William Krist's Blog, page 35

Services Trade Needs to be Taken as Seriously as Goods Trade

Services constitute at least a quarter of total trade. Between 2009 and 2019 global services trade increased by nearly 50%, compared to 18% for goods trade. Yet it is rarely taken as seriously as goods in global trade policy discourse. This is a problem when making the case for trade.

There seem to be three major reasons why services trade is not taken sufficiently seriously.

Definition: Politicians and specialists don’t fully understand what services trade involves and are then unable to elaborate the benefits of growing the sector – they may not even think of it as ‘real trade’;
Measurement: Difficulties in counting services leads to oddities like the two largest services exporters claiming a surplus with each other, or iPhones being considered a product when their services components are of much greater value;
Mutuality: Countries have found it difficult to demonstrate beneficial trade relations with other countries in services given that barriers are primarily regulatory in nature.

It is time to change the services narrative, to show that this is real and growing trade, and likely to increase in importance in the future. We need also to broaden the debate from generic consultancy or financial services to specifics like films or engineers. Developed countries particularly reliant on services trade should take that lead, tackling the problems and emphasising services as just as important as goods.

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To read the full report from the European Centre for International Political Economy (ECIPE), please click here. 

Reimagining Trade: Can Mutual Benefit be Restored?

It is not an exaggeration to say that trade has transformed the world, especially during the latter half of the 20th century. While trade has not been an idyllic panacea, no other single factor has driven greater gains in global economic development and rising standards of living.

Today, the trade landscape looks like a battlefield. Protectionist policies are on the rise. Global trade governance has been derailed. The two largest economies in the world remain locked in the most significant trade war in 90 years, while smaller trade spats are breaking out across the globe. We are approaching an inflection point. If we hope to continue to derive transformative benefit in the decades to come, trade relationships will need to be reimagined.

In this essay, Hinrich Foundation Senior Research Fellow Stephen Olson notes that hardheaded pragmatism should point us towards a greater emphasis on broad based mutual benefit in our trade relationships. It would be counterproductive to have idealized expectations about a “Kumbaya moment”, but resorting to protectionism and the ‘blame game’ will do little to secure a sustainable future for workers, consumers, companies, and economies.

Reimagining trade can mutual benefit be restored - Hinrich Foundation white paper - Stephen Olson - July 2021

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

Collateral Benefits? South Korean Exports to the United States and the US-China Trade War

This Policy Brief assesses the extent to which the United States increased its imports from South Korea after the US imposition of tariffs on Chinese exports. Korea benefited from this shift in US imports, although the increase was relatively small in most sectors. The authors use highly disaggregated US import and tariff data to examine adjustments in US purchases of manufactured goods from its trade partners. Their analysis indicates that Korea made a small gain in the US market following the levying of US tariffs on Chinese exports, with Korea’s share of overall US manufacturing imports rising 0.9 percent and its share of US manufacturing imports subject to trade war tariffs rising 1.0 percent. Gains were spread across a variety of manufacturing sectors—such as wood products, textiles and apparel, and machinery—reflecting both the choices made by US officials regarding which Chinese exports to tax and the nature of preexisting trade relationships between South Korea and the United States.

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To read the full policy brief from the Peterson Institute for International Economics (PIIE), please click here. 

Less Than a Full Deck: Russia’s Economic Influence in the Mediterranean

Russia’s intervention in Syria in 2015, and then subsequently in Libya, marked its return as a major actor in the Mediterranean. Much has been made of Russia’s use of all elements of statecraft, includ- ing diplomatic, ideological, military, and economic instruments, to advance its interests in this region, a vital shipping and transit corridor. A closer look at Russia’s economic tool kit in this region, however, suggests concerns about Russian economic capabilities are likely overstated.

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To read the full article by the Carnegie Endowment for International Peace, please click here.

