William Krist's Blog, page 18

Strengthening Regional Supply Chain Resiliency Through the Indo-Pacific Economic Framework (IPEF)

In recent years, supply chain disruptions have become commonplace, resulting in governments and businesses rethinking long-held strategies, such as “cost and efficiency,” “just-in-time,” and “offshoring.” Facing shortages of products ranging from personal protective equipment (PPE) to automotive semiconductors, governments have had to mobilize quickly to deal with crises, often cobbling together a series of temporary and ad hoc measures. However, it has become clear that no country can prevent or cope with these disruptions alone. A collective approach, especially among like-minded countries, can greatly enhance supply chain resiliency and security.

The Indo-Pacific Economic Framework (IPEF) is one of the most promising international economic negotiations for addressing supply chain issues. Launched by the Biden administration in May 2022, IPEF is a blueprint for U.S. economic engagement in the region with 14 partners representing 40% of global GDP. Of its four pillars, the Supply Chain Pillar has attracted considerable attention. In many ways, this area is a clean slate, paving the way for creative thinking on rules and cooperation mechanisms to minimize disruptions.

IPEF negotiators are making meaningful on their supply chain work, with early harvest agreements possibly being announced in late May this year, around the time of the APEC Ministers Responsible for Trade (MRT) meeting in Detroit, Michigan. With this in mind, we recommend a series of proposals to strengthen and expand the work of IPEF, both on a sector-wide basis and on critical minerals and materials, which could serve as a pilot for work in other sectors.

We recommend important elements that should be included in an “early warning system” and “crisis response mechanism” to make these tools as robust and impactful as possible. We also suggest that IPEF members agree to World Trade Organization plus rules to deter the imposition of export restrictions and facilitate customs processing and essential cross-border movement of products and people during times of supply chain shortage. Finally, we underscore the benefits of supply chain connectivity and co-investment opportunities that can be generated through work in this pillar, especially for the developing country members of IPEF.

Regarding critical minerals and materials, we offer several recommendations to cooperate on supply chain mapping, as well as streamlining and harmonizing regulations and standards. Furthermore, we suggest developing a “swap system” to be drawn from the financial “currency swap” mechanisms as a collective response that encourages countries to share their stockpiles during times of severe supply crises. Finally, we propose that Washington negotiate critical minerals and materials agreements similar to the one recently signed with Japan to make other IPEF members eligible for electric vehicle tax credits under the Inflation Reduction Act.

Our recommended policy proposals will take time to implement and could be taken up in phases. For 2023, we propose focusing on sector-wide outcomes and starting work on critical minerals and materials, which could continue into 2024. Next year would also be an opportune time to build on the cooperation mechanisms to make them more beneficial and relevant. It may also be worthwhile to consider a market access component to this effort. The IPEF Supply Chain Pillar provides a promising opportunity for the United States and its regional partners to set a new course in reshaping more resilient and secure supply chain networks.

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Han-Koo Yeo is a non-resident Distinguished Fellow at the Asia Society Policy Institute (ASPI). Prior to joining ASPI, he capped off almost three decades of public service as Trade Minister of the Republic of Korea.

Wendy Cutler is Vice President of the Asia Society Policy Institute (ASPI) and Managing Director of the Washington D.C. Office. She joined ASPI after nearly three decades as a negotiator in the Office of the U.S. Trade Representative.

To read the full issue paper, please click here.

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Assessing Different European Carbon Border Adjustment Mechanism Implementations and Their Impact on Trade Partners

Abstract

The European Union (EU) will implement a Carbon Border Adjustment Mechanism (CBAM) to reach its climate mitigation targets while avoiding the relocation of its industries to countries with less stringent climate policies (carbon leakage). The exact implementation and possible future extensions of such an EU CBAM are still being debated. Here we apply a throughflow-based accounting method on detailed trade network data to assess the coverage of different implementation options. Using a stylized comprehensive EU CBAM as benchmark, we then quantify how an EU CBAM may affect the EU’s trade partners by channeling the EU carbon price to other countries. We find that middle- and low-income countries for which the EU is an important export market would be disproportionally impacted even under conservative implementation options. We finally explore different international revenue recycling schemes to make the EU CBAM inclusive toward vulnerable countries and able to foster global climate cooperation.

