WITA’s Friday Focus on Trade – June 30, 2023




WITA Webinar – Critical Minerals: From Whence They Will Come?

On Thursday, June 29 panelists looked at the role of critical minerals in the green energy transition, acceleration of advanced technologies and enhanced defense applications. Discussants provided a multinational perspective on the scramble to pivot away from dependencies on insecure sources and the defense against potential supply disruptions. 
Featured Speakers:
Lachlan Carey, Manager, Rocky Mountain Institute
Andrew Jory, Minister-Counsellor (Trade), Embassy of Australia
Helaina Matza, Deputy Special Coordinator for the Partnership on Global Infrastructure Investment, U.S. Department of State
David Schwietert, Chief Policy Officer, Alliance for Automotive Innovation
Moderator: Adina Renee Adler, Deputy Executive Director, Silverado Policy Accelerator
06/29/2023 | Washington International Trade Association | Trade & Environment Series Sponsored by Silverado Policy Accelerator

The Power of Control: How the EU Can Shape the New Era of Strategic Export Restrictions

In January 2023, the United States and two of its closest allies, the Netherlands and Japan, concluded a ground-breaking agreement – but took pains not to draw attention to it, or even to call it an agreement. They held no press conference and released no joint statement. Yet the subject of their deal goes to the heart of the growing strategic competition between the US and China. And it encapsulates some of the critical challenges facing the European Union at the intersection of international security, the world economy, the technological revolution, and strategic competition.
The agreed non-agreement between the three states pertains to some of the most complex machinery and most miniscule components humankind has ever produced. With their accord, the countries effectively restricted the export to China of the most advanced microchips and the tools to produce them. These items have become a focal point in international power politics because of their use in developing artificial intelligence and their centrality to many of the 21st century’s most important technologies.
As news on the matter emerged, the Dutch prime minister confined his remarks to saying: “Those talks have been going on for a long time and we’re not saying anything about it.” The reason for reticence was clear; in response to their decision, China threatened retaliation against the Netherlands and Japan.
The move followed on from measures unilaterally implemented by the US in October 2022 to restrict the trade of advanced semiconductor technologies with China for reasons of international security. And it now appears that the Dutch national measures could soon be followed by a decision by the German government to restrict the export to China of chemicals needed for chip production.
As these sorts of incidents mount amid the escalating US-China strategic technology competition, the EU and its member states will find themselves increasingly caught in the crossfire. Washington will maintain pressure on its allies to align with its China policy. China’s military build-up will continue to change the balance of power. And Beijing’s willingness and ability to weaponise trade will likely continue to grow – it will no longer be possible for the EU to keep its pursuit of free trade separate from these powerful currents. If a rules-based order is to remain, the rules will need to change to take account of the ways in which economic security forms part of this wider competition.
To steer a course according to its own interests in this new era of strategic trade controls, the EU must urgently develop its own strategy and upgrade its tools to deliver on it. If it is to promote and defend its own sovereignty, it must start to draw its own red lines in technology engagement with China and upgrade its export control policy.
05/17/2023 | Tobias Gehrke & Julian Ringhof | European Council on Foreign Relations

The Biden Administration’s New Vision for Global Trade and Investment

In two landmark speeches in recent weeks, Treasury Secretary Janet Yellen and National Security Advisor Jake Sullivan articulated the core principles of a new international economic order centered on industrial policy. In this vision, the U.S. government will take an active role in reshaping supply chains to ensure its national security, fight climate change, and reduce inequality. Contrary to common conception, Yellen and Sullivan argued, pursuing industrial policy at home is compatible with an open, fair, and cooperative global economic order.
The two speeches declared the intent of President Joe Biden’s administration to revise the rules and practices that drive global trade and investment. However, a number of questions surround the strategy and vision that Yellen and Sullivan tabled….
The basic structure of international economic order has been in disrepair since former president Donald Trump’s administration, which neglected the order’s core institutions and challenged its principles. Biden’s administration has taken up a leadership role, but the Inflation Reduction Act (IRA) and other policy initiatives that disregard the World Trade Organization have challenged the trading order anew. The IRA led allies and competitors alike to question whether Washington was turning inward and was only out to bolster its own economy.
The two speeches contested this, arguing that industrial policy at home is compatible with internationalism abroad. If all states engage in smart, fair industrial policy, then active government support for clean energy deployment can create a positive-sum global dynamic. The key premise of the argument is Yellen’s “modern supply-side economics,” in which the government makes strategic investments to expand potential economic output. If productivity increases, then the economic pie increases too—eliminating the need for zero-sum competition.
In addition, the world requires so much investment and innovation to build the global net-zero economy that there is room for everyone in global value chains for clean energy technologies for batteries—whether that’s designing batteries, mining minerals, or assembly the batteries in automobiles. As Sullivan put it, “We’re nowhere near the global saturation point of investments needed, public or private.” But the key is to ensure that everyone engages in smart, fair industrial policy.
Finally, policymakers’ nationalist intentions notwithstanding, firms tend to create what Jonas Nahm, my colleague at Johns Hopkins University, calls collaborative supply chains, in which different countries find niches in complex global production networks. These chains distribute economic value-added across the globe, giving multiple countries an opportunity to benefit.
05/22/2023 | Bentley Allan | Carnegie Endowment for International Peace

