William Krist's Blog, page 41

How Much Vaccine Will Be Produced This Year?

Currently there is a shortage of COVID-19 vaccines. The 1.73 billion doses of vaccine produced to date pales when compared to the 10.82 billion doses needed to inoculate 75% of the world’s population aged 5 or over.1 The shortage is acute in many developing countries that have been unable to secure vaccine supplies—hence legitimate concerns about the equitable access. That new variants develop among the uninoculated which then spread across borders is a reminder that a global perspective on vaccine production and distribution is required. 

The private sector is ramping up fast COVID-19 vaccine production, thereby narrowing the gap between vaccine supply and demand. The purpose of this note is to report the latest estimates of how much of the vaccine shortage will be eliminated this year, given what is known today about existing vaccine production capacity, announced capacity expansion this year, and sobering lessons learned from attempts to boost production during the first five months of this year. The projections reported here do not include any extra production that might result from the adoption of a TRIPS waiver at the World Trade Organization.

Inevitably, any forward-looking exercise like this involves making forecasts—details of which can be found in the box below. How good are previous forecasts using this approach? Figure 1 shows the total production levels forecasted in February 2021, the observed outcomes, and contrasts them to the vaccine manufacturers’ projections. The latter were way off. However, Airfinity’s forecasts closely track the substantial vaccine production increases observed in March and April 2021. The average percentage forecast error fell from 20.1% in March to just 9.8% in April.

Using the same method, and taking account of the fact that 18 vaccines are in phase III trials and given what is known about the likelihood of their approval and related production plans, it is possible to project out COVID-19 vaccine production through to the end of 2021 (see Figure 2). By the end of December 2021, the total number of doses produced is projected to be 11.14 billion, exceeding the 10.82 billion doses needed.

Production in the third quarter of 2021 is expected to be in excess of 3 billion doses, whereas in the fourth quarter production is expected to reach just under 5 billion doses. Should these forecasts come to pass, enough vaccine will have been produced this year to reach herd immunity worldwide. Booster shots would add to demand—but the first round of inoculation would not be held back on account of limited production. These findings imply the current vaccine shortage can be eliminated this year.

AFSGEPTTL320May2021 (1)

To read the full report, please click here. 

Troubling Relief: The Evolution of the Section 232 Steel and Aluminum Tariff Exclusion Process

This policy brief examines the evolution of the Section 232 steel and aluminum tariff exclusion program by focusing on the formulation of the process and its implementation up to the December 2020 interim rule changes. The exclusion process underwent four distinct evolutionary periods, delineated by major changes to the rules and the administration of the tariff relief program. Though the Trump administration exercised prudence and political acuity when it decided to establish a relief program, the resulting exclusion process has been too convoluted to mitigate the harmful effects of the Section 232 tariffs.

As the Biden administration begins its term, a review of these tariffs and the accompanying exclusion process is a matter of some urgency. The US Department of Commerce should review how the steel and aluminum tariffs have affected domestic industrial supply chains and formulate policies that help make domestic manufacturing more competitive and export oriented, not less. This policy brief contributes to such a review and offers several recommendations for administration and congressional trade policymakers.

The Evolution of the Section 232 Steel and Aluminum Tariff Exclusion Process

In March 2018, President Donald J. Trump imposed ad valorem tariffs on imported steel and aluminum products to protect domestic producers. President Trump established these tariffs, 25 percent for steel and 10 percent for aluminum, under the presidential authority granted to him by Section 232 of the Trade Expansion Act of 1962. The groundwork for this action was laid starting in April 2017, when, under Section 232 authority, the Department of Commerce began investigating steel and aluminum imports to determine whether specific imports harm US national security. Based on the results of that investigation, the Department of Commerce’s Bureau of Industry and Security (BIS) recommended in January 2018 that the president implement quotas and tariffs to protect US steel and aluminum producers from imports for national security reasons. Two months later, in his proclamations establishing the steel and aluminum tariffs, the president posited that imports “weaken our internal economy” and “impair the national security.”

The tariffs did have some support in Congress. In October 2017, both Democratic and Republican members of the Congressional Steel Caucus were calling for tariffs. However, administration officials were concerned that the political benefits to be reaped from tariffs might be neutralized by the economic costs of tariffs on downstream manufacturing firms and employees. These concerns led to a deal to simultaneously erect the Section 232 tariffs on steel and aluminum imports, negotiate annual quotas with the governments of select exporting nations, and establish a tariff exclusion process for domestic steel- and aluminum-consuming industries.

The administration’s decision to quickly launch an exclusion process was prudent but haphazardly prepared. The proclamations that established the Section 232 tariffs on steel and aluminum also authorized relief for importing industries and directed the Department of Commerce to determine whether an import was also produced in the United States “in a sufficient and reasonably available amount or of a satisfactory quality.” The president also instructed Secretary of Commerce Wilbur Ross to “issue procedures for the requests for exclusion” within 10 days, thereby rushing both the collection of tariffs and the implementation of a complex exclusion process.