Introduction

The European Union (EU) aims to reduce net greenhouse gas emissions by at least 55% by 2030, relative to 1990. The reach of this ambitious goal relies largely on the reform and extension of the EU Emissions Trading System (ETS). Under an ETS, a limited volume of emission permits is auctioned or freely allocated to emitters and then traded on a dedicated market. The resulting emission price penalizes carbon-intensive production and incentivizes the adoption of low-carbon technologies. However, higher costs for industries subject to an ETS may lead to a relocation of carbon-intensive industries to countries with less stringent climate policies. In order to minimize such “carbon leakage”, the EU ETS currently entails free allowances: a limited amount of emission permits allocated to sectors particularly exposed to carbon leakage (emission-intensive and trade-exposed sectors—EITE), to avoid competitiveness distortion for EU producers on both the domestic and export markets. However, free allowances are criticized for hindering the EU ETS by reducing the emission reduction ambition in EITE sectors and are incompatible with the EU target of net-zero emissions by 2050.

As part of the “Fit for 55” policy package, the EU will gradually replace the free allowances by a Carbon Border Adjustment Mechanism (CBAM). This CBAM will apply the price prevailing on emission allowances within the EU ETS to emissions released to produce commodities imported to the EU, unless a comparable emission price is already enforced in the exporting country. Export rebates are also currently discussed to refund allowance costs for products exported from the EU. While a CBAM without export rebates would level the playing field within the EU domestic market only, export rebates would ensure that the competitiveness of EU production on the world market can be maintained.

Beyond producers and consumers within the EU, such an EU CBAM will affect other economic actors along international supply chains. Numerical analyses have shown that, even though the EU CBAM could in principle motivate emissions reduction abroad, key EU trade partners could as well retaliate with trade sanctions. Understanding how the EU emission price is channeled to other countries is therefore crucial to increase acceptance of the CBAM by EU trade partners and to avoid repercussions on the global climate cooperation. Previous studies have analyzed the effect of an EU CBAM on the EU’s major trade partners, but little is known about the exposure of middle- and low-income countries as they are usually modeled at a low level of detail. Yet, research at the sub-regional level has shown that the distributional effects of an EU CBAM might exhibit a broad variation depending on local conditions.

We contribute to this literature by developing an analytical framework that allows numerically assessing the emission coverage of different EU CBAM implementations and their effects on the EU’s trade partners with a high spatial resolution. For that purpose, we use a throughflow-based accounting technique that allows us comprehensively tracking the CO2 emissions caused by all the supply chains starting from, going through, and ending in the EU and apply it on highly-detailed economic network data from 2016. This approach enables estimating the pressure that an EU CBAM would impose on individual countries through direct and indirect trade dependencies, before any dynamic trade adjustments. Even though such trade adjustments might be changing the final effect of the CBAM, modelling them usually requires major assumptions on model parameters, a reduction of the regional resolution and a decrease in the tractability of the model. Here, by using simple assumptions, we complement such dynamic approaches by transparently estimating the drivers of these dynamic effects. Furthermore, we provide an assessment of the exposure of middle- and low-income countries to the EU CBAM that is missing in the current literature.

The structure of the paper is as follows. First, we assess the coverage of several implementations of an EU CBAM based on different assumptions of products and scopes coverage. Second, we use a hypothetical Comprehensive CBAM (CCBAM) that covers all emissions generated by producing imports to the EU as a benchmark for evaluating the multilateral effects of the EU CBAM: we explore conceptually through which channels carbon pricing within the EU affects its trade partners and empirically identify the countries that would likely be the most affected by an EU CCBAM. Third, we propose compensating schemes for an international recycling of the revenues of such an EU CCBAM to make it inclusive toward the most vulnerable countries. In the final section, we discuss the limitations of our approach, the robustness of our findings and their implications for policymaking.

