William Krist's Blog, page 20

A Worker-Centered Digital Trade Agenda

Introduction

 

As the Biden administration continues to remake U.S. trade policy, its “worker-centered” approach extends to digital trade and the digital economy by placing the needs of workers, consumers and society ahead of the profits and interests of big technology companies.

To date, U.S. digital trade policy has prioritized securing increased market access and intellectual property rights for its big technology firms, with broad prohibitions against any government measures that could restrict corporations’ ability to move, process and store data as they see fit. By comparison, recent digital trade texts make no reference to workers’ rights and do not require governments to take any meaningful action to protect individuals’ personal data.

While the digital transformation has driven real gains in communications, transportation, science and beyond, it has also brought urgent challenges to the world of work and society, which democratic governments are only beginning to address.

Technology companies and other employers are increasingly supervising, surveilling and even disciplining workers with automated artificial intelligence (AI) and algorithmic management systems that can shortchange workers’ earnings, expose workers to unsafe workplace conditions, infringe on the right to form unions and exacerbate employment discrimination. Platform companies such as ride-hailing and delivery services have promoted a new, exploitative model of employment where so-called “gig” workers endure low earnings, uncertain work schedules and no benefits.

The digital transformation has enabled the corporate offshoring of whole new categories of jobs, including workers in call centers, information technology, back- office and even health care through telemedicine. It also facilitates the privatization of public data and data services, costing jobs and undermining the quality of publicly delivered services. Many of these jobs are being shipped to countries where workers are paid poverty wages and face severe repression for organizing trade unions.

Outside the workplace, digitalization poses other threats to workers, consumers and people. The large technology companies collect, share, commodify and sell tremendous amounts of personal data with little or no oversight. Digital apps and social media platforms have eroded personal privacy, undermined the mental health of adolescents, and provided a megaphone to hateful and anti-democratic forces that have corroded the social discourse.

As U.S. Trade Representative Katherine Tai stated in 2021, digital trade must be “grounded in how it affects our people and our workers” and provide space to “prioritize flexible policies that can adapt to changing circumstances” of rapidly evolving forms of digital commerce. Achieving this vision will require a more balanced approach that preserves governments’ right to fully regulate the digital economy, while also driving greater cooperation to address the very real threats to privacy, democracy and decent work.

 

I. Preserving Governments’ Right to Regulate the Digital Economy

The rapid digital transformation of the economy has emerged largely without the knowledge, consent or input of the people it most affects—the workers and consumers whose lives are increasingly governed, surveilled and commodified by the technological revolution.

At a time when governments around the world are grappling with how to regulate emerging digital technologies, recent U.S. digital trade agreements have granted broad digital corporate rights while imposing rigid restrictions on the measures governments can adopt to promote legitimate public policy interests such as protecting data privacy, ensuring emerging technologies comply with domestic labor laws, promoting competition and more. These digital provisions mirror and amplify parallel efforts by Big Tech firms to avoid regulatory oversight in the United States and countries around the world.

The current digital trade model grants broad rights to technology and other companies to control, transmit, process and store data worldwide, while also shielding their digital systems from regulatory scrutiny. For example, the United States-Mexico-Canada Agreement (USMCA) and U.S.-Japan digital texts prohibit any restriction on cross-border data flows, with no exception for sensitive forms of personal information.

Although the texts contain an exception for “measures necessary to achieve a legitimate public policy objective,” in practice this language—which is borrowed from existing World Trade Organization (WTO) agreements—has been narrowly interpreted by dispute panels and has not proven effective at safeguarding governments’ right to regulate.

The USMCA also contains an absolute prohibition on “data localization” policies, which an increasing number of governments are adopting to require that some kinds of data be stored on domestic servers to protect digital privacy or ensure appropriate access for regulators and law enforcement. Unlike the prohibition on restrictions to cross-border data flows, it contains no “legitimate public policy” exception.

In addition, the USMCA adopts a broad prohibition on government access to or forced transfer of corporate source codes and algorithms as a condition for allowing the sale and distribution of digital products in a given country. While the text allows for disclosure on a case- by-case basis to a regulatory body or judicial authority, this is limited to a “specific investigation,” which could preclude broader, industry-wide investigations necessary to address the harmful impact of algorithms, artificial intelligence (AI) and machine learning on workers and people. The specific investigation clause also leaves it unclear how governments could initiate an investigation into, for example, employment discrimination and AI management software, without first having the broad authority to conduct an initial review of source codes to understand how they function and what their impacts are in the workplace.

The sweeping nature of these commitments is alarming given that most countries, including the United States, lack a comprehensive federal regulatory framework to address the downsides of digitalization on workers and society. The “legitimate public policy objective” exception lifted from the WTO has proven difficult for countries to invoke in practice, even with regard to sectors with long-standing, well-established regulatory regimes. Applying these restrictions to the fast-evolving digital economy risks locking in an unregulated status quo that only benefits large technology companies and could undermine efforts to safeguard worker and consumer data privacy.

The rapidly evolving digital economy warrants new approaches to address the negative impacts of digitalization on workers, consumers and society. The absence of domestic measures governing the digital economy heightens the importance of putting in place digital trade agreements that preserve robust public policy space. A worker-centered digital trade agenda must enshrine the right to regulate these new technologies to protect workers and consumers by enforcing current law and addressing emerging impacts on the workplace and society.

 

II. Advancing a Proactive Agenda to Safeguard Workers’ Rights, Protect Data Privacy and Security, and Combat Low-Road Digital Offshoring

In addition to preserving policy space to regulate, a worker-centered digital trade policy should also include positive commitments by governments to address the myriad challenges connected to the digital transformation. Commitments to promote reliable, secure cross-border data flows must be offset by corresponding obligations to properly regulate the digital economy, including by addressing a range of issues that threaten workers’ rights and privacy in and out of the workplace

Ensure that digital trade agreements are subject to strong and enforceable labor standards: Given the growing importance of the digital economy, it is essential that countries establish strong guardrails to avoid a race to the bottom in regulation and corporate conduct. Digital trade agreements must contain an obligation to respect the internationally recognized workers’ rights contained in the 1998 International Labor Organization Declaration on Fundamental Principles and Rights at Work. In addition, they must contain strong monitoring and enforcement mechanisms to ensure government and corporate compliance.

