WITA’s Friday Focus on Trade – May 12, 2023




The National Security Advisor’s Disquieting Global-Economy Speech: Some Worried Reactions by a Friend

Excerpts from Ed Gresser’s response to National Security Advisor Jake Sullivan’s Remarks. Excerpts from Mr. Sullivan’s remarks follow, below.
National Security Advisor Jake Sullivan’s April 27 speech at the Brookings Institution, explaining the Biden administration’s global-economy policies, is an odd piece at an important time. Mr. Sullivan covers a lot of ground in a lengthy (4,981-word) speech: “industrial strategy” and subsidies; trade and tariffs; the U.S. relationship with China; brief excursions into finance, aid, and infrastructure, and so on. Parts of it work well, in particular his passage on China policy. Some other parts less so. That on trade especially is a sort of study in breezy mis-summarization of history, muddy elucidation of current choices, and unclear future direction.
Most important, when taken as a whole and given its timing just as the 2024 presidential campaign begins, the speech seems to be politically out of tune and picking the wrong targets. It is vigorous if defensive in rebuking the Biden administration’s liberal-internationalist friends for their worries that it may be overreaching in industrial strategy and under-reaching in trade policy. It is premature at best in positing that the administration’s global-economy agenda has achieved consensus status as the “project of the 2020s and 2030s,” and does not recognize — despite warnings from allies as important and close to the subject as Japan — the strength of the Chinese counter-“project.” And while spending lots of time in an argument with the 1990s, it elides not only the recent Trump administration record but the domestic political challenge from the administration’s Trumpist/isolationist enemies — which, in a few months, will seek to end the Biden administration, and with it not only Sullivan’s version of international economics but the 80-year liberal-internationalist legacy the speech rightly praises…
“The main international economic project of the 1990s was reducing tariffs.”
As history, “reducing tariffs” might, with some distortion and oversimplification, describe the main trade policy goals (though not the “main international economic project”) of the Roosevelt and Truman administrations in the 1930s and 1940s, or of the Kennedy and Johnson progressivepolicy.org administrations in the 1960s. For the 1990s, it doesn’t work even for trade policy alone. And if the administration feels it must start an argument over policies thirty years in the past, and contrast its own approach with them, it should understand those policies and describe them accurately.
“Trade policy” was obviously an important focus of the 1990s, but far from the decade’s only international economic policy focus. (To wit: the Treasury Department’s organization of international responses to the Mexican peso crisis and the Asian financial crisis and macroeconomic talks on current account balances with Japan; the Labor Department’s negotiation of ILO Convention 182 on the abolition of the worst forms of child labor; Vice President Al Gore’s work to create the OECD Convention on Bribery and Corruption, etc.) Andwithin trade policy specifically, tariffs were often important, but only as elements in larger goals related to the era’s major challenges. These might be divided into five areas:
1. Creating stronger multilateral rules and institutions. This included lowering barriers for U.S. exporters but also (for example) developing a worldwide system for protecting U.S. intellectual property through the WTO’s TRIPs agreement, creating science-based agricultural sanitary and phytosanitary standards through the WTO’s SPS agreement, reducing farm subsidies linked to production levels, developing policy for services trade through the General Agreement on Trade in Services and two multilateral sectoral agreements, and making all of these enforceable through the Dispute Settlement Understanding. Most important in this area, though not the only example, was the creation of the World Trade Organization through the conclusion of the “Uruguay Round” of the GATT in 1994.
2. Deepening and stabilizing core U.S. relationships with America’s neighbors, through NAFTA and the unsuccessful FTAA. With this came similar if less ambitious efforts in other regions, such as the African Growth and Opportunity Act, the Qualifying Industrial Zones project in the Middle East, and the subsequent U.S. free trade agreement with Jordan, followed in the second Bush administration by similar agreements with Arabworld allies Oman, Morocco, and Bahrain. Like the WTO agreements, these reduced tariffs but did much more as FTAs evolved. NAFTA, for example, included chapters dealing with issues ranging from anti-dumping procedures to investment, services, and recognition of nomenclature for whiskey and wine. Later agreements, from the Jordan case to the (post-1990s) agreements with Chile, Bahrain, Morocco, Oman, CAFTA-DR, Oman, Australia, Korea, Panama, Colombia, Peru, and ultimately the Trans-Pacific Partnership, sequentially added issues like telecommunications, labor and environment, electronic commerce, and most recently, the expansion of early e-commerce agreements to cover issues like data flows, and wholly new chapters such as those covering SME trade, state-owned enterprise competition, and more.
3. Integrating the formerly communist countries of Europe and Asia into the global economy, first through aid programs after the revolutions of 1989 and the Soviet breakup in 1991, and then through painstakingly negotiating their entry into Western-designed institutions, in particular the WTO, but also the G-8, the OECD, and others. (A program paralleled by the expansion of relevant regional organizations, including the European Union and ASEAN.) This covered former Warsaw Pact satellites such as Poland
the Czech Republic; Balkan states Albania, Croatia, etc., and the three Baltic countries;newly independent post-Soviet countries such as Ukraine and Georgia; Vietnam, Laos, and Cambodia, and on the largest scale Russia and China -—on one hand in hopes that this would encourage stable growth, rule of law, and western values, and on the other hand on the grounds that attempting to isolate and keep them outside would surely discourage all these things.
4. Responding to the newly invented digital world after the Internet went live in 1989, for example through the WTO’s “duty-free cyberspace” commitment, agreements to develop pro-competitive telecom regulatory systems, ease trade in services, and begin discussions on topics ranging from privacy to cybersecurity.
5. Integrating labor and environmental conditions into trade policy, in parallel with steps like ILO Convention 182 or the Kyoto Protocol on climate change, with a foundation in the 1994 NAFTA side agreements, innovative textile and labor agreements with Cambodia (the foundation of the ILO’s now 12-country Better Work program), launches of labor and environmental discussions in the WTO, and the first inclusion of labor and environmental rules in FTA text in the U.S.-Jordan FTA of 2000.
05/08/2023 | Ed Gresser | Progressive Policy Institute