Our results show that the coverage of the current EU CBAM proposal is relatively modest compared to the total emissions caused by all EU imports, and that this incomplete coverage might limit the efficiency of the EU CBAM. Even with conservative implementation options, we find that some low- and middle-income countries dependent on the EU for their exports would be disproportionally affected by the EU CBAM, as a large share of their domestic emissions would be covered by the EU emission price. Finally, the implementation of an inclusive international recycling of the EU CBAM fiscal revenue might increase the acceptability of the EU CBAM globally by mitigating its impacts on the most vulnerable countries, but its implementation will require balancing the conflicting interests of the EU trade partners.

 

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To read the full article, please click here.

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Electric Vehicles Are Boosting Global Trade

In what’s meant to be a bum year for the global economy, world commerce is getting a boost from automotive trade, especially in electric vehicles.

In the first two months of 2023, U.S. auto imports rose 21.6% year-on-year to $54.5 billion, and exports jumped 19.3% to $22.1 billion.

Meanwhile, auto exports from China, the world’s top exporter, more than doubled in March, rising 123.8% year-on-year to $7.4 billion. A huge chunk of China’s auto industry has gone electric. In 2022, 44.7% of China’s total automobile exports were electric vehicles. Autos and auto parts made up 4.9% of China’s total exports in March, up from 4% for all of 2022.

That trend is expected to continue. The world’s largest economies are committed to developing policies that increase use of electric vehicles to drive down emissions. The U.S. has said it wants half its fleet to be electric by 2030, up from around 6% last year, and the Biden administration this week proposed even more ambitious targets.

The automotive trade is a boon for global business, which has suffered from the end of stimulus payments in the U.S. and EU, inflation, and the war in Ukraine. The upturn in electric-vehicle trade is one of the reasons the World Trade Organization last week hiked its forecast for global trade growth in 2023 to 1.7% from 1%. The WTO forecasts trade to grow 3.2% in 2024 after increasing 2.7% in 2022.

China’s best export market is no longer the U.S. but the 10-nation ASEAN bloc including countries like Thailand and Vietnam. Exports to ASEAN countries increased 36.3% to $56.4 billion. By comparison, shipments to the U.S. fell 7.7% to $43.7 billion, and exports to the EU rose 3.4% to $45.9 billion.

While the Chinese car sector is booming, other sectors are flattening out. China is slumping in some areas of global business where it used to dominate, particularly in tech. Shipments of high-tech products declined 10% to $74.5 billion. Exports of mobile phones dropped 31.9% to $8.5 billion.

There’s been a rebound this year in some niche consumer sectors that had slumped. Exports of toys increased 33.1% to $3.8 billion. Footwear exports increased 32.9% to $4.2 billion.

And China is making good use of its new relationship with energy-rich Russia, which has boosted its industrial production, which benefits from low-cost energy. Exports of petroleum products rose 23.1% to $4.2 billion. Exports of steel products increased 52.8% to $10.2 billion. Exports to Russia rose 136.8% to $9 billion, while imports increased 34% to $11 billion.

Imports fell 1.4% to $227.4 billion, as the Chinese domestic economy continues to struggle with consumer demand. The country’s gross domestic product is expected to grow around 5% this year, below its trend this century.

Overall imports of high-tech products fell 13.6% to $59.1 billion. Soybean imports rose 13.8% to $4.5 billion.

The development of China’s car sector has freed it from having to buy automobiles abroad. Imports of automobiles declined 14.9% to $3.8 billion. Purchases of auto components and parts fell 20.6% to $2.1 billion.

China might be on its way to becoming a green-energy superpower, but it’s also still addicted to dirty energy sources. It continues to ramp up purchases of coal, hiking imports of the black rock 150.7% by quantity in March to 41.2 million tons, and 122.6% by value to $5.3 billion.

John W. Miller is Trade Data Monitor’s Chief Economic Analyst, in charge of writing  TDM Insights, a newsletter analyzing key issues through trade statistics. John is an award-winning journalist who’s reported from 45 countries for the Wall Street Journal, Time Magazine, and NPR.

To read the full article, please click here.