 
Require governments to enact strong policies to safeguard individuals’ personal data: Governments should be able to adopt restrictions on cross-border data flows to protect the privacy and security of individuals’ personal data. In our hyperconnected online world, consumers and workers’ personal data is increasingly monitored, collected, shared, analyzed and sold by companies without their knowledge, consent or oversight. The existing digital trade model promotes a voluntary form of corporate self-regulation that has proven inadequate to protect individuals’ personal information. Digital trade policy should encourage rather than deter government efforts to safeguard individuals’ personal data inside and outside the workplace.

 
Authorize governments to enact data localization policies with regard to certain categories of sensitive data: While open data flows are essential to the modern global economy, not all data is the same. Governments should have the ability to require that individuals’ sensitive personal information (medical, financial and biometric data collected in the workplace) or data related to certain sectors (critical infrastructure, national security, law enforcement) be kept onshore to ensure it is subject to strong and enforceable privacy standards and effective government oversight.

 
Discourage low-road digital offshoring: Safeguarding critical, vulnerable and personal data not only protects the security of people and the economy, but it also helps keep good jobs here in the United States. Big Tech companies and other employers have demanded unfettered cross-border data flows, in part, to facilitate the offshoring of digitally enabled back-office, call center, data processing, telemedicine and other jobs. Many of these jobs are going to countries with weak data protection regimes and widespread labor rights abuses. For example, tens of thousands of Communications Workers of America members have lost call center jobs due to digital offshoring to countries such as Mexico and the Philippines. Digital trade agreements should actively discourage this type of low-road offshoring that lowers labor standards while also placing customers’ data at greater risk.

 
Facilitate meaningful oversight of source codes and algorithms to ensure compliance with labor and employment laws: Employers are increasingly using automated, algorithmic systems to hire, manage, control, monitor, discipline and even fire workers largely without the knowledge, consent or input of workers or unions. These new employer tools can undermine workers’ rights, compromise workplace safety, violate wage and hour laws, and discriminate against protected classes of workers in hiring, promotion or termination. Women, people of color and immigrants are particularly at risk, as they are more likely to be employed in lower-wage workplaces where these technologies are widely deployed.



Millions of workers in the United States already face challenges from algorithmic management. Amazon’s algorithmic warehouse productivity software has created inhumane working conditions where workers are punished for taking bathroom breaks and suffer far higher serious injury rates.



Some school districts have been using algorithmic tools to evaluate teachers based on how students perform on tests and to discipline and even fire teachers whose students failed to measure up to a computer-modeled test score target. Automated monitoring of call center workers can incorrectly punish agents for allegedly straying from their scripts because the speech recognition software can discriminate against workers with accents, dialects or different speech tones. In the retail and food service sectors, employers are increasingly using algorithmic “just-in-time” scheduling software that has led to erratic working schedules and unpredictable pay.



A worker-centered digital trade agenda must ensure that companies are held accountable for the risks associated with automated systems that implement critical decision-making protocol. Companies should be mandated to disclose to governments the impact assessments of their automated systems to ensure they are compliant with existing labor and employment laws. In addition, digital trade policy should facilitate intergovernmental cooperation to address the risk that AI management software is undermining worker safety, wage and hour laws, and anti- discrimination laws.

 
Address emerging threats to workers’ privacy, including employer use of workplace surveillance software: Employer use of digital workplace surveillance tools has skyrocketed with the rise of telework during the pandemic. Workers have little protection from digital workplace surveillance, including vehicle telemetry, hand-held equipment that evaluates work speed, keystroke and camera monitoring, and even surveillance of workers’ social media presence to assess union sympathies. Employer use of these tools can contribute to workplace safety problems, lead to anti-union coercion and retaliation, and erode worker privacy. A worker-centered trade agenda should require governments to adopt measures to address digital workplace surveillance and other emerging threats to workers’ privacy. For example, employers should be required to disclose their use of surveillance tools, what kind of data is collected and for what purpose, and whether the data is sold to or shared with third parties, and to provide a right for the employee to review and correct any inaccuracies.

 
Address abusive employment practices in the technology sector: Large technology and platform companies such as Uber and Facebook have promoted an exploitative employment model based on rampant employment misclassification and the outsourcing of core job functions. Hidden behind social media platforms and popular digital assistants such as Siri and Alexa are an army of outsourced “ghost workers” who code and enter data, transcribe digital assistant audio recordings, and monitor online platforms for violent and offensive content. These workers, many of whom work in developing countries, are essential to training AI algorithms and keeping hateful and offensive content off social media platforms. Platform gig workers and the ghost workers who power AI systems are employed as precarious contractors with no benefits, sick leave, guaranteed minimum wages, or the ability to form unions and bargain collectively. A worker-centered digital trade approach would require big technology companies to eliminate the labor abuses in their own operations and supply chains.

 
Protect and promote the economic security of creative professionals in the U.S.: A worker- centered approach to digital trade must protect and promote the economic security of the more than 5 million people who work in the motion picture, television and music industries and other parts of the creative sector. Many of these workers earn collectively bargained pay and contributions to their health insurance and pension plans from the sales and licensing of the copyrighted works they help create. Digital trade policy must aggressively address the stolen or unlicensed use of copyrighted content on digital platforms and avoid replicating the outdated, overbroad copyright safe harbor exclusions that exist in some U.S. laws. In addition, it should promote the “no collection without distribution” principle to address the unfair practice by some countries of collecting royalties based on the work of U.S. creative professionals without passing it on to the artists, depriving them of rightful compensation for the use of their work.

 
Stop the misappropriation of voices, images and likenesses for use in AI-generated digital content: It is already clear there are dangers and downsides to AI, including image-based sexual abuse, misappropriation for commercial gain and the proliferation of “deepfake” videos where the digital likeness of one person—usually a celebrity—is transposed onto the body of another individual without their consent. Digital trade policy must ensure that there are safeguards against these abuses, while also holding online platforms accountable for unlawful user content they themselves facilitate or profit from.

 
Address the rise of cybercrime by both state and private actors: In 2014, the U.S. charged several Chinese military members with hacking multiple U.S.-based companies and the United Steelworkers. In 2019, the International Brotherhood of Teamsters experienced a ransomware attack demanding $2.9 million that forced the union to rebuild computer servers. Digital trade policy must strive to improve cybersecurity and create a common enforcement agenda to hold the criminals and companies that facilitate these crimes accountable.

