. As the great French leader Charles de Gaulle stated, “no nation has friends, only interests.” It is in the interest of France and the EU to work with the United States on the TTC. 

Daniel Castro is vice president at the Information Technology and Innovation Foundation (ITIF) and director of ITIF’s Center for Data Innovation.

Nigel Cory is an associate director covering trade policy at the Information Technology and Innovation Foundation. He focuses on cross-border data flows, data governance, intellectual property, and how they each relate to digital trade and the broader digital economy.

To read the full commentary from the Information Technology & Innovation Foundation, please click 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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The result has been nearly 600,000 American fatalities, the loss of millions bodog sportsbook review of jobs, and a widening in the inequities that exist based on race, gender, age, income, and geography. While more than half of Americans now have received at least one dose of the COVID-19 vaccine, a significant number indicate they don’t want to be vaccinated. That reticence runs the risk that the virus will not be eradicated and could return at some point in the future.

Among the most fundamental challenges that remain as we move forward is the fact that most pharmaceuticals and protective personal equipment are manufactured outside the United States. It was a shock for many people to learn during the pandemic that many of their essential medicines and products came from outside the country. In keeping with trends that have emerged in recent decades with manufacturing in general, China and India are big suppliers of medicinal drugs, as are places such as Germany, Switzerland, the United Kingdom, France, Israel, South Africa, and Brazil. Most American drug companies have outsourced manufacturing to foreign locations. In that situation, supply chains are long and there often are logistical problems that limit availability of needed treatments.

Now, a new report from the Washington University Olin School of Business outlines several reasons why this is the case and what we need to do about it. In terms of the causes of drug shortages, authors Tony Sardella and Paolo De Bona cite a 2019 U.S. Food and Drug Administration analysis that emphasized three factors: “1) the lack of incentives to produce less profitable drugs; 2) the market not recognizing or rewarding manufacturer for mature quality management systems, 3) logistical and regulatory challenges that make it difficult to recover after a disruption.” Taken together, these problems help people understand how we reached the current point and what leaders can do to address these matters.

According to the authors, there are a number of ways to improve the situation. These steps include decreasing dependence on foreign drug-makers, developing U.S. drug manufacturing, providing financial support for domestic capabilities, and offering faster drug approval processes.

Decrease single-country dependence

Part of the current challenge is the heavy reliance on foreign manufacturers. Few medications are made in the United States and that creates domestic risks. In a world with a considerable number of geopolitical uncertainties, it is challenging to rely on nations with which America has an adversarial relationship. Right now, there are many complicating issues in the relationship with China including trade, national security, and foreign policy. As the two countries move from a relationship that emphasized cooperation to one that is either competitive or conflictual, the risk of medical drugs being made in China increases. Depending on how relations ebb and flow, there could be times where China needs to redirect drug and PPE manufacturing to domestic needs as opposed to foreign ones. Or they could use its control of drug production to reward allies and punish adversaries. Either way, it is risky for the United States to rely heavily upon China during a time of considerable tension.

Develop U.S. drug manufacturing capabilities

At the same time, it makes sense to reduce reliance upon foreign manufacturers and develop U.S. drug manufacturing capabilities. For medicines that are essential to the health and well-being of Americans, it is vital to have some drug manufacturing options. That type of capability would insulate the U.S. from international disruptions and supply chain logistical problems. The same is true for necessary PPE and medical devices. There is legislation pending in the U.S. Congress that is designed to encourage American drug manufacturing.

Strengthen “made in America” requirements

The U.S. government long has had a “buy American” policy but it was vaguely worded and weakly enforced, so that stance has lost much of its relevance. President Biden has signed an executive order that clarifies the definition and puts stronger regulatory protections in place to make sure the policy is implemented. The order includes a mandate that American-made products must include materials with at least 55% domestic content. Companies can assemble products in the United States but the component parts must come from within the country. Having stronger “country-of-origin” requirements would boost the meaningfulness of “buy American” provisions.

Define the market to include friendly nations

In thinking about domestic drug manufacturing capabilities, it is important to consider the overall drug marketplace and how American firms fit into the global landscape. It would obviously be costly to cease all foreign operations and rely only on U.S.-based facilities. But it is important to think about the geographical combination that would bring needed security to American health products and medicines. It may take a novel combination of domestic and friendly foreign sites to ensure products are available when the U.S. needs them.