Discarding a Utopian Vision for a World Divided:
The Effect of Geopolitical Rivalry on the World Trading System

Excerpts from paper delivered by Alan Wm. Wolff at the symposium “The Demise of the Global Market Economy and the Rise of a Two-sphere World” cohosted by King’s College, London, and the London School of Economics.
The greater danger for the world trading system is not that it is at present being divided into two camps, one led by the United States and the other by China, but that the two largest trading countries, by their lack of adherence to and support for the multilateral trading system, may seriously damage it. Both rivals act outside the existing trade rules, creating negative examples that are not lost on other WTO members who may also choose to act outside of the system’s rules.
The relationship between the United States and China is destined to be increasingly fractious. The two countries occupy geopolitical tectonic plates, the movement of one unavoidably generating friction with the other. It is an open question as to how much the world economy, where the market has largely determined trade flows to date, will be reshaped to reflect geopolitical forces.
…The general trade policies of the two rivals will also shape trade flows. China is aggressively moving to lower barriers to its trade with others, first through RCEP and then applying to join CPTPP. The United States has moved in the opposite direction, failing to deepen economic relationships with even its avowed friends. In fact, through its recent trade measures it has tended to alienate these trading partners.
Other factors, not traditionally the subject of trade agreements, will contribute to fragmenting the trading world. The contest over global standards has yet to play out – setting standards regarding 5G telecommunications, internet protocols, privacy, AI, electric vehicles and other products at the frontiers of technology may divide markets. Potential effects on trade can be expected as a result of the debt owed to China by the beneficiaries of the Belt and Road Initiative (BRI) and China’s other development programs. For example, the need to repay debt has enabled privileged Chinese access to raw materials, a phenomenon just beginning to be witnessed. The exponential growth of Chinese overseas investment, which will affect trade, is likewise at an early stage. Another factor is the RMB perhaps taking on a more central role as a global currency. All of these economic and financial variables may play a part in shaping world trade. 
…The game changers for the global trading system consist of the adoption by the United States and China, for domestic reasons, of economic nationalism as a controlling factor in formulating their foreign economic policies. In the US the Trump Administration embraced economic nationalism primarily with rhetoric. The Biden Administration made the rhetoric reality in its major economic legislative initiatives. For China, nationalist policies were evident in its statements about achieving dominance in key industries of the future and the episodic deployment of trade measures for purposes of coercion. China’s domestic concerns for regime stability and its contest with the United States led it to support Russia during its invasion of Ukraine. Its priorities blinded it to the inevitable Western reaction. Neither nation has room in its current world view for actively supporting multilateralism.
Most other countries continue to steer an uncertain, non-aligned course, which may increasingly be governed by ad hoc determinations of self-interest. The world’s largest trading bloc, the European Union, has called for a policy of “strategic autonomy”. Whatever this turns out to be, it is not a vote to join Beijing or Washington in a trading bloc, nor is it a declaration in favor of the multilateral trading system. As for some of the others, one would not expect to hear from India nor South Africa that adherence to the existing multilateral trading system is a national priority. Neither are there any indications whatsoever of any country, including these two, aspiring to join a trade bloc.
The bottom line: world trade is not at present coalescing into two trading blocs, but the center, the multilateral trading system, is under stress. The question increasingly asked in academic symposia is whether it will hold.
06/16/2023 | Alan Wm. Wolff | Peterson Institute for International Economics

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