Enabling trust, trade flows, and innovation: the DEPA at work

Three significant trends have emerged in the last decade across different forms of digital trade. First, there has been a significant increase in both volume and value. According to recent estimates, the “digital economy” comprises 15.5 percent of world GDP, with the value of e-commerce sales perhaps twice that share. The second trend involves many new regulations, often incoherent in scope and effect. As a result, the third trend is becoming more prevalent: the rise in many kinds of digital trade restrictions.

The COVID-19 pandemic has exacerbated these trends. According to one estimate, COVID has accelerated the digitalisation of business operations by up to a decade. The move towards more digital governance is also becoming more widespread with many recent free trade agreements (FTAs) including “e-commerce” chapters and provisions. Six months into the pandemic, however, a new kind of digital trade agreement was ratified with, very fittingly, the electronic signatures of three small, open, Asia-Pacific economies: New Zealand, Singapore, and Chile. Since that virtual signing ceremony, several similar agreements have followed or are in prospect.

In this paper, former New Zealand trade negotiator Stephanie Honey explores several policy options for digital trade governance. It outlines the innovative features of the DEPA approach and details its goal to realise the full potential of digital trade for businesses, while also safeguarding policy space for governments. The paper also reflects on the DEPA’s scope of impact, given that many of its provisions are “soft law” rather than legally binding rules – and whether flexibility might in fact be an advantage in this fast-moving area.

The DEPA at work - Hinrich Foundation white paper - Stephanie Honey - July 2021 RV

To read the original report from the Hinrich Foundation, please visit here

How Barriers to Cross-Border Data Flows Are Spreading Globally, What They Cost, and How to Address Them

For centuries information has flowed around the world, steadily increasing with the rise of international mail, the first transatlantic cables in the 1850s, and the first transatlantic telephone cable in the 1950s. What is different now is that the Internet creates the potential to send large amounts of data quickly and at virtually no cost to almost any part of the world. Moreover, on this global network, sending data abroad costs no more than sending data domestically. COVID-19 has made clear that data flows are critical to the global economy, enabling both economic responses (e.g., data sharing for medical research, the monitoring and automated control of vaccine production facilities, and the adoption of digital services for business continuity) and societal responses (e.g., family video calls, contact tracing, streaming content for entertainment, and online shopping). Data flows will only continue to rise as more countries and sectors embrace digital transformation.

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Nigel Cory (@NigelCory) is an associate director covering trade policy at ITIF. He focuses on cross-border data flows, data governance, and intellectual property, and how they each relate to digital trade and the broader digital economy.

Luke Dascoli is the economic and technology policy research assistant at ITIF. He was previously a research assistant in the MDI Scholars Program at the McCourt School of Public Policy’s Massive Data Institute. He holds a B.A. in Political Economy from Georgetown University.

To read the original research report from the Information Technology & Innovation Foundation, please visit here

How COVID-19 Medical Supply Shortages Led to Extraordinary Trade and Industrial Policy

Early in the COVID-19 pandemic, a global shortage of hospital gowns, gloves, surgical masks, and respirators caused policymakers around the world to panic. This paper examines international trade in this personal protective equipment (PPE) during the crisis, with a focus on China, the European Union, and the United States. As the pandemic first hit, China increased imports and decreased exports of PPE, removing considerable quantities of supplies from global markets. For the European Union and United States, the decrease in their imports from China was not immediately replaced by increased trade from other foreign suppliers. Early shortages led to EU and US export controls on their own, domestically produced PPE and other extraordinary policy actions, including a US effort to reserve for itself supplies manufactured in China by a US-headquartered multinational. By April 2020 China’s exports had mostly resumed, and over the rest of the year its export volumes of some products surged, more than doubling compared to pre-pandemic levels. But China’s export prices also skyrocketed and remained elevated through 2020, reflecting severe and continued shortages. This paper documents these facts. It also explores these and other government actions, such as US trade war tariffs and the emergence of US industrial policy in the form of over $1 billion of subsidies to build out its domestic PPE supply chain, as well as potential lessons for future pandemic preparedness and international policy cooperation.

