WITA’s Friday Focus on Trade | February 3, 2023




In a Fragmented World, We Can’t Take Global Trade for Granted 

Trade served the world economy very well in 2022. Despite a global pandemic that has caused nearly 7 million deaths (over 1 million of them in the United States), trade bounced back and supplied needed vaccines, medical supplies, and equipment around the world–while supporting an economic recovery that was much stronger and faster than projected.
Global supply chains proved remarkably resilient. In June, the World Trade Organization (WTO) had a reasonably successful Ministerial Conference attended by trade ministers from most of the world’s trading nations. They made good progress on reining in fisheries subsidies that were stripping the oceans bare of stocks of this important food source for the world’s peoples and undermining the livelihood of fishermen, particularly in very poor countries.
The ministers noted that work was underway to address environmental issues and promised to address needed reforms of the global trade organization. They dodged a bullet by keeping in place a moratorium on levying customs duties on e-commerce, with digital trade being one of the bright growth areas of international commerce.
This does not suggest that there will be smooth sailing for international trade in 2023. There are three areas of U.S. trade policy that will require particular attention.
U.S.-China trade
Under stress for many years, trade relations between the world’s two largest economies are beginning to fracture.
Trade data hasn’t shown this–yet. U.S. imports from China are up substantially from both last year and pre-pandemic levels. However, President Biden’s U.S. National Security Strategy has condemned China’s behavior. The gloves have come off. In October, the U.S. announced limits on exports to China of high-end technologies and semiconductors. These measures are qualitatively different from the broad Trump tariffs. The new sanctions target the growth of the technological capability of industries that China has identified as its highest priority.
China has not yet launched visible countermeasures against the US. However, China has a record of using trade coercion to retaliate against policies that it disfavors. A further Chinese response to the recent U.S. export controls can be expected in 2023. It may not come to that, but continuing escalation could presage the beginning of a new Cold War. 
01/20/2023 | Alan Wm. Wolff | Fortune


Global Trade in 2023: What’s Driving Reglobalization?

Global trade will continue to face multiple challenges in 2023 as inflation and high interest rates, debt distress and geopolitical frictions weigh on many economies. The downside risks to the global economy and international trade are significant, ranging from an escalation of Russia’s war on Ukraine to deepening tensions between the US and China.
‘Reglobalization’ – rather than deglobalization – best describes the current pattern of economic integration and fracturing across different economies and sectors. Globalization is far from finished, but will increasingly emphasize greater regional links and the formation of economic blocs for sensitive and strategically important sectors. Comprehensive decoupling from China is neither achievable nor desirable for the G7 and like-minded partners.
The supply-chain disruptions of 2020–22 will continue to ease. Given that extreme weather events are the biggest threat to global production networks, supply-chain resilience and diversification efforts will persist, with added impetus to act on ‘greening’ trade.
The future of trade is closely linked to the transition to green and digital economies. As climate ambitions and technological leadership are intertwined with industrial policy objectives, concerns about unfair trade practices and protectionism are coming to a head not just as regards China, but also among the US, the EU and like-minded partners.
With major breakthroughs at the World Trade Organization unlikely in 2023, limited progress can be expected in some bilateral, regional and sectoral agreements. Meanwhile, efforts to avoid further trade fragmentation will progress more readily under Japan’s G7 presidency than under India’s G20 presidency.
01/30/2023 | Marianne Schneider-Petsinger | Chatham House


Postcard From a Disintegration: Inside the WTO’s Fraying Seams 

The World Trade Organization is what is known as a “member-driven” organization. The 164 WTO Members – they are never referred to as Member States because Hong Kong and Macau are regions of China and governments do not agree on the status of Taiwan – make all relevant decisions on the basis of consensus.
It is an awkward way to get things done. Consensus means, in theory, that the hands of all 164 members are on the steering wheel. The reality is that some pairs of hands have a more forceful grip on the wheel than others.
To make things move in Geneva, you need the big players to take control, state what they want, and make clear what they are prepared to do to achieve it. In the past, it has been the United States which drove the agenda, first in the General Agreement on Tariffs and Trade and, since its founding in 1995, in the WTO. Nothing of consequence was achieved without US leadership.
Today, this is no longer the case. Such is the politically toxic nature of trade in the United States today, that the Office of the US Trade Representative has deemed a detached, disinterested approach the nation’s best course of action in trade policy.
Two factors have contributed to the sharp deterioration in US leadership. The first is a bipartisan, ardent anxiety over China. Inside the Beltway, it is widely held that China has somehow rigged the multilateral trading system, shirked its responsibilities, and gamed the dispute settlement function. Such reasoning is flawed and not fully supported by the facts. But it can be attributed to the growing Cold War mentality gripping Washington these days.
01/31/2023 | Keith M. Rockwell | Hinrich Foundation


A European Response to the US Inflation

Reduction Act

The European Green Deal is one of the world’s most ambitious climate policies to usher the European Union into the net zero economy by 2050. To happen, it will require a massive ramp up of technologies from wind turbines to electric car batteries, but the question is how much of the value will be captured by industry in Europe. 
The global race to lead the production of these cleantech, as well as raw materials that go into them, has been unfolding for a few years now. Europe has secured much commitment and investment in the area of electric cars (EV) and batteries already. Dozens of billions have poured into scaling EV manufacturing and batteries. Over half of all lithium-ion batteries on the EU market in 2022 were produced in Europe, with the continent projected to become the world’s second biggest battery cell manufacturer by the end of the decade. 
But the US Inflation Reduction Act (IRA), launched in August 2022, has changed the rules of the industrial game and might make companies re-prioritise the current announcements in Europe towards the US. For EVs and batteries, the risk is that the projects – and therefore Europe’s ambition – gets delayed. For critical metals and their processing, where Europe is only starting to catch up, the risk is that investments would simply go elsewhere. In just a few months since the launch of the US IRA, investments into battery factories, new mines and electric vehicles have mushroomed in North America. This is in response to the requirement that 40% of battery metals need to come from the US and half of all battery components made in North America from 2024 for the full EV tax credit to apply. The battery supply chain of an electric car will receive up to USD 50 of subsidy per each kWh of battery, or over a third of the total battery costs today. 
So far Europe has one of the most ambitious climate regulations in the world. The next step now is to beef it up with a robust industrial muscle to ensure we capture parts of the growing value chain for our jobs and economic resilience. 
01/24/2023 | Julia Poliscanova, Alina Racu | Transport & Environment


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