 

III. Conclusion

Too often, the debate over digital trade is unhelpfully framed as a binary choice between authoritarian digital censorship or the unregulated status quo where companies are largely free to collect, analyze, process and sell workers’ and consumers’ private data as they see fit. The labor movement rejects this false choice and instead calls for a new, democratic, stakeholder- driven approach to data governance that addresses the negative impacts of digitalization on workers, consumers and society.

To date, U.S. “digital trade” agreements have sought to expand market access for large technology companies by granting broad digital data and intellectual property rights while narrowly constraining the ability of governments (of both the United States and our trade partners) to adopt measures to address the digital economic transformation. This combination of broad corporate rights and limited domestic governance threatens to lock in the current unregulated digital environment that poses significant risks to workers and society.

The Biden administration’s worker-centered trade policy is a major opportunity to correct this narrow, corporate approach to allow for broader policy space to protect personal data, strengthen economic security, protect domestic jobs, and tackle the downsides of the digital transition on workers, consumers and society.

As democracies seek to create a digital economy that is fair and inclusive, digital trade policy must also evolve to facilitate new forms of domestic and international regulation and oversight.

To read the full article, please click here.

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Industrial Policy Nationalism: How Worried Should We Be?

Large scale industrial policy is once again at the top of the agenda for policy-makers in the world’s three largest economies: the United States, China, and the European Union (EU). Central to this current wave are renewable and low-carbon energy technologies and associated supply chains. The implications of this era of industrial policy will be deep and more disruptive, especially in four interrelated areas: geopolitics, energy transition, trade, and environmental justice. This post argues that the global economy is in the midst of an industrial policy renaissance and discusses how that’s upending global supply chains, reshaping industries from semiconductors to solar panels, and adding yet another layer of churn to an already turbulent global geopolitical and trade outlook.

An industrial policy renaissance is underway

Industrial policy is generally defined as government policy intervention in the private sector to bolster domestic strategic industries through a mix of subsidies, trade promotion, protectionism, and regulatory intervention. Industrial policy is not new, especially in the EU and China. Even the United States has had experience with it, particularly in the Cold War aerospace-defense complex and in sporadic and targeted attempts by various presidential administrations to lean into public-private partnerships and subsidize sectors from technology to export-oriented manufacturing.

The current industrial policy wave began in China in 2015 with the Made in China 2025 (MIC 2025) plan,  which sought to bolster ten strategic sectors, including alternative vehicles and renewable energy.  While a range wide of policy measures make up the MIC 2025 plan, the two broad categories are centered around heavy direct government investment and new guidelines to limit foreign competition. The next chapter in the industrial policy renaissance took place in the EU in 2019 with the implementation of the 1 trillion-euro EU Green Deal Investment Plan. The onset of the COVID-19 pandemic, immediately following the Green Deal announcement, led to another massive wave of EU public sector investment targeting key industries in the form of the NextGenerationEU (NGEU) Recovery and Resilience Facility (RRF).

China’s MIC 2025 plan has strong focus on advanced manufacturing, clean energy, and the digital economy, motivated heavily by efforts to close a gap in those areas with its major geopolitical and economic competitors.  The EU Green Deal and NGEU focus on clean energy as well, as a path to achieving EU-wide greenhouse gas reduction targets in the “Fit for 55” plan, supporting workers transitioning from legacy fossil fuel extraction and basic manufacturing industries and building global champions in emerging decarbonization technologies.

The industrial policy renaissance reached the United States with the election of President Biden in November 2020.  Like the EU, the Biden administration industrial policy push in 2021 and 2022 was heavily shaped by response to the COVID-19 pandemic economic shock and the energy transition. It was also motivated by a sense of threat regarding competitiveness and vulnerability toward China, a perception that was deeply elevated during the prior Trump administration, and was in many ways the mirror image of the geoeconomic insecurity embedded in MIC 2025 – particularly with respect to the 2022 CHIPS Act.

The central tenet of Biden administration’s industrial policy is the 2022 Inflation Reduction Act (IRA).  The IRA provides $394 billion in tax breaks and spending for the clean energy sector (broadly defined), out of a total $500 billion package. While the massive bill was welcomed in the EU from a climate action perspective, some of its provisions around domestic content obligations and Buy America have, ironically, generated unhappiness from European leaders. European leaders are calling for removing the protectionist provisions of the IRA while simultaneously rallying the EU to respond with an expansion of its mega investment of public sector euros into the clean energy sector (Figure 1).

Assessing global implications of the industrial policy renaissance

Seeing the IRA as a call to expand its Green Deal to IRA-level ambitions, Europeans have expeditiously started responding with discussions and reforms. In recent weeks, European leaders have signaled that they intend to tap into the fundamental aspects of their economy –  openness, citizen welfare focus, and EU single market – to rally confidence and competition for the right reforms, increase US-EU dialogue, and maintain an open approach to global trade. The EU is now also responding directly to IRA through proposals to expand the use of tax credit type provisions embedded in the IRA, a major policy shift in the EU that had previously been reluctant to provide such incentives.

As tensions over green energy industrial policy rise, it is noteworthy that US-EU-China spats over industrial policy are imbued with quasi-military lingo that goes beyond “competition” to “winning the commanding heights” to “avoiding chokepoints” and “whole of government mobilization” to achieve economic goals positioned with national power. The important defense applications of dual-use technologies like computer chips and strategic materials like rare earth elements further elevates the national security dimensions of industrial policy. But beyond these factors and, most significantly, the current round of industrial policy has a strong dimension of zero-sum geopolitics.

Zero-sum means that there will be winners and losers in the competition to dominate the production of electric vehicles batteries or electrolyzers – and that the competition to win in these sectors is far too important to be left to the whims of the market. This posture creates unease among some climate activists who worry that the massive scale of the decarbonization challenge requires close coordination among major industrial powers and integrated, efficient global supply chains, market access, and knowledge transfer.