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To read the full working paper from the Peterson Institute for International Economics (PIIE), please click here. 

Building the Road to Greener Pastures: How the G20 Can Support the Recovery with Sustainable Local Infrastructure Investment

The economic consequences of COVID-19 have increased the need for substantial infrastructure investment to support the global recovery. This report recommends that the focus should be, in particular, on sustainable investment to help achieve the Paris Agreement climate targets and to avoid more capital becoming stranded as climate policies toughen in the coming decades. Local infrastructure, which accounts for most sustainable infrastructure needs, should be a major target area. Building on the G20 Principles for Quality Infrastructure, this report investigates the role those different aspects of predominantly local infrastructure could play in the decarbonisation of the G20 economies.

The economic crisis arising from COVID-19 has led G20 economies to unleash huge volumes of fiscal support. This support has tended to prioritise protection of existing economic structures. As support measures transition into fiscal stimulus, G20 governments must consider the structural impact that measures will have on long-term economic growth. The necessity for fiscal stimulus in the recovery provides a unique opportunity for a sustainable infrastructure strategy aimed at transforming G20 economies into economies fit for the challenges and changes of the twenty-first century.

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To read the full report from Bruegel, please click here. 

A new direction for the European Union’s half-hearted semiconductor strategy

A basic component in electronic devices, semiconductors are essential to the production of many products, from smartphones to cars. Securing reliable supplies of semiconductors to safeguard the production lines of a range of industries has thus become an important policy goal, especially in the context of an increasingly confrontational international environment in which high-technology leadership is also associated with military power and geopolitical reach.

The semiconductor sector is highly concentrated, capital- and R&D-intensive, and particularly exposed to bottlenecks and political risks. High-end chip fabrication is centred in Asia, dominated by the duopoly of Taiwan’s TSMC and South Korea’s Samsung. In other parts of the supply chain, companies in the United States and Europe hold relative monopolies that have been leveraged for trade sanctions. The United States has taken steps to block the supply of chips and components to emerging tech giants in China, and to contain China’s ambitions of building its own cutting-edge chip production capacities.

Heavy United states and Chinese investment poses a challenge to the European Union, which in response has set the goal of increasing European production beyond domestic demand. To increase its presence in this strategic and thriving sector, the EU needs a more targeted strategy that builds on its existing strengths while accommodating its relatively low domestic needs. Instead of investing public funds in a subsidy war over fabrication capacity, the EU should focus on inputs and chip design. However, no economy can hope to fully achieve independence in the sector and ensuring sustainable supply through diplomatic means should therefore also be a priority. Lastly, Europe’s small role in global semiconductor production is symptomatic of shortcomings in the European environment for high-tech innovation. These shortcomings should be addressed.

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Niclas Frederic Poitiers is a Research Fellow at Bruegel. Pauline Weil is a Research Assistant at Bruegel. 

To read the full report from Bruegel, please click here. 

WTO Annual Report: 2021

The WTO’s Annual Report, published today (9 July), provides a comprehensive account of the organization’s activities in 2020 and early 2021. The Report opens with a message from Director-General Ngozi Okonjo-Iweala and a brief overview of the past year. This is followed by in-depth accounts of the WTO’s main areas of activity.

In her opening message, DG Okonjo-Iweala says:

“The multilateral trading system has played an important part in efforts to fight COVID-19. Trade’s resilience represented a lifeline for millions, enabling access to food and other essential supplies. Now, the WTO can and must play a critical role in accelerating COVID-19 vaccine production and in ensuring a strong, sustained and inclusive global economic recovery.

“To live up to its founding objectives of using trade to help people — to raise living standards, create jobs and promote sustainable development — the WTO must deliver results this year. By responding together to a global crisis without precedent in our lifetimes, members can begin to rebuild the trust needed to address future challenges.”

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To read the full report from the World Trade Organization (WTO), please click here.