U.S. trade policy—and with it the rules and institutions that constitute global economic architecture—has rarely been static. But over the past five years, beginning with the passage of the U.S.-Mexico-Canada-Agreement (USMCA) and continuing with the Biden administration’s innovative trade initiatives currently being negotiated with partners in Europe, Asia, and the Americas, the future of U.S. trade has never been more open-ended.

 

Climate, once largely absent from global trade rules and agreements, has vaulted to the forefront of U.S. trade priorities. By contrast, market access, long considered the fulcrum of trade deals, is absent from the Biden administration’s signature trade initiatives in the Asia-Pacific and is being deployed selectively in a sectoral arrangement with the European Union involving steel and aluminum. These new policy directions are occurring against several major shifts in domestic economic policy and global economic governance: 1) a pivot toward industrial policy in the United States driven by three major pieces of legislation—the Inflation Reduction Act, the CHIPS and Science Act, and the Infrastructure Investment and Jobs Act (IIJA); 2) a dramatic turnabout in global attitudes toward supply chain management and the balance between efficiency, resilience, and security in cross-border trade; and 3) the obsolescence of the World Trade Organization (WTO) as a forum for resolving trade disputes.

 

…Over the past two years, the Biden administration has pursued a number of innovative trade initiatives that in different ways aim to redefine the scope and purpose of U.S. trade relations. These initiatives differ both in structure from traditional free trade agreements (FTAs) and also in their substance, most notably in the emphasis they place on climate aims and worker empowerment over tariff reductions.

 

The United States’ decision not to join the Trans-Pacific Partnership (TPP) it negotiated—now the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)—highlighted the skepticism among policymakers and the American public of traditional trade agreements. This does not mean that the United States should or will step back from multilateral engagement and even direct trade negotiations that could lead to enhanced access to the U.S. market, but it has forced a reimagining of what economic engagement looks like…

03/14/2023 | Trevor Sutton & Mike Williams | Center for American Progress

 

Who runs U.S. trade policy? For many decades, the answer was clear: the U.S. Trade Representative’s Office (USTR), an elite team of trade lawyers that has negotiated every big deal from the North American Free Trade Agreement (NAFTA) to the World Trade Organization (WTO) and been responsible for enforcing their terms. But under the Biden administration, the center of power has moved one mile southeast in Washington—from the USTR, headed by Katherine Tai, to the Commerce Department under Gina Raimondo.

 

The shift has significant implications for Washington’s trading partners. USTR’s mission has long been economic liberalization: constructing and maintaining a set of global rules that minimize constraints on trade and investment. The business of the Commerce Department, however, is the defense and promotion of U.S. companies and the protection of U.S. technologies. The rising power of the Commerce Department is entrenching a fundamental shift in the direction of U.S. trade policy, which has been moving away from nurturing the rules-based trading order and toward building U.S. competitive advantage, especially in the growing rivalry with China.

 

…It is not clear that the Biden administration deliberately set out to sideline USTR, but it has defined its trade policy goals in a way that does exactly that. The White House describes its approach to China, the primary trade and security challenge for the United States, as “invest, align, compete.” In two of those three aspects, USTR is irrelevant. On investment, the Commerce Department controls many of the subsidies the administration is using to bolster U.S. manufacturing; other measures, such as tax credits for clean energy under the Inflation Reduction Act (IRA), are administered by the Treasury Department. On competition, the Commerce Department is the primary agency with power to restrict exports of U.S. technologies to rivals. The department also has an array of weapons to protect U.S. companies against unfair trade, such as by slapping tariffs on imported goods.

 

USTR still has a role to play in the “align” portion of the administration’s strategy. Trade officials are spending considerable time trying to assuage trading partners such as the European Union and South Korea, who fear their companies will be harmed by IRA’s enormous clean energy subsidies. While USTR has never been shy about promoting U.S. corporate interests, that has always been tempered by its goal of maintaining strong international support for the system of trade rules built under U.S. leadership. Complaints from trading partners have been taken seriously and mediated through negotiations or formal dispute settlement. On clean energy subsidies, however, USTR officials can soothe allies all they want, but they have no authority; the Treasury Department is writing the rules for implementation of the IRA.

 

…All of this might seem to be inconsequential bureaucratic reshuffling—except that such shifts in institutional power tend to have lasting consequences. Empowered agencies attract ambitious bureaucrats, who look for ways to further extend their mission. USTR, filled as it was with sharp lawyers and negotiators whose job was to bring home deals, continued to negotiate new trade agreements long after public support waned. The denouement was the decade spent by USTR negotiating the ambitious Trans-Pacific Partnership agreement with Japan and 10 other countries on both sides of the Pacific Ocean, only to have the deal stall in Congress and be torn up by Trump on his third day in office.

 

The Commerce Department today is building an ever more powerful capacity to dole out subsidies—with the explicit goal, as Raimondo puts it, to help “invent the technologies of the future in America … and manufacture them here too.” The department also continues to ramp up its capacity to impose export controls and other sanctions to prevent the loss of technologies to China and other competitors abroad, part of the administration’s strategy to “maintain as large a lead as possible” in critical technologies. Last month, the commerce and justice departments announced the launch of a Disruptive Technology Task Force, responsible for “protect[ing] critical technological assets from being acquired or used by nation-state adversaries.” The new group will include officials from the FBI and the Department of Homeland Security—but not USTR. In this task force, it seems, specialists wedded to the idea of facilitating trade would only get in the way.