Avoid guaranteed contracts

Protecting the production of essential medicines requires a manufacturing competition policy that actually is pro-competition. Guaranteeing contracts for one or two firms in a sector gives them enormous power and sometimes squeezes out competitors. It is important to spread federal resources around so that more companies benefit and more have incentives to manufacture drugs for the United States.

Provide financial support

There are a variety of ways the federal government can provide assistance to domestic drug producers such as tax credits, loans, infrastructure investment, and direct support for production facilities. Any of those methods would improve the U.S. manufacturing climate and make it possible for firms to re-shore drug production and strengthen domestic supply chains.

Offer faster drug approval processes

The last recommendation is to expedite federal drug approval processes. Right now, the U.S. Food and Drug Administration protocols require lengthy times and considerable resources to navigate. Anything that speeds up the process, while still protecting patients, would be helpful. Expediting these processes would make it possible for companies to get drugs to market quicker and offer assistance during vital times. This would ultimately help companies financially and provide drug access to patients who would benefit from its use.

Darrell M. West is vice president and director of Governance Studies and holds the Douglas Dillon Chair. He is Co-Editor-in-Chief of TechTank. His current research focuses on artificial intelligence, robotics, and the future of work. West is also director of the John Hazen White Manufacturing Initiative. Prior to coming to Brookings, he was the John Hazen White Professor of Political Science and Public Policy and Director of the Taubman Center for Public Policy at Brown University.

To read the full commentary from the Brookings Institute, please click here.

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Yet Reisinger knows that jobs at the Hibbing, Minn., facility will always hang by a thread—even in really good times—as long as his employer has the option to shift production to poorly paid Mexican workers.

Americans can protect their own livelihoods by ensuring their Mexican counterparts have unfettered, unconditional use of new labor reforms intended to lift them out of poverty and stop employers from exploiting them.

To protect workers on both sides of the border, America’s labor community and the U.S. trade representative last week filed the first-ever complaints under the 10-month-old United States-Mexico-Canada Agreement (USMCA), demanding action against two plants that suppressed Mexican workers’ right to unionize.

Swift, significant punishment of these kinds of offenses through the USMCA’s innovative “rapid response”enforcement procedures would deliver a major boost to Mexican workers’ efforts to form real unions for the first time. And those unions, in turn, would help Mexican workers negotiate better wages, eliminate employers’ incentive to move jobs out of the U.S. and end a corporate race to the bottom that’s harmed millions in both countries.

Not only has Reisinger seen a steady stream of U.S. automakers and suppliers send work to Mexico over the years, but his own employer opened a location there about three years ago. Reisinger, who represents about 50 Northern Foundry workers as president of United Steelworkers (USW) Local 21B, doesn’t want to see the company open a second just to take further advantage of low wages there.

He’s counting on the USMCA to help keep that from happening.

“It’s just frustrating to see work going away from American workers,” said Reisinger, noting MTI could have expanded the Northern Foundry or its other U.S. locations rather than open the Mexico facility.

Under the North American Free Trade Agreement (NAFTA), the previous trade deal in place for 25 years, U.S. corporations relocated about a million good-paying manufacturing jobs south of the border to exploit the abysmal wages, weak labor laws and lack of environmental safeguards.

These companies made huge profits at the expense of powerless Mexican workers while devastating U.S. manufacturing communities, gutting the nation’s industrial capacity and decimating the middle class.

To curb this greed, U.S. labor leaders and their Democratic supporters in Congress successfully battled to enshrine tougher labor standards in the USMCA as well as enforcement mechanisms to hold employers’ feet to the fire.

The USMCA, for example, required Mexico to pass laws enabling workers to form democratic unions, select their leaders and negotiate real contracts for the first time.

Those changes empower Mexican workers to kick out the corrupt cabals—masquerading as labor organizations—that for decades collaborated with employers to suppress wages, stifle dissent and even kill those who publicly challenged the status quo. These groups not only denied workers a say on the job but bound them to oppressive contracts that made them the perfect targets for U.S. corporations preying on cheap labor.

Now, Mexican workers can look forward to joining unions that, like Reisinger’s, fight not only for better wages but affordable health insurance, retirement plans and safety measures to ensure they return home safely to their families at shift’s end.

“It gives you a voice,” Reisinger said of the local he’s proud to lead. “We have pushed back against the company several times on safety issues.”