Remarks by National Security Advisor Jake Sullivan on Renewing American Economic Leadership at the Brookings Institution

Excerpts from National Security Advisor Jake Sullivan’s remarks delivered on April 27 at the Brookings Institution in Washington, DC.
The main international economic project of the 1990s was reducing tariffs. On average, applied U.S. tariff rates were nearly cut in half during the 1990s. Today, in 2023, our trade-weighted average tariff rate is 2.4 percent—which is low historically, and relative to other countries.
Of course, those tariffs aren’t uniform, and there is still work to be done bringing tariff levels down in many other countries. As Ambassador Tai has said, “We have not sworn off market liberalization.” We do intend to pursue modern trade agreements. But to define or measure our entire policy based on tariff reduction misses something important.
Asking what our trade policy is now—narrowly framed as plans to reduce tariffs further—is simply the wrong question. The right question is: how does trade fit into our international economic policy, and what problems is it seeking to solve?
The project of the 2020s and the 2030s is different from the project of the 1990s. 
We know the problems we need to solve today: Creating diversified and resilient supply chains.  Mobilizing public and private investment for a just clean energy transition and sustainable economic growth. Creating good jobs along the way, family-supporting jobs. Ensuring trust, safety, and openness in our digital infrastructure. Stopping a race-to-the-bottom in corporate taxation. Enhancing protections for labor and the environment. Tackling corruption. That is a different set of fundamental priorities than simply bringing down tariffs.
And we have designed the elements of an ambitious regional economic initiative, the Indo-Pacific Economic Framework, to focus on those problems—and solving those problems. We’re negotiating chapters with thirteen Indo-Pacific nations that will hasten the clean-energy transition, implement tax fairness and fight corruption, set high standards for technology, and ensure more resilient supply chains for critical goods and inputs.  
Let me speak a bit more concretely. Had IPEF been in place when COVID wreaked havoc on our supply chains and factories sat idling, we would have been able to react more quickly— companies and governments together— pivoting to new options for sourcing and sharing data in real-time. That’s what a new approach can look like on that issue—as on many others.
Our new Americas Partnership for Economic Prosperity, launched with a number of our key partners here in the Americas, is aimed at the same basic set of objectives.
Meanwhile, through the U.S.-EU Trade and Technology Council, and through our trilateral coordination with Japan and Korea, we are coordinating on our industrial strategies to complement one another, and avert a race-to-the-bottom by all competing for the same targets.
Some have looked at these initiatives and said, “but they aren’t traditional FTAs.” That’s exactly the point. For the problems we are trying to solve today, the traditional model doesn’t cut it. 
The era of after-the-fact policy patches and vague promises of redistribution is over. We need a new approach. 
Simply put: In today’s world, trade policy needs to be about more than tariff reduction, and trade policy needs to be fully integrated into our economic strategy, at home and abroad.
At the same time, the Biden Administration is developing a new global labor strategy that advances workers’ rights through diplomacy, and we will be unveiling this strategy in the weeks ahead.  
It builds on tools like the rapid-response labor mechanism in USMCA that enforces workers’ association and collective-bargaining rights. Just this week, in fact, we resolved our eighth case with an agreement that improved working conditions—a win-win for Mexican workers and American competitiveness.
We’re in the process now of continuing to lead a historic agreement with 136 countries to finally end the race-to-the-bottom on corporate taxes that hurt middle-class and working people. Now Congress needs to follow through with the implementing legislation, and we are working them to do exactly that.
And we’re taking another kind of new approach that we think a critical blueprint for the future—linking trade and climate in a way that has never been done before. The Global Arrangement on Steel and Aluminum that we’re negotiating with the European Union could be the first major trade deal to tackle both emissions intensity and over-capacity. And if we can apply it to steel and aluminum, we can look at how it applies to other sectors as well. We can help create a virtuous cycle and ensure our competitors aren’t gaining an advantage by degrading the planet.
Now, for those who have posed the question, the Biden Administration is still committed to the WTO and the shared values upon which it is based: fair competition, openness, transparency, and the rule of law. But serious challenges, most notably nonmarket economic practices and policies, threaten those core values. So that’s why we’re working with so many other WTO members to reform the multilateral trading system so that it benefits workers, accommodates legitimate national security interests, and confronts pressing issues that aren’t fully embedded in the current WTO framework, like sustainable development and the clean-energy transition.
In sum, in a world being transformed by that clean energy transition, by dynamic emerging economies, by a quest for supply chain resilience—by digitization, by artificial intelligence, and by a revolution in biotechnology—the game is not the same.
Our international economic policy has to adapt to the world as it is, so we can build the world that we want.
04/27/2023 | Jake Sullivan | The White House