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Global Trade’s Secret Weapon: Cars

In what’s meant to be a bum year for the global economy, world commerce is getting a boost from automotive trade, especially in electric vehicles.

In the first two months of 2023, U.S. auto imports rose 21.6% year-on-year to $54.5 billion, and exports jumped 19.3% to $22.1 billion. Meanwhile, auto exports from China, the world’s top exporter, more than doubled in March, rising 123.8% year-on-year to $7.4 billion. A huge chunk of China’s auto industry has gone electric. In 2022, 44.7% of China’s total automobile exports were electric vehicles. Autos and auto parts made up 4.9% of China’s total exports in March, up from 4% for all of 2022.

To be sure, dented by geopolitical tensions, auto trade between the world’s two economic superpowers hasn’t performed as well. In the first two months of 2023, Chinese auto exports to the U.S. fell 19% year-on-year to $2.6 billion, while U.S. exports to China rose only 2.3%, to $1.1 billion. 

But the general boom in auto trade is expected to continue. The world’s largest economies are committed to developing policies that increase use of electric vehicles to drive down emissions. The U.S. has said it wants half its fleet to be electric by 2030, up from around 6% last year, and the Biden administration this week proposed even more ambitious targets.

The automotive trade is a boon for global business, which has suffered from the end of stimulus payments in the U.S. and EU, inflation, and the war in Ukraine. The upturn in electric-vehicle trade is one of the reasons the World Trade Organization last week hiked its forecast for global trade growth in 2023 to 1.7% from 1%. The WTO forecasts trade to grow 3.2% in 2024 after increasing 2.7% in 2022.

China’s best export market is no longer the U.S. but the 10-nation ASEAN bloc including countries like Thailand and Vietnam. Exports to ASEAN countries increased 36.3% to $56.4 billion. By comparison, shipments to the U.S. fell 7.7% to $43.7 billion, and exports to the EU rose 3.4% to $45.9 billion.

While the Chinese car sector is booming, other sectors are flattening out. China is slumping in some areas of global business where it used to dominate, particularly in tech. Shipments of high-tech products declined 10% to $74.5 billion. Exports of mobile phones dropped 31.9% to $8.5 billion.

There’s been a rebound this year in some niche consumer sectors that had slumped. Exports of toys increased 33.1% to $3.8 billion. Footwear exports increased 32.9% to $4.2 billion.

And China is making good use of its new relationship with energy-rich Russia, which has boosted its industrial production, which benefits from low-cost energy. Exports of petroleum products rose 23.1% to $4.2 billion. Exports of steel products increased 52.8% to $10.2 billion. Exports to Russia rose 136.8% to $9 billion, while imports increased 34% to $11 billion.

Imports fell 1.4% to $227.4 billion, as the Chinese domestic economy continues to struggle with consumer demand. The country’s gross domestic product is expected to grow around 5% this year, below its trend this century.

Overall imports of high-tech products fell 13.6% to $59.1 billion. Soybean imports rose 13.8% to $4.5 billion.

The development of China’s car sector has freed it from having to buy automobiles abroad. Imports of automobiles declined 14.9% to $3.8 billion. Purchases of auto components and parts fell 20.6% to $2.1 billion.

China might be on its way to becoming a green-energy superpower, but it’s also still addicted to dirty energy sources. It continues to ramp up purchases of coal, hiking imports of the black rock 150.7% by quantity in March to 41.2 million tons, and 122.6% by value to $5.3 billion.

John W. Miller is Trade Data Monitor’s Chief Economic Analyst, in charge of writing TDM Insights, a newsletter analyzing key issues through trade statistics. John is an award-winning journalist who’s reported from 45 countries for the Wall Street Journal, Time Magazine, and NPR.

To read the full article, please click here.

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Raw Materials Critical For The Green Transition

Introduction

Industrial raw materials are once again at the forefront of policy discussions, for several reasons.