Foreign policy practitioners are worried about industrial policy tensions introducing friction into the Trans-Atlantic US-EU partnership when the dual challenges of the climate crisis and Russia-Ukraine war require unity. The US-China dynamic is already fraught, and there are real concerns that a new cycle of escalation over protectionist or nationalist industrial policy trade and investment restrictions will undermine joint climate action. The  zero-sum framing of the energy transition may also introduce geopolitical risk in the form of strategic competition between the US and China in critical minerals-rich third-party countries in Latin America, Africa, and Asia.

From a trade perspective, the world has been rapidly moving away from a decades-long wave of globalization, which arguably crested when the US abandoned the Trans-Pacific Partnership in 2017. While there are a few bright spots of bilateral or regional free trade momentum, the elevation of industrial policy nationalism in the three largest global economies hardly bodes well for further liberalization of global trade. An escalatory cycle of industrial policy nationalism in clean energy sectors may also distort investment – with public capital subsidizing marginal projects and companies eroding market discipline. Renewable energy and decarbonization focused companies may “succeed” based on the ability to capture government rents versus innovation or winning customers in a global marketplace crucible. Of course, there are proposed safeguards against much of this, but such safeguards may erode in a tit-for-tat industrial policy push with hundreds of billions of dollars/RMB/euros to deploy.

Lastly, the industrial policy wave will have significant implications for environmental justice, particularly with respect to the just transition. The idea that the transition to a decarbonized economy should not disproportionately harm particular groups is embedded directly in the EU Green Deal and IRA. Do these just transition considerations manifest in China? Outside observers sometimes suggest that Beijing can impose its industrial policy vision without regard for local communities or domestic political considerations like elections. At the same time, issues like overcapacity, labor mobility, and managing legacy pollution in coal regions will be vital for China’s shift to the green manufacturing goals of MIC 2025 to succeed. I plan to discuss environmental justice in more detail in a forthcoming post.

Robert (“RJ”) Johnston is Executive Director at the Center on Global Energy Policy at Columbia University. RJ was most recently the founder and Managing Director of the Eurasia Group’s Energy, Climate, and Resources practice, and served as the firm’s CEO from 2013 to 2018. At the Eurasia Group, RJ worked closely with corporate and institutional investor clients in the oil and gas, mining, electric power, and clean tech sectors. 

To read the full article, please click here.

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Postcard From a Disintegration: Inside the WTO’s Fraying Seams

The World Trade Organization is what is known as a “member-driven” organization. The 164 WTO Members – they are never referred to as Member States because Hong Kong and Macau are regions of China and governments do not agree on the status of Taiwan – make all relevant decisions on the basis of consensus.

It is an awkward way to get things done. Consensus means, in theory, that the hands of all 164 members are on the steering wheel. The reality is that some pairs of hands have a more forceful grip on the wheel than others.

To make things move in Geneva, you need the big players to take control, state what they want, and make clear what they are prepared to do to achieve it. In the past, it has been the United States which drove the agenda, first in the General Agreement on Tariffs and Trade and, since its founding in 1995, in the WTO. Nothing of consequence was achieved without US leadership.

Today, this is no longer the case. Such is the politically toxic nature of trade in the United States today, that the Office of the US Trade Representative has deemed a detached, disinterested approach the nation’s best course of action in trade policy.

Two factors have contributed to the sharp deterioration in US leadership. The first is a bipartisan, ardent anxiety over China. Inside the Beltway, it is widely held that China has somehow rigged the multilateral trading system, shirked its responsibilities, and gamed the dispute settlement function. Such reasoning is flawed and not fully supported by the facts. But it can be attributed to the growing Cold War mentality gripping Washington these days.

Inside the WTOs fraying seams - Hinrich Foundation - Keith Rockwell - January 2023 RV

Keith M. Rockwell is a Global Fellow at the Wilson Center. Prior to his retirement in June 2022, Keith served as a Director at the World Trade Organization (WTO) and spokesperson for the organization for more than 25 years.

To read the full report, please click here. 

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Global Trade in 2023: What’s Driving Reglobalization?

Summary

Global trade will continue to face multiple challenges in 2023 as inflation and high interest rates, debt distress and geopolitical frictions weigh on many economies. The downside risks to the global economy and international trade are significant, ranging from an escalation of Russia’s war on Ukraine to deepening tensions between the US and China.

‘Reglobalization’ – rather than deglobalization – best describes the current pattern of economic integration and fracturing across different economies and sectors. Globalization is far from finished, but will increasingly emphasize greater regional links and the formation of economic blocs for sensitive and strategically important sectors. Comprehensive decoupling from China is neither achievable nor desirable for the G7 and like-minded partners.

The supply-chain disruptions of 2020–22 will continue to ease. Given that extreme weather events are the biggest threat to global production networks, supply-chain resilience and diversification efforts will persist, with added impetus to act on ‘greening’ trade.

The future of trade is closely linked to the transition to green and digital economies. As climate ambitions and technological leadership are intertwined with industrial policy objectives, concerns about unfair trade practices and protectionism are coming to a head not just as regards China, but also among the US, the EU and like-minded partners.

With major breakthroughs at the World Trade Organization unlikely in 2023, limited progress can be expected in some bilateral, regional and sectoral agreements. Meanwhile, efforts to avoid further trade fragmentation will progress more readily under Japan’s G7 presidency than under India’s G20 presidency.

Introduction

This briefing paper analyses the outlook for global trade in 2023, and examines the structural forces shaping global trade and globalization more broadly.

It argues that ‘reglobalization’ – rather than deglobalization – best describes the current and likely future pattern of economic integration and fracturing across different economies and sectors. Trade policy has an important role to play in underpinning the positive aspects of a reglobalized world and in balancing geopolitical competition and cooperation, not just through coordinated efforts to strengthen supply-chain resilience, but also in harnessing the twin transitions to green and digital economies.

The paper draws on insights from expert roundtable discussions and a high-level speaker series under the umbrella of the Chatham House Global Trade Policy Forum. It is the first of a new annual series that will highlight some of the major global trade trends and prospects for the year(s) ahead.

2023-01-30-global-trade-2023-schneider-petsinger

Marianne Schneider-Petsinger is a senior research fellow in the Global Economy and Finance Programme at Chatham House, responsible for analysis at the nexus of political and economic issues. Before joining Chatham House in 2016, she managed the Transatlantic Consumer Dialogue, an international membership body representing consumer organizations in the EU and the US. She also worked for a think-tank on transatlantic affairs in the US, and for the Thuringian Ministry of Economic Affairs in Germany.