Biden’s Latest Climate Minefield: EV Mineral Deals

A Biden administration plan to use mineral trade agreements to boost electric vehicles on U.S. roads is facing widespread pushback from unusual allies: Republicans and environmentalists. They say President Joe Biden’s strategy imperils U.S. jobs and represents a potentially illegal end-run around Congress.
Critics are calling on Biden to halt mineral negotiations with the European Union and other nations while also slamming a recent mineral deal with Japan. The Biden administration insists that its strategy to boost supply chains among allied nations is the most potent counter to Chinese dominance over global minerals.
At issue is whether Biden should prioritize domestic mineral production and ensure producers in the United States — not manufacturers in foreign countries — reap the benefits of a coveted EV tax credit, known as 30D. The credit was included in last year’s Inflation Reduction Act.
Now, the Treasury Department is in the hot seat as it prepares to screen new trade deals and determine whether the pacts allow access to $3,750 in U.S. tax credits for EVs produced with minerals extracted or processed in partner countries. The mineral negotiations represent a marquee example of the threat Biden’s clean energy pursuit poses to other key administration policy priorities, most notably the rapid expansion of domestic manufacturing.
“They have three goals here,” Bill Reinsch, a trade expert at the Center for Strategic and International Studies, said of the Biden administration. “One is to facilitate the transition to green technology. The second one is to enhance domestic manufacturing and jobs. And the third is to do it in a way consistent with trade law and international trade rules. They can’t do all of those at the same time.”
Minerals such as lithium and cobalt are essential for today’s fleet of EVs. And experts agree that mineral production and refinement will likely form the backbone of the clean energy economy in the future and the millions of jobs that come with it. Minerals are also necessary for a long list of medical devices, smartphones and other staple products. Meanwhile, compliance with the U.S. EV credit is based on mineral and manufacturing sourcing mandates designed to counter China by strengthening supply chains in the United States and nations with which the U.S. has trade agreements.
But critics are digging in for a fight. They’re challenging the Treasury Department’s loose interpretation of a “free-trade agreement” in the Inflation Reduction Act’s text. “There’s enough noise to suggest Treasury is going to face some significant challenges in using this broad brush to redefine what trade agreements actually are, from a legal and constitutional standpoint,” Rich Nolan, president of the National Mining Association, a U.S. lobbying group, said in an interview. Nolan said the mining group is “pushing the administration to bring those tax incentives home, so that those materials come from U.S. mines, from mining communities mined by American miners.”
A U.S. Geological Survey study released in January found that the United States is 100 percent import-reliant on 15 critical minerals, including minerals used in EVs like graphite and manganese. The U.S. remains more than 95 percent import-reliant on rare earths and titanium, while American companies import more than a quarter of lithium used in manufacturing, according to the study.
Another recent assessment from Securing America’s Future Energy, which promotes domestic energy production, laid out the Chinese dominance of global minerals in stark terms. “Chinese-owned companies have strategically purchased stakes in major mineral deposits around the world, control anywhere from 60 to 100 percent of processing (depending on the mineral), and produce upwards of 70 to 90 percent of the world’s battery components,” the group said in a March report.
05/09/2023 | Brian Dabbs | E&E News

