William Krist's Blog, page 30

FDI in the ASEAN States: The Engine that Roared

FDI is the engine that has propelled economic growth in Southeast Asia over the last few decades. The region, grouped together as the Association of Southeast Asian Nations (ASEAN), has astutely used foreign investment and know-how to upgrade technology and skills and to transition from a low-cost manufacturing model to high-value goods and services. This openness to trade and investment has transformed the region’s economic fortunes, with front-runners such as Singapore, Vietnam, Malaysia, Cambodia, and Thailand at the vanguard of global manufacturing in fields as diverse as electronics, automobiles, pharmaceuticals, and textiles.

ASEAN’s success as a manufacturing hub would not have been possible without both an openness to trade and the presence of regional supply chains that favorably position Southeast Asia as an essential supplier of raw materials and key components for final assembly in China. At the same time, however, it is becoming more difficult for ASEAN to navigate the uncertainties spilling into the investment environment from three areas often outside its control: geopolitics and decoupling, deglobalization, and climate change. In this essay, Vasuki Shastry, Associate Fellow in the Asia-Pacific Programme at Chatham House, examines both the tailwind trends behind ASEAN’s success in becoming a leading region for FDI and the headwinds that threaten to slow its ascent.

NBR Roundtable Essay - Vasuki Shastry

To read the full report from The Hinrich Foundation, please click here.

Can and Should the US Compete with China in Infrastructure Diplomacy?

Neglected for decades by developed countries and international development institutions, infrastructure has garnered renewed attention. With the global infrastructure gap estimated to exceed US$40 trillion, the need for more infrastructure is overwhelming.

China’s Belt and Road Initiative (BRI), inescapable due to its size and ambition, is also renewing attention on infrastructure projects. China’s promise to spend trillions of dollars in infrastructure through the initiative, ostensibly to strengthen global trade routes, has raised much concern in many countries and triggered the ideation of equally ambitious plans for infrastructure development.

Chief among the competitors is the United States. At the 2021 G7 Summit, the US launched the Build Back Better World initiative, or B3W. Established to build infrastructure, B3W is also expected to set new standards that better reflect the values of Western democracies, and balance against the BRI and China’s global reach. The questions many are asking: Will the initiative be successful? Can or should the US compete with China in infrastructure diplomacy? Can the B3W and the BRI collaborate?

In this essay, Maria Adele Carrai of New York University Shanghai compares China’s BRI and the US-led B3W, focusing on the differences between the two approaches and the limitations of B3W to compete with the BRI. Carrai argues that the need is urgent for the US and China to better coordinate international infrastructure investments, effectively allocate resources, and avoid duplicates or overlapping of initiatives. Most importantly, they must consider the real needs of the developing world rather than simply fall prey to geopolitics and strategic considerations.

Can and should the US compete with China in global infrastructure financing - Maria Adele Carrai - Hinrich Foundation - November 2021

To read the full report from The Hinrich Foundation, please click here.

Going, Going, Gone? To Stay Competitive in Biopharmaceuticals, America Must Learn From Its Semiconductor Mistakes

U.S. leadership in advanced-technology industries is never guaranteed. America once held dominant market shares in a long list of industries—including consumer electronics, machine tools and robotics, telecommunications equipment, and solar panels—only to see those leads significantly erode, and in some cases evaporate entirely. And because process and product innovation are so often joined at the hip, losing production capacity to overseas competitors often leads to loss of U.S. innovation capacity. Some contend it’s acceptable to cede leadership in innovation industries because America will just create new ones. But intensifying global competition, notably from China, now makes such indifference untenable.

America’s loss of semiconductor manufacturing capacity (which has fallen from 37 to 12 percent of global production over the past three decades) and its lag in cutting-edge chip development both are due in significant part to policy inattentiveness. This should serve as a warning for policymakers: Failing to maintain a policy environment that nurtures both innovation and domestic production capability risks sacrificing U.S. leadership in other advanced-technology industries, such as biopharmaceuticals.

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To read the full report from the Information Technology & Innovation Foundation, please click here.

Global Trade Freedom Has Declined for the Fourth Straight Year

Each year, the Index of Economic Freedom shows that economies and people are better off when trade is free and open. The correlations between free and open trade and healthy natural environments, higher GDP, political tranquility, and food security are undeniable. To improve their trade-freedom scores, countries should lower their domestic barriers to trade by eliminating tariffs and nontariff barriers. Eliminating tariffs gives the greatest boost to trade freedom, but entering into free trade agreements with other countries can also lower barriers. It is crucial that these agreements truly promote free trade rather than just manage trade flows through burdensome regulations. Countries must also remain dedicated to their World Trade Organization commitments while they seek reform of the organization.