Eradicating the anti-worker forces entrenched in virtually every Mexican workplace would have been a herculean, time-consuming process even without delays associated with the COVID-19 pandemic.

In December, the Independent Mexico Labor Expert Board, created to monitor the labor reforms, noted that progress had been made with the help of well-intentioned Mexican officials.

However, the board reported that “serious concerns” remained. Most workers still awaited opportunities to form unions and elect leaders, for example, and many continued to face intimidation for organizing efforts.

Those are some of the issues at the heart of the complaints filed last week.

The AFL-CIO, other unions and the activist group Public Citizen alleged that Tridonex, an auto parts maker owned by a Philadelphia company, harassed and fired hundreds of workers trying to organize. Hourly wages at Tridonex range from about $1.80 to $3.30.

In a separate complaint, the U.S. trade representative reported that a phony labor group trying to cling to power at a General Motors plant in northern Mexico destroyed the ballots of workers seeking legitimate representation for the first time. Workers in the GM factory, which makes Chevrolet Silverado and GMC Sierra trucks, start at $1.35 an hour, with a top wage of $4.95 an hour.

Now, these employers face investigations by the Mexican government, special panels set up under the USMCA or both. Punishments for individual plants found to have violated the new labor rights include tariffs or other sanctions, and repeat violators could have their products denied entry to the U.S.

Strict enforcement of the USMCA will not only help the oppressed workers at the Tridonex and GM plants but send the message to other employers that they have to comply with the law as well.

“Otherwise, they’re just going to laugh at it,” Reisinger said. “You have to have these enforcement mechanisms in place, and you have to utilize them.”

Noting his foundry has struggled at times, Reisinger knows a more level playing field under the USMCA can help secure the facility’s future, generate even more business and help his co-workers build better lives.

“I think it’s important that they remember to share that increase with the workers,” he said.

To read the full commentary from United Steelworkers, please click here. 

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Since taking office, Ambassador Tai has made it clear that her mandate includes using trade policy to strengthen environmental protection in free trade agreements. Instead of looking at fixing the environmental exceptions at the World Trade Organization, Ambassador Tai’s first step should be to correct the “most glaring omission” in USMCA by acknowledging the climate crisis through incorporation of the Paris Agreement in the Environment Chapter as well as in Chapter 1.

The lack of any serious consideration of greenhouse bodog sportsbook review gas emissions resulting from North American trade in USMCA takes away from any achievements gained by a more robust environment chapter and a revamped Environmental Co-operation Agreement. USMCA only indirectly considers climate change in relation to the promotion of strategies and actions, such as areas of energy efficiency, alternative and renewable energy, and low-emission technologies. As the USMCA fails to address our most significant environmental issue, Ambassador Tai’s comments on illegal logging and overfishing are a bit like fiddling while the forest fires rage and ocean temperatures rise.

Fortunately, there is an option to amend USMCA to reflect the importance of the climate crisis. Prior to the signing of USMCA, it was re-tooled by the Protocol of Amendments. This Protocol added a new article (24.8) to USMCA’s Environment Chapter. This Article recognizes the Parties’ existing commitments to implement their obligations under certain multilateral environmental agreements (MEAs) to which they are a party[1]. Article 24.8 is enforceable[2] under dispute settlement, and requires each Party to “adopt, maintain, and implement laws, regulations, and all other measures necessary to fulfill its respective obligations under the listed MEAs”. Currently, the Paris Agreement is not a listed MEA in Article 24.8. However, Article 34.3 of USMCA providing a simple amendment procedure (at least from a legal perspective) which can be used by the Parties to add more MEAs in the future, including the Paris Agreement.

The same list of MEAs was also incorporated into USMCA by the Protocol of Amendment in a new Article 1.3. Article 1.3 is similar to Article 104 of the original NAFTA, although the rewritten language is an improvement and provides more scope for Parties to adopt measures that may be on their face inconsistent with USMCA, but are needed to comply with the obligations of the MEA. This article acts as a de facto exception clause, and allows Parties to take actions to protect the environment under the listed MEAs and not worry about the measure being inconsistent with USMCA, with one caveat that the measure cannot be primarily a disguised restriction on international trade. This clause would be especially interesting for the development of trade policy for Border Carbon Adjustment measures. Again, Article 1.3 can be amended in a simple process by the Parties, to add the Paris Agreement or any other future climate agreement ratified by the Parties, to the MEA list.