To read the full report, please click here.

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A European Response to the US Inflation Reduction Act

The European Green Deal is one of the world’s most ambitious climate policies to usher the European Union into the net zero economy by 2050. To happen, it will require a massive ramp up of technologies from wind turbines to electric car batteries, but the question is how much of the value will be captured by industry in Europe. 

The global race to lead the production of these cleantech, as well as raw materials that go into them, has been unfolding for a few years now. Europe has secured much commitment and investment in the area of electric cars (EV) and batteries already. Dozens of billions have poured into scaling EV manufacturing and batteries. Over half of all lithium-ion batteries on the EU market in 2022 were produced in Europe, with the continent projected to become the world’s second biggest battery cell manufacturer by the end of the decade. 

But the US Inflation Reduction Act (IRA), launched in August 2022, has changed the rules of the industrial game and might make companies re-prioritise the current announcements in Europe towards the US. For EVs and batteries, the risk is that the projects – and therefore Europe’s ambition – gets delayed. For critical metals and their processing, where Europe is only starting to catch up, the risk is that investments would simply go elsewhere. In just a few months since the launch of the US IRA, investments into battery factories, new mines and electric vehicles have mushroomed in North America. This is in response to the requirement that 40% of battery metals need to come from the US and half of all battery components made in North America from 2024 for the full EV tax credit to apply. The battery supply chain of an electric car will receive up to USD 50 of subsidy per each kWh of battery, or over a third of the total battery costs today. 

So far Europe has one of the most ambitious climate regulations in the world. The next step now is to beef it up with a robust industrial muscle to ensure we capture parts of the growing value chain for our jobs and economic resilience. 

2023_01_TE_Raw_materials_IRA_report-1

To view the full report, please click here.

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Slaughter & Rees Report: The Good Jobs America Needs Are Global Jobs

Happy new year (and, for those of you in China or who are celebrating it elsewhere, happy Year of the Rabbit). Because of rampant inflation, 2022 was one of the worst years in decades for falling real incomes across the globe.

Here in America, real average weekly earnings of all U.S. workers fell 3.1 percent in 2022. A central policy challenge in the year ahead is not just creating jobs. It is creating good jobs, i.e., jobs with high and rising incomes.

How to meet this challenge? Just before the winter holidays, the U.S. Bureau of Economic Analysis released new data that show the way forward. In 2020, a certain set of U.S. companies employed 28.4 million workers in America at an average annual compensation of $84,925—about 20 percent higher than the average for the rest of the U.S. private sector.

Which companies? The U.S. parents of U.S.-headquartered multinational companies. U.S. multinationals have long been among America’s strongest firms. Although they comprise far less than 1 percent of U.S. companies, in 2020 their U.S. parents accounted for 23.1 percent of all private-sector jobs, 38.5 percent of investment in plant and equipment, 46.4 percent of exports of goods, and a remarkable 72 percent of business spending on research and development.

Despite the common allegation that multinationals simply “export jobs” out of America, research consistently shows that expansion abroad by these firms has tended to complement—not substitute for—their U.S. operations. More investment and employment abroad have tended to create more American investment and jobs as well. From 1988 to 2020, employment in foreign affiliates of U.S. multinationals rose from 4.8 million to 14 million. Over that same period, employment in U.S. parents rose from 17.7 million to 28.4 million—a slightly larger increase at home than abroad.

Thanks to all their global dynamism, for decades U.S. multinationals have driven an outsized share of U.S. productivity growth, the foundation of rising standards of living for everyone. They accounted for about 40 percent of the increase in U.S. business labor productivity since 1990. For workers, the bottom line of all this is high and rising incomes. Globally connected jobs tend to pay more because global engagement fosters—and is fostered by—innovation and growth.

There is vast potential for creating more good jobs in America that are connected to the world. From 2000 to 2020, U.S. output expanded by $10 trillion—but over that generation the rest of the world grew by over $40 trillion, such that by 2020 America’s share of global output had fallen to just 24.8 percent, down from about 30 percent in 2000. Growth in labor forces and productivity around the world has boosted the purchasing power of millions of companies and billions of consumers. U.S. multinational companies have harnessed this growth through their exports from America and, even more, through the local sales of their foreign affiliates. And in the postpandemic years ahead, forecasts of continued faster growth in the rest of the world mean even greater potential for U.S. multinationals to build more jobs and opportunity in America connected to that global growth.

But realizing this potential is not a foregone conclusion, because global growth has also spawned new competitors for U.S. multinationals. The McKinsey Global Institute recently documented and analyzed the world’s “superstar” companies that generate the largest economic profits thanks to features including high productivity. From 1995 to 2016, the U.S. share of global superstar companies fell from nearly 50 percent to 38 percent. Particularly ascendant are superstars from fast-growing Asian countries, including China, India, and South Korea. There is no guarantee that past global strength of U.S. multinationals will be prologue.

And unfortunately, the sobering reality is that the United States has become largely adrift in its policy engagement with the global economy. America’s many post–World War II decades of liberalizing trade, investment, and immigration—all to the benefit of American companies, as well as to the American economy overall—have largely stalled out.

Consider trade. America has stopped pursuing new trade agreements and instead has launched and maintained a trade war. From 2010 to 2020, the United States implemented just four new free-trade agreements—three of which (Colombia, Peru, and South Korea) had been negotiated and ratified before 2010, and the fourth of which, the USMCA, was largely refining the NAFTA that had been negotiated decades earlier. Meanwhile, so many other nations have maintained and even accelerated their efforts at trade liberalization. Free-trade agreements that exclude the United States are agreements that impede the growth of U.S. companies both abroad and at home.

To support American workers, the White House and the new Congress need to turn their attention away from pandemic ad hockery. High-productivity, high-wage jobs tend to be global jobs. We should recommit to investing in creating them.

Matthew J. Slaughter is the Paul Danos Dean of the Tuck School of Business at Dartmouth, where in addition he is the Earl C. Daum 1924 Professor of International Business.

Matthew Rees is the founder of Geonomica, an editorial consulting firm that has worked with clients across a number of industries, and a senior fellow at Tuck’s Center for Business, Government & Society.