 
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To read the full report from The Heritage Foundation, please click here.

Goods Barometer Points To Slowing Trade Growth Due To Disruptions In Critical Sectors

Following its sharp rebound from the initial shock of the COVID-19 pandemic, global merchandise trade is slowing, with production and supply disruptions in critical sectors dampening growth alongside cooling import demand, according to the WTO’s latest Goods Trade Barometer issued on 15 November.

The Goods Trade Barometer is a composite leading indicator providing real-time information on the trajectory of merchandise trade relative to recent trends ahead of conventional trade volume statistics. The latest barometer reading of 99.5 is close to the baseline value of 100 for the index, indicating growth in line with recent trends.

The return to trend follows the record reading of 110.4 in the previous barometer issued in August, which reflected both the strength of the trade recovery and the depth of the pandemic-induced shock last year. Recent supply shocks, including port gridlock arising from surging import demand in the first half of the year and disrupted production of widely traded goods such as automobiles and semiconductors, have contributed to the barometer’s decline.

It now appears that demand for traded goods is also easing, as illustrated by falling export orders, which further weighed down the barometer. Cooling import demand could help ease port congestion, but backlogs and delays are unlikely to be eliminated as long as container throughput remains at or near record levels.  

All of the barometer’s component indices were declining in the latest period, reflecting a broad loss of momentum in global goods trade. The steepest decline was seen in the automotive products index (85.9), which dropped below trend as a shortage of semiconductors hampered vehicle production worldwide. This shortage was also reflected in the electronic components index (99.6), which fell from above trend to on trend. Indices for export orders (97.8), container shipping (100.3) and raw materials (100.0) also returned to near their recent trends. Only the air freight index (106.1) remained firmly above trend as shippers sought substitutes for ocean transport. 

The latest barometer reading is broadly consistent with the WTO’s revised trade forecast of 4 October, which foresaw global merchandise trade volume growth of 10.8% in 2021 — up from 8.0% forecasted in March — followed by a 4.7% rise in 2022. The forecast also showed quarterly trade growth slowing in the second half of 2021 as the volume of merchandise trade volume approached its pre-pandemic trend.

The outlook for world trade continues to be overshadowed by considerable downside risks, including regional disparities, continued weakness in services trade, and lagging vaccination rates, particularly in poor countries. COVID-19 continues to pose the greatest threat to the outlook for trade, as new waves of infection could easily undermine the recovery.

To read the full research article by the WTO, please click here.

Public Policy for the Metaverse: Key Takeaways from the 2021 AR/VR Policy Conference

AR/VR technologies have transformative potential in everything from entertainment and communication to workforce development and education. But they also raise unique considerations on issues that policymakers are grappling with in relation to other technologies, such as privacy, safety, security, and equity.
 
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To read the full report from the Information Technology & Innovation Foundation, please click here.

Can EU Carbon Border Adjustment Measures Propel WTO Climate Talks?

Reforms proposed in the European Union’s “Fit for 55” climate policy package are likely to sharply increase the cost paid by European firms for their greenhouse gas (GHG) emissions. Recognizing that increased carbon prices would put European firms at a disadvantage in competing with imports from countries that produce without incurring these costs, the European Commission has proposed a Carbon Border Adjustment Mechanism (CBAM) requiring that the most carbon-intensive EU imports either incur comparable carbon charges as EU firms or pay the equivalent of a carbon-based tariff. The CBAM aims to deter carbon leakage, which could arise if firms shift carbon-intensive production out of Europe to facilities in countries that do not tax GHG emissions (or tax at a low rate) and then export the goods to Europe. European production and output would suffer and global climate efforts to reduce GHG emissions would be undercut. The loftier goal is to encourage other countries to follow the European example and strengthen their own national decarbonization policies, which in turn would exempt their goods from CBAM charges.

The CBAM would cover five carbon-intensive industries: iron and steel, aluminum, fertilizer, electricity, and cement. Countries most affected by the CBAM include Russia, China, Turkey, the United Kingdom, Ukraine, South Korea, and India. Some are likely to contest the policy, claiming that the CBAM is a unilateral measure that violates World Trade Organization rules and bolsters protectionism while hampering rather than encouraging efforts in other countries to tackle climate change. A better and more feasible approach would be adoption of a CBAM moratorium while negotiations are conducted to promote carbon abatement policies that comply with the rules-based global trading system.