The challenge of achieving net zero CO2 emissions by 2050 will require a significant scaling up of production and international trade of several raw materials which will be critical for transforming the global economy from one dominated by fossil fuels to one led by renewable energy technologies (IEA, 2021). Such technologies make generally more intensive use of minerals than their fossil fuel counterparts. For example, a typical electric car requires six times the mineral inputs of a conventional car and an onshore wind plant requires nine times more mineral resources than a gas-fired plant (IEA, 2021). Therefore, while the green transition will reduce the global dependence on fossil fuels, it will intensify the pressure on the production and efficient international exchange of other raw materials. For example, because of the increasing share of renewables in new investment in the energy sector, the average amount of minerals needed for a new unit of power generation capacity has increased by 50% since 2010 (IEA, 2021).

Some relatively abundant raw materials, which have traditionally underpinned industrial production (e.g. aluminium, copper and iron ore and steel) will also remain essential in green sectors and their enabling technologies. Other materials, such as rare earth minerals (notably neodymium and dysprosium), lithium, cobalt or nickel, are also prevalent in new technologies and thus their demand is expected to grow substantially (Gielen, 2021). The IEA projects, for example, that in the next twenty years the clean energy sector’s demand for materials such as cobalt, natural graphite or lithium will increase from twenty to more than forty times (Figure 1.1). Overall, depending on the assumed pace of green transition, it is estimated that the demand for minerals (from the energy as well as other sectors) will grow by on average four to six times between 2020 and 2030 (IEA, 2021).

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To read the full policy paper, please click here.

 

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Economic Impact of Adopting Digital Trade Rules: Evidence from APEC Member Economies

Digitalisation has transformed the way that goods and services are being supplied and procured both within economies and across the world, and digital trade is an integral component of the digital economy today. In 2017, Asia-Pacific Economic Cooperation (APEC) Leaders pledged to “work together to realise the potential of the internet and digital economy” and welcomed the adoption of the APEC Internet and Digital Economy Roadmap (AIDER). AIDER builds on previous initiatives and sets a framework to guide APEC economies on key areas and actions needed to facilitate technological and policy exchanges among member economies and to promote innovative, inclusive and sustainable growth, as well as bridge digital divide in the region. The roadmap identifies 11 Key Focus Areas including on “Facilitation of E-commerce and Advancing Cooperation on Digital Trade”, “Enhancing trust and security in the use of ICTs” and “Promotion of Interoperability”.

As digitalisation changes the way that international trade is conducted, it is important to adopt trade rules to govern and support such trade. Increasingly, economies are including provisions aimed at enabling digital trade into trade agreements, and some economies, including APEC members, have entered agreements focused on strengthening digital collaboration. While there is broad recognition that growing digital trade could bring economic benefits to economies and the region, research on the effect of adopting digital trade rules, including e-commerce rules (hereafter referred to as “digital trade rules” or “digital trade provisions”), on economic growth has been more limited to-date. This study seeks to contribute to this body of research, including by taking a novel approach to estimate bilateral digital trade flows for APEC member economies and its largest trading partners.

The report is structured into three sections:

Section 1 defines digital trade and provides observations about the trends in digital trade flows over the last two decades in APEC economies. It explores the relationship between increased digital trade and economic growth for economies through an economic contribution model and systematic analysis.

Section 2 considers recent developments on digital trade rules in the APEC region and explores the potential impact of adopting such rules on digital trade flows and economic growth. It uses a “Digital Trade Openness Index” to approximate the extent of trade liberalisation and seeks to identify the digital trade provisions with the most observable effects on digital trade flows through a study of APEC economies.

Section 3 provides recommendations on how APEC policymakers can unlock the benefits of digital trade.

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To read the full report, please click here.

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Slaughter & Rees Report: How Commerce Can Save the Climate

Last week, the Intergovernmental Panel on Climate Change—a body of experts convened by the United Nations to assess the extent of and prospects for climate change—crossed a Rubicon of sorts.

In the IPCC’s latest major report, Climate Change 2023, it acknowledged that the world’s efforts to date have almost surely failed to keep the planet’s average temperature from rising less than 1.5 degrees Celsius (2.7 degrees Fahrenheit) above preindustrial levels.

