WITA’s Friday Focus on Trade – June 16, 2023




Ambassador Katherine Tai’s Remarks at the National Press Club on Supply Chain Resilience

Our world is different now. 
A war in Europe, with drastic economic consequences. A worsening climate crisis. A digital transformation that continues to accelerate and transform our world, creating economic opportunities, powerful industry giants, as well as threats and harms to democracy and humanity all at the same time.
And of course, fragile supply chains and an unsustainable version of globalization demanding reform and improvements. It is abundantly clear that these challenges have implications for competition policy, as well as trade policy. So, all of us working in these spaces must row in the same direction. In fact, we already are doing so—and I am delighted to be here with all of you today to begin connecting these conversations.
After the pain and fear of the supply chain disruptions we all experienced during the pandemic—including the panicked race to secure masks, hand sanitizer, ventilators, and semiconductors—Barry’s insight is no longer theoretical. 
Today, labor leaders, CEOs, foreign leaders, and the President’s National Security Advisor all agree: our global supply chains, which have been created to maximize short-term efficiency and minimize costs, need to be redesigned for resilience. 
Because resilient supply chains are vital for greater national and economic security.
By this, we mean production that can more easily and quickly adapt to and recover from crises and disruptions. It means having more options that run through different regions.
But getting there requires a fundamental shift. A shift in the way we incentivize decisions about what, where, and how we produce goods and supply services.
That shift, in trade as in antitrust, moves away from a narrow focus on benefits for consumers. Our trade policy places workers at its center to reflect the reality that the consumer who enjoys the low prices of imported goods is also a worker who must withstand the downward pressures that come from competing with workers in other parts of the world toiling under exploitative conditions.
Similarly, prioritizing and pursuing the consumer welfare standard in competition policy has led to consolidation and unchecked dominance in our domestic market, which has stifled competition and diminished economic liberty for our citizens and workers. 
President Biden recognized this when he issued an executive order on promoting competition policy in the American economy, just six months into the Administration, in which he said: 
“[T]he United States faces new challenges to its economic standing in the world, including unfair competitive pressures from foreign monopolies and firms that are state-owned or state-sponsored, or whose market power is directly supported by foreign governments. We must act now to reverse these dangerous trends, which constrain the growth and dynamism of our economy, impair the creation of high-quality jobs, and threaten America’s economic standing in the world.”
In trade, as Jake said so aptly in his speech last month, the pursuit of efficiency and low costs above all else has led to vulnerable and high-risk supply chains. 
Let me take a moment to explain how designing a system around efficiency and low costs got us here.
Trusting markets to allocate capital efficiently, we designed trade rules to liberalize as much as possible, under the theory that we were facilitating the creation of a free global marketplace. We thought a rising tide would lift all boats, believing that this approach could lead to a gradual improvement in labor standards and environmental protection as countries grew wealthier from increased trade flows.
We did not include guardrails to ensure that it would be the case. The system itself, then, created an incentive for countries to compete by maintaining lower standards, or by lowering their standards even further, as companies sought to minimize costs in pursuit of maximizing efficiency. This is the race to the bottom, where exploitation is rewarded and high standards are abandoned in order to compete and survive.
When efficiency and low cost are the only motivators, production moves outside our borders. It becomes increasingly consolidated in one economy—such as the PRC—which manipulates cost structures, controls key industries, and became a dominant supplier for many important goods and technologies.
06/15/2023 | Ambassador Katherine Tai | Office of the United States Trade Representative

Excerpts from Peter Harrell’s Remarks at Georgetown University’s 44th Annual International Trade Update

Excerpts of remarks given by Peter Harrell, former Senior Director for International Economics and Competitiveness at the White House National Security Council
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.  
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.  
…. 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.
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 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.
06/13/2023 | Peter E. Harrell | Georgetown University Law School