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To read the full report from the Peterson Institute for International Economics, please click here.

A Worker Centric Digital Trade Agenda

Digital technologies have created millions of new jobs and have been a lifeline for many small businesses and individuals during the COVID-19 pandemic. At the same time, new technologies have given rise to many new challenges for workers and other online users. This paper explores how to address these challenges through a worker-centric digital governance agenda.

The time is ripe for the U.S. to negotiate or join a digital trade agreement. As the American Leadership Initiative has written, the U.S. must seize this opportunity to set global internet standards of openness, transparency, and democracy, as opposed to China’s increasingly influential vision of an autocratic internet that facilitates state control, censorship, and surveillance.1 China’s growing technology leadership and autocratic internet standards ultimately undermine our national interests, including democracy itself.2 Developing new global internet standards is also an important step to achieving other goals: strengthening America’s economy and national security; addressing the growing role of digital technologies throughout the economy and working with our allies to provide open markets and interoperable regulations for the growing number of workers and small businesses who use digital technologies.

The Administration has pledged to reject business as usual in the trade sphere, stating that new trade policies and agreements must be “worker-centric.” While this term is often used to describe more robust labor protections and provisions, it is part of a larger initiative to develop new trade policies that have not only expanded worker provisions, but also stronger environmental protections, stricter provisions regarding state-owned enterprises and subsidies, and other policies that will allow the balance of benefits from trade agreements to accrue more to workers and less to large corporations.

New digital policies can be crafted to fit into this “worker-centric” framework – policies that will address workers’ needs in a shifting economy, whether as part of a standalone agreement or part of a larger bilateral or plurilateral agreement.

ALI+Report-A+Worker+Centric+Digital+Agenda

To read the full report from the American Leadership Initiative, please click here.

The Manufacturer’s Dilemma: Reshoring and Resiliency in a Pandemic World

From the Rust Belt to the White House, policymakers, manufacturers, and consumers are debating the merits of reshoring, nearshoring, and building more resilient supply chains in a pandemic world. President Joe Biden has largely maintained many of the previous administration’s trade policies while outlining his own administration’s commitment to “Buy American” and build more resilient supply chains. Supply chain resiliency is defined as the capacity for a supply chain to resist and respond to disruptions, minimizing the time needed to recover operational capacity. Reshoring, on the other hand, occurs when suppliers reduce their dependence on global supply chains by moving production within domestic borders. These pandemic-induced dynamics have complicated industries’ responses to supply chain issues. Should supply chains be built for resiliency or efficiency, and what are the trade-offs between the two approaches? This report assesses how these industries have been affected by the pandemic and how they have responded, particularly whether firms have chosen to embrace resiliency or pursue reshoring.

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To read the full report from the Center for Strategic & International Studies, please click here.

The Smoot‐​Hawley Trade War

In the words of Robert J. Samuelson, “The ghost of Smoot‐​Hawley seems to haunt President Trump.” As fears of a trade war between the United States and China grew after the U.S. presidential election of 2016, many commentators drew this link between the signing of the Smoot‐​Hawley Tariff Act of 1930 and recent trade disputes. And the consensus was that the trade wars of the 1930s were an ominous portent of what might await the world if Donald Trump’s protectionist impulses were not checked.

Empirical and theoretical interest in understanding the effects of trade wars has surged in response to the recent U.S.-China trade war. The fast‐​moving literature focuses on the effects of the tariff increases of 2018–2019 on U.S. manufacturing employment, producer prices, and capital expenditure of firms as well as consumer welfare losses in the form of higher prices and nearly complete pass‐​through.

This was by no means the first trade war in which the United States was a combatant. However, while economists have for decades used the tariff wars sparked by the Smoot‐​Hawley legislation of June 1930 as a cautionary tale of what can go wrong when protectionism gets out of hand, remarkably little quantitative research has been conducted on the Smoot‐​Hawley trade war. Even more surprisingly, perhaps for nonspecialists, the general conclusion of quantitative economic historians who have explored the effects of 1930s protectionism is that it had less impact than was traditionally thought. The point is straightforward: the collapse in gross domestic product during the Great Depression was so large that, on its own, it can explain the bulk of the trade collapse of 1929–1933; there is relatively little left over to explain the decline in trade. Our work aims to fill this gap in the literature. We estimate the quantitative impact of the Smoot‐​Hawley trade war on trade flows and conclude that it was big.

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To read the full report from the Cato Institute, please click here.