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Russia Shifting Import Sources Amid U.S. and Allied Export Restrictions

EXECUTIVE SUMMARY
Overview

Following Russia’s invasion of Ukraine in February 2022, the United States formed a coalition with 37 allies and partners that imposed sanctions and export controls to limit Russia’s access to foreign goods and technology and erode its ability to sustain the war. U.S. sanctions have immobilized Russian Central Bank assets and targeted thousands of individuals and entities. U.S. export controls were imposed to “choke off exports of technologies and other items that support Russia’s defense industrial base . . . and to degrade Russia’s military capabilities and ability to project power.” Export controls include bans or restrictions on products for military end use or to military end users, bans on exports of certain foreign-origin items like semiconductors produced with U.S. advanced technologies, tools, and software, and restrictions on exports of luxury goods to impose costs on Russian oligarchs. In addition, many multinational companies closed their Russian plants or stopped exports to Russia. 

The combination of these actions by the United States and its partners has isolated Russia from the global economy and degraded Russia’s military capabilities. However, despite an initial decline in overall Russian imports, Russia continues to have access to some dual-use technologies, such as semiconductors, through increased trade with countries like China. Looking specifically through the lens of trade statistics, this report examines the impacts of government measures and company actions on Russia’s ability to access foreign goods and technologies, including those that could support and sustain the Russian government’s war efforts. 

The report examines: overall trends in Russia’s imports to determine the extent to which Russia can import goods generally and Russia’s imports of select goods (integrated circuits, smartphones, appliances, passenger vehicles, and vehicle parts) directly impacted by export controls or firm exits to assess in more depth the impact of these measures. This report finds that the United States, its allies, and the private sector need to continue to stay ahead of Russia’s efforts to adapt to government measures and shift to new supply chain networks to access important goods and technologies, including by shifting import sources and importing goods directly or through transshipment points in some postSoviet states. This can be done through enhanced coordination, additional resources, and further strengthening enforcement efforts.

Key findings: Overall import trends

Prewar imports and inventories were high: Russian imports substantially increased prior to the invasion of Ukraine. As a result, Russia entered the war with strong inventory levels for some products, such as certain consumer goods. There was also significant growth in integrated circuit (“IC”) imports in late 2021, though inventory data for ICs are not available. The strong inventory may have mitigated some of the initial impact of export controls. 

Russian imports rebounded by the fall of 2022: Russian imports declined sharply in March and April 2022, and in April 2022 were 43 percent below the prewar median level (figure ES1). Russian imports then rebounded, exceeding median monthly prewar imports by September 2022. In the most recent three month period, August to October 2022, combined imports were 1 percent lower than in the same period in 2019 and 11 percent lower than in the same period in 2021.

Many countries have significantly curtailed exports to Russia: EU exports to Russia declined by $4.6 billion (52 percent) from October 2021 to October 2022, though the EU was the second largest supplier to Russia in October 2022 ($4.2 billion in exports). U.S. and UK exports each declined by $0.4 billion (85 and 89 percent, respectively) and Ukraine and Japan’s exports each declined by $0.3 billion (100 and 41 percent, respectively).

Russian imports from several countries significantly increased, led by China: A few countries increased exports well above prewar levels, including China, Belarus, Turkey, Kazakhstan, Kyrgyzstan, Armenia, and Uzbekistan. Exports from many other countries rebounded from their spring 2022 lows, and some post-Soviet states increased their transshipments of goods produced by multinational firms that no longer export the goods directly to Russia

Russia Shifting Import Sources Amid US and Allied Export Restrictions

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The Death of Globalisation? You Won’t Find it in New Orleans.

NEW ORLEANS — The pandemic-era collapse of supply chains spurred speculation that globalization was on the decline, as companies vowed to become less reliant on foreign providers of goods and services. But if New Orleans is any example, the world is headed for less of a retreat from global trade and more of an overhaul to how it operates.

A critical gateway between the Mississippi River and global oceans, New Orleans has been an entry and exit point for the United States since before the Louisiana Purchase. The city is now betting that position will continue — and even deepen — as the world enters a new era of global integration.

The New Orleans port is one of the nation’s busiest for agricultural exports like soybeans and corn. But it has struggled to compete for the lucrative imports that are ferried on huge ships from Asia, in part because those vessels cannot fit under a local bridge. As global supply chains rearrange in the pandemic’s wake, New Orleans’ proximity to Mexico and its position on the Mississippi River could help make it a crucial stop in what many expect to be a more resilient supply chain of the future.

Executives at the New Orleans port are wagering on that transformation: They recently unveiled a plan to spend $1.8 billion on expanding the port to a new site that can handle more trade and accommodate bigger boats.

That optimism about the future of trade breaks with some of the worst fears of the past few years, as pandemic-related supply chain disruptions, COVID lockdowns in China and Russia’s war with Ukraine shook confidence in the global trading system. Policymakers and company executives vowed to become less reliant on China and to locate supply chains closer to home. That prompted predictions that the world was headed for a period of “de-globalization,” in which the trade and financial ties that have brought countries closer in recent decades would spin into reverse.

So far, economic data shows few signs of such a sharp retreat. Global trade volumes are growing more slowly, but they continue to reach new highs, with significantly more goods and currency crossing international borders than ever before.

Some firms are looking beyond China for manufacturing capacity, but that doesn’t necessarily mean that they are retreating from global integration: Many are turning to countries like Mexico, India and Vietnam. And even as pandemic supply chain issues have alerted companies to the risks inherent in the existing trading system, that seems to be encouraging them to diversify their global supply chains, not dismantle them.

The trends, and the way institutions like the Port of New Orleans are responding, underscore that globalization is evolving rather than unraveling altogether. The changes to trade now underway seem likely to rework who partners with whom and could make international commerce less efficient and more expensive. But the profit motives that have encouraged companies to search out the globe for parts, workers and new markets are still going strong.

“When I hear people say the word ‘globalization,’ what I hear is ‘cost minimization,’” Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said in an interview Jan. 7. “The new globalization is not going to have that second part to it.”

U.S. officials remain concerned about the country’s reliance on foreign sources for key goods. The Biden administration has kept hefty tariffs on products from China and put new limits on technology trade with the country. Officials have also embraced the idea known as “friendshoring” — moving production to factories in allied countries. And they have introduced grants and tax credits to lure manufacturing of clean energy and technology products to the United States.