 

All of this suggests that the U.S. shift to a more nationalist trade policy, driven by domestic industrial interests and national security concerns, will be durable. The United States is building the political and administrative infrastructure for a generations-long effort to consolidate competitive advantage—much like the U.S. government, led by USTR, spent decades building the rules-based trading system. In trade, it is a new world. U.S. trading partners will have little choice but to learn to live in it.

03/07/2023 | Edward Alden | Foreign Policy

 

Free trade has never looked so sickly. Geopolitical tensions, including the US-China trade war and Russia’s invasion of Ukraine, have infected global trade relations. Coupled with the lingering disruption of Brexit and Covid-19, these rows threaten to severely disrupt global supply chains.

 

The cure? Well, recognising that trade and geopolitics are inextricably linked, the Biden administration has created a new policy to treat the supply chain risk. The diktat, which it has named friendshoring, involves only trading with trusted allies.

 

But the strategy raises several concerns. Firstly, how does the US propose to differentiate a ‘friendly country’ from an ‘unfriendly’ one? In addition to its traditional allies, the Biden administration has identified Brazil, India, South Korea, Japan, Indonesia, Vietnam, and Malaysia as trustworthy nations.

 

But there are grey areas. Hungary, for example, is part of the EU, which is regarded as a friendly trading bloc in the US administration’s eyes. Yet US think-tank Freedom House only classes Hungary as being “partly free”, given Viktor Orban and his government’s frequent attacks on democracy, the rule of law, press freedoms and LGBTQ+ rights. What does it mean, then, for the US to indirectly call Hungary a ‘trusted ally’, then?

 

Even if the US can fine-tune who it considers a trusted ally, and if its companies embrace the concept of friendshoring, can the emerging industrial powerhouses on the US list prove to be a viable substitute for Chinese manufacturing bases?

 

Jose Arturo Garza-Reyes, professor of operations management at the University of Derby, says that the aforementioned countries “are rapidly becoming part of the top 15 most competitive nations for labour-intensive commodity products”. In the short- to medium-term, he believes that “supply chain agreements formed with China can be replaced with agreements with these countries”.

 

But in the long term he worries that friendshoring could create a world divided between free-market democracies and authoritarian regimes. Garza-Reyes is particularly concerned that friendshoring could take the world back to similar trading characteristics last seen during the Cold War, creating ‘trade blocs’ where some countries are aligned to autocratic states such as China and Russia, and others to Western nations.

 

“This could exacerbate the already high friction between these blocs,” he says, “making the friendshoring policy a dangerous one. From an operational point of view, this would limit the partnerships and relationships that companies can develop, preventing them from being able to procure the best products, services and raw materials at the lowest cost. Once again, from an operational perspective, this makes friendshoring an undesired, but currently politically necessary policy.”

03/30/2023 | James Gordon | Raconteur

 

China’s semiconductor industry is facing renewed pressure from the United States and its allies after Japan announced on May 23 that it would impose export restrictions on 23 types of chipmaking technology, including advanced semiconductor manufacturing equipment. The measure will come into effect in July.

 

The move comes after the US and the Netherlands introduced similar measures in recent months as Washington and its allies try to limit China’s access to advanced semiconductor chips and equipment. Last October, the US government introduced a series of export controls on advanced semiconductor chips. Since then, Washington has been lobbying the Netherlands and Japan to join its efforts to limit the development of China’s semiconductor sector.

 

How did China react to the move?

 

In a statement, a spokesperson for the Chinese Commerce Department said Beijing “strongly opposed” Tokyo’s decision to impose export control on items related to advanced semiconductor manufacturing, saying the move goes against free trade and international trade regulations and it’s an abuse of export control measures.

 

Some Chinese semiconductor industry executives have expressed concern over the potential impact of Japan’s measures and experts said they will “stifle” China’s attempt to develop new processes to manufacture advanced semiconductor chips in the future. “The development of China’s semiconductor industry will likely be limited to the 14 nanometers (nm) process, and it will be more difficult for China to move beyond this standard in the future as they won’t be able to get advanced equipment from Japan, the US or the Netherlands,” Pei-Chen Liu, an expert on the semiconductor industry in Asia Pacific at the Taiwan Institute of Economic Research, told DW.

 

…While the Chinese government said Japan’s export control measures will undermine the interests of Chinese and Japanese companies as well as disrupt the global semiconductor industry, some US semiconductor companies, and foreign governments, have also warned about the potential impact of the coordinated export control measures.

 

Jensen Huang, the chief executive of American chipmaker Nvidia, told the Financial Times that the US seriously risks damaging its tech industry if it keeps imposing restrictions on trade with China. “If [China] can’t buy from… the United States, they’ll just build it themselves. So the US has to be careful. China is a very important market for the technology industry,” he said in an interview published last week.

05/29/2023 | William Yang | Deutsche Welle