That mark became the world’s target in 2015, when at that year’s United Nations climate summit in Paris all participating nations agreed to try to hold global warming below that amount. But alas, countries’ cumulative efforts since then have been woefully insufficient. Thus has the IPCC now concluded that continued greenhouse gas emissions will lead to increasing global warming, with the best estimate of reaching 1.5°C in the near term in considered scenarios and modelled pathways.

To slow the rate of global warming, countries must accelerate the invention and deployment of low-cost green products in key areas, including energy generation, distribution, and transportation. Chief among the needed policies is the implementation of a meaningful world carbon price, in the form of a charge on greenhouse-gas emissions. Such a price would make new green products cheaper than existing carbon-intensive ones. But the prospect of a high and harmonized world price on carbon is not on the horizon. In the United States, for instance, many on the Right deride carbon prices as an intrusive new form of taxation, whereas many on the Left see them as tacitly condoning the continued use of fossil fuels.

So, what to do? One of us (Matt S.) and coauthor Gordon H. Hanson propose a solution that Foreign Affairs has kindly published in its March/April issue. This essay, “How Commerce Can Save the Climate: The Case for a Green Free Trade Agreement,” argues that under the auspices of the World Trade Organization, countries should expedite necessary inventions and lower the cost of green products by establishing an accord that liberalizes trade in green-tech products, investment in environmental industries, and the immigration necessary to foster entrepreneurship and build skilled workforces.

Think of this as a green technology version of the Information Technology Agreement (ITA), a WTO deal initially signed by 29 countries in 1996 that eliminated tariffs on hundreds of IT goods. The ITA eventually expanded from 29 to 82 countries, covering roughly 97 percent of world trade in high-tech products. In 2015, over 50 members concluded an auxiliary IT agreement, known as ITA-2, that widened coverage to an additional 201 products valued at over $1.3 trillion a year. The ITA remains the WTO’s most comprehensive free-trade agreement.

The ITA helped spur innovation, trade, and investment around the world. Through the agreement, companies invented new goods and services and then grew global production networks to scale up, reduce costs, and benefit from comparative advantage. And in addition to the ITA’s cross-border flows of products and capital, the migration of highly talented people contributed to the success of the ITA industry. Between 1995 and 2005, a quarter of all U.S. high-tech startups had at least one foreign-born founder. In 2005, these new companies employed 450,000 people and generated more than $50 billion in sales.

Most importantly for the issue of global warming, all this globalization was a spur to lowering costs and prices. In the ten years after the ITA came into force, U.S. import prices relative to U.S. export prices stopped rising and began a decade-long decline—with falling import prices for IT products leading the way. Between 1996, when the ITA was created, and 2022, overall U.S. consumer prices rose by a cumulative 79.5 percent. But at the same time, the price of a personal computer in the United States fell by an astonishing 97 percent.

The ITA’s success in IT can be reproduced in green products. To harness the innovative power of globalization, like-minded countries should create a similar agreement for green technology, built on the pillars of trade, investment, and immigration. The first pillar should be a free-trade deal in environmental goods and services. The second pillar should be unfettered cross-border flows of foreign direct investment in environmental goods and services. And the third pillar should be the unencumbered movement across borders of highly talented people working in green industries.

This new Foreign Affairs essay explains each of these pillars in detail—and details complementary fiscal investments that sovereign governments should undertake: in early-stage research and development for the world’s most promising green innovations, in university education for engineers and scientists in those areas, and in training for green technical jobs.

We two Matts will close by underscoring one of the essay’s key messages: When it comes to addressing the world’s climate emergency, the key issue is not which countries end up producing new green goods and services—it is how many countries end up consuming them, and at how low of a cost. Countries must stop chasing the elusive goal of selecting and supporting winning industries and companies. Instead, they must start focusing on the immediate imperative of inventing and deploying green innovations around the world as fast, broadly, and inexpensively as possible. A green free trade agreement cannot come soon enough.

Matthew J. Slaughter is the Paul Danos Dean of the Tuck School of Business at Dartmouth

Matthew Rees is a Senior Fellow at the Tuck School of Business at Dartmouth

To read the full article, please click here.