Breaking Up Is Hard to Do

The Biden administration is on a campaign to fundamentally alter the supply chains that feed America’s vast appetite for foreign-made goods. This effort is driven in part by the public’s demand for protection against the sorts of shortages that made everything from butter to SUVs scarce during the Covid-19 pandemic. Real enthusiasm for reordering supply chains, however, is stoked by perceived military and economic threats to the U.S. from a more assertive China.
On her first visit to India last November, Treasury Secretary Yellen called for “like-minded countries” to work together to reduce the world’s dependence on “risky countries,” taking clear aim at China. Such statements play well on Capitol Hill, where members of Congress outcompete each other to show who is most disgusted by China. But they pose problems for many of America’s trade partners who do not share America’s desires to decouple.
The Biden administration inherited Trump-era policies intended to force China to clean up its predatory treatment of American intellectual property — patents, trade secrets and the like. The tariffs, which remain on two thirds of U.S. imports from China, were justified by the Trump administration not only by claims that American companies were forced to share technology as a condition of doing business there, but also as a means of reducing U.S. dependence on China for natural resources and some industrial products, and as payback for past unfair trade practices.
America’s list of China’s economic threats is long, but concern that it will dominate future “chokepoints” — supply nodes that can be used to restrict access to critical materials — drives current policy. And recent Chinese actions have only reinforced fears of economic coercion. Over the past few years, China has used its economic leverage to retaliate against perceived slights from more than a dozen countries, slapping on tariffs and negating long-standing trade relations. Last October, the Biden administration deployed chokepoints of its own to forestall Chinese hightech development, banning exports of advanced semiconductors and the equipment needed to make them.
Although it features prominently in the press, America’s “tech war” with China is only part of the wider effort to reshape U.S.-Sino trade relations. The White House is determined to reduce future dependence on China through “reshoring” and “friend-shoring” of the activities that supply American markets. The goal of moving supply chains away from China now guides U.S. trade and investment policies, its economic relationships with allies, and its refusal to restore the World Trade Organization’s authority to act as an effective arbiter of trade disputes.
04/21/2023 | Mary Lovely | Milken Institute Review

The Critical Minerals Club

On June 29, WITA will hold an event to discuss critical minerals supply chains. Information can be found below, or here.
U.S. lawmakers are scrambling to weaken China’s grip on the critical mineral supply chains that are key to the global energy transition, as escalating tensions stoke fears of strategic vulnerabilities and potential geopolitical disruptions.
While decades of investments have allowed Beijing to dominate the processing and refining of key critical minerals, worsening U.S.-China relations have sparked a new push to redraw the map. Desperate to disentangle from China, Washington has been joining forces with allies to secure new supplies, part of a broader realignment as countries increasingly forge new trade ties alongside geopolitical lines, rather than the bottom line.
“The globalization 1.0 of the last 50 years was about finding economic value through distributed production and sourcing at best cost from overseas,” said Kevin Book, the managing director of ClearView Energy Partners, a consultancy. “The 2.0 version is about values-driven economics, and that is a very big change, one that we cannot underscore enough—but it’s also a change that’s slow to happen.”
This shift is apparent in the rush for critical minerals, which are essential to the lithium-ion batteries that power electric vehicles (EVs) and other green technology. Global demand is primed to explode: By 2050, clean energy technology could require billions of tons of these minerals as inputs, according to the World Bank. Other critical minerals include cobalt, used in jet engines, and the rare earth elements that are used in everything from wind turbines to missile guidance systems. China overwhelmingly commands these minerals’ processing and refining markets and controls some 77 percent of the world’s EV battery manufacturing capacity.
To reduce its reliance on Beijing in the coming decades, Washington is focusing on aligning with allies, including through the Mineral Security Partnership (MSP), an initiative that is designed to bolster supply chain security with Australia, Canada, the United Kingdom, France, Germany, Japan, South Korea, and other members. Outside of the MSP, the Biden administration is also pursuing new trade deals and is reportedly in discussions with the European Union for a new critical minerals club.
“This is a major move away from a fundamental faith in the ability of market mechanisms to adequately supply the raw materials and the manufactured goods that are necessary for energy transitions,” said Cullen Hendrix, a senior fellow at the Peterson Institute for International Economics. “This is obviously a much more interventionist kind of stance than had been pursued in the past.”
04/14/2023 | Christina Lu | Foreign Policy


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