The Middle Corridor through Central Asia: Trade and Influence Ambitions

The “Middle Corridor”—a loosely defined trade route that spans the Central Asian steppe, the Caspian Sea, and the Caucasus mountains—has both engendered excitement and disappointment for almost two decades. Also known as the China-Central Asia-West Asia Corridor, it links China and the markets of East Asia with Georgia, Turkey, and the markets of Europe. The corridor’s major components include the Trans-Caspian East-West-Middle Corridor Initiative, the Trans-Caspian International Transport Route, and the Trans-Caucasus Trade and Transit Corridor. For its advocates, the Middle Corridor will breathe new life into the ancient Silk Road.
Their excitement over the Middle Corridor lies in its potential to reduce the time needed to ship goods between East Asia and Europe to as few as twelve days. If achieved, it would give the Northern Corridor and seaborne trade via the Indian Ocean—Eurasia’s other two major trade routes—a run for their money. The Northern Corridor, which includes the New Eurasian Land Bridge and the Trans-Siberian Land Bridge through Russia, requires nineteen days to traverse. And the traditional maritime route through the Indian Ocean takes twenty-two to thirty-seven days. A full realization of the Middle Corridor’s potential could transform trade across Eurasia and, perhaps, the centers of power within it. But to fulfill that potential, the countries along the corridor will have to tackle several daunting administrative, infrastructure, and political challenges.
One Steppe at a Time
Disappointingly for its advocates, progress on the Middle Corridor, until recently, has been slow. Since Turkey first conceived of the corridor in the late 2000s, creating the necessary ferry, port, railway, and road infrastructure across Central Asia, the Caspian Sea, and the Caucasus has been a long and complex process. At first, countries along the trade route tried to patch together their existing transportation networks. But that was not enough to make the route competitive. The Middle Corridor’s first big step forward did not come until 2014, when the Trans-Kazakhstan railway opened. The next big step was the completion of the Baku-Tbilisi-Kars railway in 2017, enabling rail passage through the Caucasus mountains for the first time since the 1990s. Even so, it was not until 2020 when the first train using the Middle Corridor trade route arrived in China from Turkey.
Since that time, cargo shipments along the Middle Corridor have risen rapidly, albeit from a very low base. Goods moved along the corridor grew from roughly 350,000 tons to 530,000 tons between 2020 and 2021. But what really boosted the corridor’s use was Russia’s 2022 invasion of Ukraine and the West’s subsequent economic sanctions on Moscow. Though the countries of Central Asia have remained neutral in the conflict, they have seen an advantage in having an alternative to the Russian-dominated Northern Corridor, not to mention better infrastructure to support greater intraregional trade. As a result, cargo shipments along the Middle Corridor swelled to 3.2 million tons in 2022. Some now anticipate that the Middle Corridor’s capacity will climb to 10 million tons, given Turkey’s completion of the Marmaray railway under the Bosporus Strait, enabling rail cargo from Central Asia to travel directly into the heart of Europe. Indeed, European shipping companies have taken notice. Austria’s Rail Cargo Group, Denmark’s Maersk, Finland’s Nurminen Logistics, and the Netherlands’ Rail Bridge Cargo have all begun to use the Middle Corridor.
02/01/2023 | Felix K. Chang | Foreign Policy Research Institute

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