U.S. officials say these changes will make the nation more self-sufficient and create more jobs. But economists warn that this new model of global trade poses risks. As countries look to guard their supply chains against disruptions and geopolitical threats, they could wind up becoming protectionist in ways that make trade links more siloed and more expensive.

“I’m worried about the slippery slope that comes with these trading models,” Gita Gopinath, first deputy managing director of the International Monetary Fund, said in an interview this month.

Gopinath said that the new era of globalization could cause companies to opt for trade and transport options that prioritize political goals and consistency over cost. That could push up prices for consumers — potentially keeping inflation, which has been elevated for 18 months, faster than it would be otherwise.

Other experts are more optimistic about the changes unfolding.

Edward Gresser, the director of trade and global markets at the Progressive Policy Institute and former head of economic research for the Office of the U.S. Trade Representative, said that the rise of a middle class in Asia, the growing reach of the internet and e-commerce, and the increasing efficiency of shipping networks are pushing the world toward more, not less, trade.

Data on global trade in intermediate goods — the materials that companies use to build finished products — suggests that global supply chains have not significantly retracted in the wake of the pandemic.

Stripping out fuel, which tends to be more volatile, the share of intermediate goods in world trade remained steady through the second quarter of 2022, at around 50%, on par with the level before the pandemic, data from the World Trade Organization shows.

Although these figures might change more in the years to come, they suggest that companies are still looking to foreign partners to supply them with the parts they need — providing economic opportunity for places like New Orleans.

The city has been held back from becoming a major destination for the ever-bigger container ships that ply oceans — often destined for ports like Los Angeles, New York and Savannah, Georgia — partly because the largest ones cannot fit under a white metal bridge that stretches across the waterway just below the port’s unloading area.

Port and local government officials had debated a plan to expand the port downriver for years. Now they’re taking the leap: Last month, the governor of Louisiana announced that a public-private partnership would deliver the $1.8 billion project to build the new container terminal on the Lower Mississippi River, south of the bridge. The partners plan to apply for grants funded by the infrastructure law passed in late 2021 to help finance the project.

Port leaders are betting that the expansion will help to make the city attractive to companies that have realized their supply chains are vulnerable. Persistent congestion in LA in recent years has pushed importers to look for new entry points for their products.

And as more companies reroute their production to Mexico and other nations in Latin America, New Orleans could benefit from the proximity.

“You need to spread your supply chain,” said Brandy Christian, CEO of the Port of New Orleans.

Corporate executives appear to have a new understanding of how vulnerable their business models could be in future geopolitical disruptions — like a potential conflict between the United States and China — or the supply chain disruptions that could result from climate change, said Eswar Prasad, a professor of trade policy at Cornell University and a senior fellow at the Brookings Institution.

Prasad said that many companies were finding it hard to replicate China’s manufacturing advantages elsewhere. Still, more foreign direct investment has begun to flow to countries like India, Mexico and Brazil, he said, and the trend is likely to become more pronounced in the coming years.

“Corporations do seem convinced still of the benefits of globalization, but what they’re trying to do is mitigate some of the risks,” Prasad said. “What you’re really looking at is changes in the pattern of globalization, rather than overall volumes of global trade or financial flows.”

Jeanna Smialek writes about the Federal Reserve and the economy for The New York Times. She previously covered economics at Bloomberg News, where she also wrote feature stories for Businessweek magazine.

Ana Swanson writes about trade and international economics for The New York Times. She previously covered the economy, trade and the Federal Reserve for The Washington Post.

To read the full article, click here. 

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Trade Can Help Us Address Climate Change. Here’s How Trade Ministers are Working Together to Make that Possible

The climate crisis is an unprecedented challenge, wreaking devastation across the globe. The latest science tells us that a staggering 1.6 billion people live in climate vulnerable hotspots, meaning that their homes, livelihoods and lives are already at risk. That number could double by 2050.

Time is of the essence. This is why at the November 2022 COP27 climate conference, governments emphasised the urgent need for immediate, deep and sustained reductions of global greenhouse gas emissions by all parties, across all sectors.

The climate crisis is a double-edged sword, with action needed both at global and local level. International cooperation is therefore vital, because no country can solve this crisis alone. Governments, businesses, international organizations, academia and citizens all need to work together. That is why we, as trade leaders from Ecuador, the European Union, Kenya and New Zealand, are launching with over 50 other countries a Coalition of Trade Ministers on Climate at the World Economic Forum’s Annual Meeting 2023 in Davos, Switzerland.

The Coalition aims to drive inclusive cooperation among trade ministers in the global response to climate change, including by engaging nationally and internationally with fellow ministers working on climate, environment, finance and development, among others. Connecting the dots is vital to find coherent global solutions.

Together, we aim to provide high-level leadership and guidance to boost international cooperation on climate, trade and sustainable development. We represent different regions, stages of development, trade circumstances and varying exposure to climate vulnerabilities. This diversity, coupled with a commitment to transparency and inclusivity, reflects our commitment to build trust and work together on climate change.

Tackling the climate crisis is an enormous endeavour, and trade can and should play a role in this massive global effort. The Coalition will promote trade and investment that fosters the diffusion, development, accessibility and uptake of goods, services and technologies that support climate change mitigation and adaptation in both developed and developing countries.

Such technologies are critical for many reasons, think of the clean energy transition – solar and wind energy or green hydrogen that can be used in rural communities; or the need for technologies to face climate adaptation related challenges – water disaster management, ecosystem monitoring and restoration, early warning and information systems, amongst others.

As a group, we will identify ways for international cooperation and collective action on trade and trade policy to positively contribute to the global response on climate change, including at the World Trade Organization and in relevant multilateral, plurilateral, regional and sectoral initiatives. Importantly, the Coalition will also identify trade-related strategies supportive of the most vulnerable developing and least developed countries.

To achieve the scale and speed of climate action required, we need to harness innovative technologies, investment and talent from all over the world. We must also ensure that global trade flows, rules and trade policies help to drive down greenhouse gas emissions, enable a just transition and support climate-resilient sustainable development.

Let us be clear: this is no easy task. To achieve the Paris Agreement on Climate Change goals, countries will need to pursue policies that transform the way we produce, consume and invest – this will entail a range of implications for trade.