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Ambassador Katherine Tai’s Testimonies on the President’s 2023 Trade Policy Agenda

US Trade Representative Katherine Tai Testifies Before Senate Finance Cmte About US Trade Policy Hearing on Biden Admin’s 2023 Trade Policy Agenda with U.S. Trade Representative, Ambassador Tai

Video 1: U.S. Trade Representative Katherine Tai testifies before the Senate Finance Committee about US trade policy.

To watch the full hearing, please click here.

Video 2: U.S. Trade Representative Katherine Tai testifies before the House Committee on Ways and Means about US trade policy.

To watch the full hearing, please click here.

 

 

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A New Horizon in U.S. Trade Policy

Key Developments and Questions for the Biden Administration

Under President Biden, the United States is reinvigorating its trade policy to better confront the major challenges of the 21st century, but key questions remain.

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.

This issue brief examines some of the key trade initiatives pursued by the Biden administration to date. It then sets out key questions facing U.S. trade policy in a global environment defined by volatility and renewed ambition to tackle the great challenges of the 21st century, such as climate change, inequality, and great power competition.

Overview of key trade initiatives

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.

Variation on a multilateral theme

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. Four examples of this are already underway in the Biden administration:

The Indo-Pacific Economic Framework for Prosperity (IPEF): Launched in May 2022, IPEF established a framework for negotiations among 13 nations: Australia, Brunei, India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, the United States, and Vietnam. These negotiations aim to establish an updated model of economic engagement across borders. Market access is not on the table, but there are four pillars that offer broad and potentially substantial levels of investment, regulatory alignment, and coordination around industrial standards and supply chains between the United States and participating nations—depending on the specificity of the outcome and its implementation. These pillars are: 1) connected economy, or trade; 2) resilient economy, or supply chains; 3) clean economy; and 4) fair economy. IPEF members may select among the pillars and are not required to agree to all four.



There are two key points to consider: First, the nations associated with IPEF have significant—though not complete—overlap with the nations that negotiated the TPP. This clearly shows that economic engagement in the Indo-Pacific remains a priority for the United States, even if the nature of that engagement has shifted.

Second, and related, the different pillars of IPEF use language that closely resembles previous FTAs without incorporating market access mechanisms—such as tariff reductions—that raised valid concerns on the part of climate and worker advocates in the United States. For example, the “connected economy” pillar seeks to increase and improve trade among the 13 nations by collaborating and coordinating on core issues such as labor rights, environmental protection, transparency in rule-making and regulations, and facilitation measures such as simplifying customs procedures.

The Americas Partnership for Economic Prosperity (APEP): Since June 2022, the U.S. State Department and U.S. trade representative (USTR) have engaged with partner countries across the Americas—Barbados, Canada, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, Mexico, Panama, Peru, and Uruguay—on a similar series of negotiations aimed at producing a similar set of commitments as IPEF. The ongoing consultations have five focus areas: 1) reinvigorating regional economic institutions and mobilizing investment; 2) making more resilient supply chains; 3) updating the basic bargain; 4) creating clean energy jobs and advancing decarbonization and biodiversity; and 5) ensuring sustainable and inclusive trade.

The APEP negotiations do not have as clear of a precursor as IPEF, which can partially explain the interesting collection of nations associated with this effort. Politics and existing trade relations vary among the included nations—though, on the latter, most of the nations included already have existing bilateral trade agreements or frameworks with the United States. With Ecuador, the United States has a Trade and Investment Council. With Uruguay, there is a Trade and Investment Framework Agreement. Barbados is the only nation where there is currently no agreement or framework. The rest have an existing FTA.

The U.S.- Taiwan Initiative on 21st- Century Trade: Also in June 2022, the United States and Taiwan began consultations over ways to deepen the trade and economic relationship between the two nations. This evolved into official negotiations focused on building out the details listed within the negotiating mandate, which has similar construct and charges as IPEF and APEP—notably, a commitment to focus on core issues related to trade facilitation that could help further open economic doors, potentially in the form of an FTA.
The U.S.-EU Trade and Technology Council (TTC): Among the Biden administration’s earliest trade-related actions, the establishment of the TTC occurred as part of a broader statement of joint work and commitments between the United States and the European Union. The TTC’s main charge is to foster cooperation in trans-Atlantic trade and investment, specifically focused on emerging technologies and infrastructure.