Ambassador Tai made a second statement on Earth Day 2021 where she again emphasized the need to address climate change through trade policy by embracing “our responsibility to help solve one of the defining challenges of our time by leveraging trade tools to avert an unfolding economic crisis and protect our planet.” Amending USMCA to list the Paris Agreement in Articles 1.3 and 24.8, would be an important signal that the USMCA Parties are ready to make difficult decisions for environmental protection, which may include prioritizing climate obligations over trade rules, and potentially using binding dispute resolution in USMCA to enforce environmental obligations in MEAs.

Risa Schwartz is a sole practitioner, focusing on international law and the intersections between trade and investment law, environmental law and Indigenous rights.

To read the original blog by the International Economic Law and Policy Blog, please click here.

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The U.S. began Trans-Pacific Partnership negotiations in 2008 during the Bush administration, efforts that were intensified during Barack Obama’s presidency. Hammered out between the U.S. and 11 Pacific Rim countries, the intention of joining the partnership was to set trade policy and greatly expand U.S. trade and investment in the Asia-Pacific region. President Obama signed the agreement in 2016 and less than a year later, immediately after Donald Trump’s inauguration, the U.S. withdrew from the agreement.

Rejoining the partnership, renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership in 2018, could signal to the world that the U.S. is back in the global engagement arena. It would also strike a stark contrast to the previous adminstration’s bilateral and nationalistic approach, which has resulted in tensions with major U.S. trading partners. Aside from improved trade relations, rejoining the this agreement would counter China’s economic and geopolitical influence in the Asia-Pacific region.

Both of us have worked extensively with the U.S. Department of Agriculture on trade policy issues. As economists specializing in international agricultural trade, our research demonstrates that the U.S. would benefit from rejoining the trade accord and, in particular, American agriculture.

Regional trade agreements like the Trans-Pacific Partnership can go far beyond tariffs to tackle deeper trade and domestic issues such as investment, labor, migration, competition, intellectual property and, in some cases, key regulatory issues governing food safety standards.

Although agriculture comprises only about 10% of total U.S. exports, the agricultural sector in the U.S. and other countries account for a large share of trade policy considerations. Rejoining the accord has the potential to establish economic ties with emerging economies like Vietnam and Malaysia and embrace the need for improved trade relations in Southeast Asia overall.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership could be the easiest path forward if the U.S. wanted to improve trade relations with Southeast Asia. Joining this partnership could be especially beneficial based on the volume of agricultural trade and expected growth in these markets. At an approximate US$14.3 billion annually, Southeast Asia accounts for a significant amount of U.S. agricultural exports, making it the fourth-leading destination behind China, Canada and Mexico.

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The Trans-Pacific Partnership was seen as an opportunity for the U.S. to shape regional and global trade rules, potentially influencing economic policies and practices in China. However, there are concerns that need to be addressed if the U.S. were to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

There are important differences between the agreement signed under Obama in 2016 and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Provisions important to the U.S. were changed in the subsequent agreement, such as the investment and intellectual property provisions that offered improved standards on intellectual property relative to past trade agreements. The provisions fall short of the more stringent requirements in the earlier Trans-Pacific Partnership.

What are the odds?

Like all trade agreements, joining the partnership would require congressional approval. Historically, Republicans have been more supportive of trade agreements. But President Trump’s rhetoric, that past trade agreements have been “disastrous” for the U.S. economy, may have lessened Republican support for an agreement like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

President Joe Biden quickly rejoined the Paris Climate Agreement and reversed President Trump’s decision to withdraw from the World Health Organization, showing that the U.S. is back in the global engagement area.

Mega-regional trade agreements offer more than a forum for negotiating trade barriers. They establish procedures that reduce uncertainty in international transactions, make rules that are clear to members and provide an institutional framework to remedy trade concerns or disputes. If the Biden administration wants to signal to the world that the U.S. is pivoting to a more expansive global engagement, joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership could be an initial step.

Dr. Andrew Muhammad is a Professor of Agricultural Economics and the Blasingame Chair of Excellence in Agricultural Policy at the University of Tennessee Institute of Agriculture.

Jason Grant is Associate Professor and Director of the Center for Agricultural Trade at Virginia Tech.

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

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