Transparency, inclusive dialogue and cooperation on the trade dimensions of climate policies will be crucial to avoid trade tensions, while helping to build understanding of domestic realities and identify paths forward.

In Davos, we are meeting with business, non-governmental organizations, experts and international organizations heading climate action initiatives, to explore how our work can accelerate these activities.

This Coalition is just the beginning. We will build alliances and partnerships with climate and finance ministers, as well as other relevant stakeholders, to become a truly global and inclusive platform for concrete actions and ideas.

The world is at a tipping point. We have no time to lose if we want to build economic systems that are climate neutral, resilient and able to deliver sustainable development.

With this Coalition of Trade Ministers on Climate, we are announcing our shared intention to work together on these challenges in the years ahead.

Valdis Dombrovskis is the Executive Vice-President for an Economy that Works for People; Commissioner for Trade, European Commission.

Moses Kuria is the Cabinet Secretary for Trade, Investments and Industry, Ministry of Trade, Investments and Industry of Kenya.

Damien O’Connor is the Minister of Trade and Export Growth, Ministry of Foreign Affairs and Trade of New Zealand.

Julio José Prado is the Minister of Production, Foreign Trade, Investment and Fisheries, Ministry of Production, Foreign Trade, Investments and Fisheries of Ecuador.

To read the whole article, please click here. 

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The WTO’s National Security ‘Thin Ice’ Moment Could Shatter Reform Talks

The already-beleaguered World Trade Organization dispute settlement system suffered new blows in December when multiple panels found that U.S. actions were not justified on national security grounds, including U.S. tariffs on steel. 

The United States wasted no time in rejecting the findings, with U.S. Trade Representative Katherine Tai commenting that the WTO was “on very, very thin ice,” prompting angry reactions in Europe. The cases have made the critical work of restoring a consensus on WTO reform considerably more difficult. 

While reactions to the panel decision and its aftermath have focused on the Biden administration’s rejection and what it portends for the WTO, that reaction would have been the same regardless of the product and circumstances, and every U.S. president since Truman would have done the same. Any effort to move beyond this new crisis needs to start with recognizing that fact and accepting that bringing such damaging and shortsighted cases should be avoided in the future.

From the outset of the WTO’s predecessor, the 1947 General Agreement on Tariffs and Trade (GATT), the United States has been clear in its position that a party to the GATT and WTO may judge for itself when its national security interests justify raising tariffs or otherwise disregarding multilateral trade rules. Trade experts should not be second-guessing such decisions. The United States was not alone in taking this position; at various times, many other members have agreed, including some who would later challenge the U.S. steel tariffs such as the European Union and Norway. 

This position was minimally disruptive to the trading system because of a strong norm that national security was to be invoked only rarely, and because creative trade diplomacy contained the fallout when it was. That norm was broken during the Trump years, not only when he initiated several national security investigations ranging from steel to autos, but when others, including China and Russia, increasingly restricted trade in the name of national security. 

In response, WTO parties began to litigate the fundamental question of whether national security decisions could be reviewed. This was a lose-lose proposition since a clear finding for the U.S. position could open the door for abuse. And a finding against the U.S. position would almost certainly be disregarded, to the detriment of the system’s credibility. 

But even more fundamentally, the decision to bring the case was pointless. The same relief — the right to raise tariffs on U.S. goods — was available without touching this third-rail issue. When a WTO member fails to implement an adverse decision, the member bringing a case is permitted to raise duties on the losing party’s goods. But the U.S. has in the past acknowledged that others may retaliate against national security measures and it was willing to litigate the amount. That solution was likely available here and would have spared the fallout from having the WTO second guess a member’s national security decisions. That this solution was not pursued was a failure of diplomacy, and only reinforced the U.S. concern that the system has encouraged litigation over negotiation.

The national security decisions could not have come at a worse time for the WTO. WTO members have been discussing reforms that might lead to the restoration of the organization’s dispute settlement system to full functionality. The Trump administration hobbled the system by blocking appointments to its appellate body, acting on long-standing, bipartisan U.S. concerns that the body was overreaching its authority and making law. The path to restoring the WTO’s dispute settlement function lies in assuring the United States that the system can be trusted to respect its limits and that attempts by members to push beyond those limits through litigation will be rejected. The decision to bring the national security cases and the outcome of those cases is the opposite of reassuring. 

While these cases have complicated the path toward restoring the dispute settlement system, the effort must continue. For all its flaws, the system has played an important role in resolving and containing disputes. One need look no further than the trade wars unleashed by the Trump administration to see the value in a system that heads off escalating tit-for-tat duties between countries insisting on their own rectitude. And the system lends credibility to the multilateral rules that are the embodiment of international economic cooperation, and which our allies continue to insist serve as the baseline for our trade relations, even as we respond to new security and economic challenges that may require deviating from free-trade orthodoxy. 

Some in the United States may conclude from the national security decisions that the dispute settlement system should not be revived. But as the U.S. response illustrates in the clearest terms, a functioning dispute settlement system would not prevent the United States and its allies from going outside the system to take actions necessary to address China’s predatory targeting of key sectors, nor would it prevent the United States from addressing climate change or strengthening U.S. manufacturing. 

The WTO has no army. It has no black helicopters. Dispute outcomes are not U.S. law. The U.S. and others always can choose whether to comply, understanding that the complainant may raise duties on their goods if they do not — an option available in any event. But the system limits that retaliation to the impact of the inconsistent measure, avoiding cascading retaliation cycles. And the system brings stability to the vast majority of commercial transactions not implicated by the new challenges facing the global community.

Some U.S. trading partners may likewise conclude from the U.S. reaction to the national security decisions that the United States has no interest in multilateral rules or enforcement mechanisms. But any U.S. administration would have done the same, even during the decades when the United States was at the forefront of promoting the multilateral trading system. The outcomes should instead serve as a wake-up call that WTO members need to exercise greater restraint in litigating. Similar restraint must be directly built into the WTO enforcement mechanism itself so that it buttresses support for the system, rather than undermines it, for example, by codifying the past practice of limiting national security litigation to cover only the amount of retaliatory measures. 

Bruce Hirsh is principal at Tailwind Global Strategies. He previously served in senior positions at the Office of the U.S. Trade Representative and the Senate Finance Committee. 

To read the full paper, please click here. 

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