WITA’s Friday Focus on Trade – December 1, 2023




Event Video – Where Next for the Indo-Pacific Economic Framework

On Thursday, November 30, WITA hosted a webinar to discuss the Indo-Pacific Economic Framework (IPEF). Discussants looked at what was accomplished on IPEF at the APEC Summit in San Francisco, what has yet to be achieved, and where IPEF may be heading from there.
This event was held in partnership with the Asia Society Policy Institute.
Featured Speakers:
Wendy Cutler, Vice President, Asia Society Policy Institute (ASPI), and Managing Director of the Washington, D.C. office; former Acting Deputy United States Trade Representative
Eric Gottwald, Policy Specialist, Trade and Economic Globalization, American Federation of Labor and Congress of Industrial Organizations (AFL-CIO)
Yeo Han-koo, Senior Fellow, Peterson Institute of International Economics; former Trade Minister of the Republic of Korea
Marc Mealy, Senior Vice President-Policy, US-ASEAN Business Council
Moderator: Paul H. DeLaney, III, Partner, Kyle House Group
11/30/2023 | Washington International Trade Association

De-globalization, International Trade Protectionism, and the Reconfigurations of Global Value Chains

Following is an excerpt from ”De-globalization, International Trade Protectionism, and the Reconfigurations of Global Value Chains” published by the Management International Review.
There has been an increasing interest in understanding the impact of international trade protectionism on the global organization and adaptive reconfigurations of value chain activities. The move towards protectionism started in the wake of the 2008 financial crisis, with many economically developed governments enacting populist policies and measures encouraging the local sourcing of supplies in order to protect their local industries and jobs. Such policy interventions have attracted significant interest, which was stimulated by the attempt made by the 45th President of the United States, Donald Trump, to surrender the US’s global leadership and replace it with a more inward-looking and fortress-like mentality, which led to the US-China trade war.
This significant shift of globalization toward international trade protectionism emphasizes the implicit assumption – made by the international business (IB) literature over the past decades – that globalization is ongoing and accelerating. Under this assumption, the dominant IB studies have examined the causes of globalization and its effects on the activities of multinational enterprises (MNEs). In contrast, relatively limited studies have paid attention to the reverse processes – i.e., ‘de-globalization’ or ‘anti-globalization’ related protectionism measures – and their implications for the reconfiguration of [Global Value Chains] GVCs. As some estimates suggest that around 80% of global trade is undertaken through GVCs, and in such a context protectionism measures and trade wars between the USA and China can have significant consequences for the GVCs. Rising protectionism also reflects the slowing down of globalization, suggesting far reaching implications for firms…
…De-globalization – i.e., the process of weakening interdependency between countries – has been ongoing for several years. The process is being underpinned by trade protectionism; government-level initiatives aimed at protecting domestic markets by imposing import tariffs, the strict enforcement of product standards, and policy regimes. The proponents of de-globalization argue that trade protectionism safeguards the sovereignty of countries. For example, some countries place restrictions on the foreign ownership of their airlines to protect their national and cultural integrity. However, several scholars have voiced their concerns that trade protectionism can affect MNEs by increasing the costs of GVCs and those linked to the exchange of tacit knowledge.
With trade protectionism measures, a government can restrict the exchange of products, which leads to a decrease in the financial returns on foreign direct investment (FDI) because of disruption in GVCs. Protectionism can offset any gains linked to cross-border sourcing and encourage firms to source locally, consequently fostering de-globalization.
This state of affairs was also acknowledged by The Economist in its January 2017 cover story, which averred that global companies are “in retreat” during the “era of protectionism” and “the advantages of scale and … arbitrage have worn away.” In addition, the CEOs of world-leading firms have expressed their views on the globally changing business landscape and its implications for GVCs. For example, Jef Immelt, CEO of General Electric (GE), said that “In the face of a protectionist global environment, companies must navigate the world on their own. We must level the playing field, without government engagement. This requires dramatic transformation. Going forward: We will localize”; this was further reinforced by Joe Kaeser, CEO of Siemens, who stated that “localization will matter more”. However, there is a lack of evidence in support of the argument that trade protectionism has changed the international business landscape by disrupting GVCs. Our study, therefore, was aimed at understanding the extent to which GVCs are being disrupted by the introduction of trade protectionism measures by governments.

11/24/2023 | Nadia Zahoor, Jie Wu, Huda Khan & Zaheer Khan | Management International Review

See the Big Picture: 2024 Supply Chain Outlook

Following is an excerpt from ”See the Big Picture 2024 Supply Chain Outlook: Delivering resilience in adversity” published by S&P Market Intelligence.
Global supply chains largely normalized in 2023 after years of disruption, and the need for resilience is clear. The willingness of corporations to build that resiliency is not.
Falling operating margins and higher interest rates may be leading companies to cut their inventory balances and reverse recent supplier diversification increases.
There is no shortage of technology available to enable supply chain resilience, with generative AI as the latest example. Most companies need to see short-term returns on investment, and recent experiences with blockchain, for instance, are leaving some hesitant.
Organizational alignments are necessary to ensure continuing supply chain resilience. Tools for success include increased engagement with labor unions, geographic diversification with an eye to mitigating operational risk, closer tracking of environment profiles, reshoring and enhanced supplier engagement to manage tariff and geopolitical risk…
… Building a robust supply chain is a long-term process, whether through adapting inventory policy and adopting new technologies or fundamentally retooling sourcing via supplier choice or international diversification.
In the case of reshoring, it may take three to five years to fully implement any changes from inception to completion. The baseline assumptions behind such decisions are often based on operational disruptions, labor relations, government policies and geopolitical events that can change and revert again in a period of months.
2024 looks no different in that regard, with world events requiring companies to build organizational agility even as they develop longer-term resilience plans. After a period of relative calm for labor relations during the pandemic, elevated inflation in 2022 and 2023 has led to increased pay demands from unions, leading to an increase in strike actions. That generates short-term disruptions and can increase long-term costs.

11/15/2023 | Chris Rogers, Mark Fontecchio, Amy Chang & Emilee Nason | S&P Global Market Intelligence

Fast Fashion, Global Trade, and Sustainable Abundance

Plentiful cheap clothes are a triumph of innovation and markets. Most of human history has been characterized by privation and low‐​productivity toil. As one American sharecropper exclaimed in John Steinbeck’s Depression‐​era novel The Grapes of Wrath, “We got no clothes, torn an’ ragged. If all the neighbors weren’t the same, we’d be ashamed to go to meeting.”
Today, things are different. People in wealthy countries can order a new outfit for less than a day’s wages. We enjoy new styles and trends that were once reserved for the ultra‐​rich. Even our poorest are rarely lacking sufficient clothes and shoes.
Much of this abundance is owed to globalization. Clothing is so plentiful that unwanted new garments are piling up on the beaches of Ghana. African consumers can no longer absorb the quantities shipped to them by rich ones, so they choose the styles they love and discard the rest.
There are, however, critics of these trends, especially the recent phenomenon labeled “fast fashion,” the rapid production of inexpensive, trendy clothing that is quickly made available to consumers, often resulting in short product life cycles. The United Nations Economic Commission for Europe called the fashion industry an “environmental and social emergency” because clothing production has roughly doubled since the year 2000. Their main concerns are fast fashion’s environmental impact and working conditions.
Is apparel a menace? In short, no. Globalization of the clothing industry has been good for the United States and the world.
11/28/2023 | Joy Buchanan | CATO Institute

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