The just-announced Clean Energy Incentives Dialogue will be a part of the TTC and focused on coordinating incentive programs. The main goals will be to avoid trans-Atlantic trade tensions and to ensure that such programs are mutually reinforcing and do not simply lead to windfall profits for companies that could play the two against each other for more and better subsidies. This type of dialogue is necessary to guard against excessive corporate welfare and keep the focus on clean energy deployment and strong domestic economies.

Trevor Sutton is a Senior Fellow at The Center for American Progress

Mike Williams is a Senior Fellow at The Center for American Progress

To read full report, click here. 

 

 

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The Four Horsemen of the Apocalypse at the WTO

The EU chose a marvelously provocative title for this panel: “Pestilence, Famine, War. . . Death? The Future of Trade”. With the use of foresight, one can see the four horsemen of the apocalypse from the WTO’s headquarters building on the shores of Lake Geneva.

Taking in order each of the four in turn:

First Horseman: Pestilence

Three years ago, almost to the day, on March 16, 2020, the WTO closed its doors due to the COVID-19 pandemic, not to fully reopen for two years. The world had not seen a disease sicken and kill as many people since 1918. Desperately needed was information, regardless of national borders. Where were the supplies of masks to come from, personal protective equipment, medical equipment, and even soap?

Trade was essential to addressing COVID. No country could be self-sufficient in essential goods, medicines, and equipment. In fact, none were. In January and February 2020, China searched the world for pulmonary ventilators for use in Wuhan. By March, Europe was doing the same for its needs. Just this one product, ventilators, needed upward of 1500 parts from some 200 suppliers located around the world. 

As factories closed and transportation shut down, the WTO Secretariat supplied information notes to its 164 Members on trade measures taken, both trade-limiting and trade-facilitating. Countries began to understand that they did not have to hoard domestic supplies of  food, and agricultural export restrictions began to be lifted. A new Director-General, Ngozi Okonjo-Iweala, was chosen, bringing her expertise on vaccines and the challenges of their global distribution. Using WTO’s convening power, she brought together executives from companies that made vaccines and those who understood where supplies existed and where the need for them was greatest. With time, the problems of supply eased. Vaccines, therapeutics, and other essential goods now exist in surplus quantities in most countries.

From COVID, the public learned a new term: “zoonotic disease”, referring to sicknesses that spread from animals to humans. Experts say that this will not be the last pandemic. Avian flu is now being closely watched. Millions of chickens have been killed as a preventative measure. As I write these words, two cases of avian influenza H5N1 (H5N1 bird flu) have been reported by Cambodia, killing a girl and infecting her father.

Trade proved to be resilient during the pandemic and in the period of recovery. Human ingenuity was ultimately triumphant in inventing new medicines, but only after great loss of life. I would have liked to tell you that the world trading system is better prepared for the next pandemic, and that the WTO’s members have agreed on how to pull together, with adequate processes and rules to share scarce supplies. But that is not the case. The existing WTO rule – that where an export control is imposed on a good due to short supply, provision will be made for an equitable share to other countries – was ignored and still lacks definition. The WTO members focused instead on one proposal, to circumvent vaccine intellectual property rights and obligations, with no clear indication that this was or will be a meaningful solution.

This is unfinished business for the WTO. Even though the immediate emergency has passed, and the feeling of urgency may be gone, it is still imperative to prepare for the future. What is in hand at present is a stated recognition by WTO members of some aspects of what a better world order might look like for trade and health, in a document labeled “Ministerial Declaration on the WTO Response to the COVID-19 Pandemic and Preparedness for Future Pandemics”. The agreed text is careful to avoid any new obligations for members. By its terms, a stocktaking is due to take place in December 2024. This is not enough.

2023-03-13wolff

Alan Wm. Wolff is a distinguished visiting fellow at the Peterson Institute for International Economics.

To read the full remarks, please click here.

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