The exclusion process has unfolded through four distinct evolutionary periods associated with major changes to its rules and administration (see figure 1). The rollout encompassed the preparation and initial administration of the exclusion process. The second period began with the September 11, 2018, interim rule changes that added rebuttal and surrebuttal submissions in contested cases. The third period was initiated in June 2019, after the introduction of an exclusive web-based portal for submitting requests, objections, rebuttals, surrebuttals, and accompanying documentation, including confidential business information. This period also featured the administration’s February 8, 2020, decision to expand the Section 232 steel and aluminum tariffs to derivative products. The fourth period commenced with the December 2020 rule changes that established General Approved Exclusions (GAEs).

langevin_-_policy_brief_-_troubling_relief_the_evolution_of_the_section_232_steel_and_aluminum_tariff_exclusion_process_-_v1

To read the full Policy Brief by the Mercatus Center, please click here. 

China: Rise or Demise?

Policymakers increasingly view China’s rapidly growing wealth as a threat. China currently ranks second, or perhaps even first, in the world in gross domestic product (although 78th in per capita GDP), and the fear is that China will acquire military prowess commensurate with its wealth and feel impelled to carry out undesirable military adventures.

However, even if it continues to rise, China does not present much of a security threat to the United States. China does not harbor Hitler-style ambitions of extensive conquest, and the Chinese government depends on the world economy for development and the consequent acquiescence of the Chinese people. Armed conflict would be extremely—even overwhelmingly—costly to the country and, in particular, to the regime in charge. Indeed, there is a danger of making China into a threat by treating it as such and by engaging in so-called balancing efforts against it.

Rather than rising to anything that could be conceived to be “dominance,” China could decline into substantial economic stagnation. It faces many problems, including endemic (and perhaps intractable) corruption, environmental devastation, slowing growth, a rapidly aging population, enormous overproduction, increasing debt, and restive minorities in its west and in Hong Kong. At a time when it should be liberalizing its economy, Xi Jinping’s China increasingly restricts speech and privileges control by the antiquated and kleptocratic Communist Party over economic growth. And entrenched elites are well placed to block reform.

That said, China’s standard of living is now the highest in its history, and it’s very easy to envision conditions that are a great deal worse than life under a stable, if increasingly authoritarian, kleptocracy. As a result, the Chinese people may be willing to ride with, and ride out, economic stagnation should that come about—although this might be accompanied by increasing dismay and disgruntlement.

In either case—rise or demise—there is little the United States or other countries can or should do to affect China’s economically foolish authoritarian drive except to issue declarations of disapproval and to deal more warily. As former ambassador Chas Freeman puts it, “There is no military answer to a grand strategy built on a non-violent expansion of commerce and navigation.” And Chinese leaders have plenty of problems to consume their attention. They scarcely need war or foreign military adventurism to enhance the mix.

The problem is not so much that China is a threat but that it is deeply insecure. Policies of threat, balance, sanction, boycott, and critique are more likely to reinforce that condition than change it. The alternative is to wait, and to profit from China’s economic size to the degree possible, until someday China feels secure enough to reform itself.

CATO-China

To read the full Policy Analysis by the CATO Institute, please click here.

Agricultural Trade & Policy Responses During The First Wave of The COVID-19 Pandemic In 2020

Measures adopted around the world to contain the COVID-19 outbreak helped curb the spread of the virus and lowered the pressure on health systems. However, they also affected the global trading system, and the supply and demand of agricultural and food products. In response to concerns over food security and food safety worldwide, many countries reacted immediately to apply policy measures aiming to limit potentially adverse impacts on domestic markets.

Covering the first half of 2020, the report provides an overview of short-term changes in trade patterns and policy measures related to agricultural trade that countries adopted in response to the pandemic.

Despite the shocks caused by the COVID-19 pandemic and containment measures, the efforts of governments and agricultural sector stakeholders to keep agricultural markets open and trade flowing smoothly contributed to remarkably resilient value chains. Effects on global trade in food and agriculture remained limited to short-term disruptions at the very beginning of the pandemic.

Governments’ policy responses covered a wide range of measures, including export restrictions, lowering of import barriers, and domestic measures. Most of the trade restricting measures were short-lived. International political commitments were pivotal in the coordination of a global response to the crisis and in deterring countries from taking unilateral measures that could have harmed food security in other parts of the world.

However, COVID-19 is still spreading and may entail severe implications for access to food and longer-term shifts in global demand and supply of food and agricultural commodities.

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To read the full report, please click here.

Identifying The Policy Levers Generating Wage Suppression and Wage Inequality

Inequalities abound in the U.S. economy, and a central driver in recent decades is the widening gap between the hourly compensation of a typical (median) worker and productivity—the income generated per hour of work. This growing divergence has been driven by two other widening gaps, that between the compensation received by the vast majority of workers and those at the top, and that between labor’s share of income and capital’s. This paper presents evidence that the divorce between the growth of median compensation and productivity, the inequality of compensation, and the erosion of labor’s share of income has been generated primarily through intentional policy decisions designed to suppress typical workers’ wage growth, the failure to improve and update existing policies, and the failure to thwart new corporate practices and structures aimed at wage suppression. Inequality will stop rising, and paychecks for typical workers will start rising robustly in line with productivity, only when we enforce labor standards and embrace policies that reestablish individual and collective bargaining power for workers.

Between 1979 and 2017, the compensation of median workers trailed economywide (net) productivity growth by roughly 43%, leading to rising inequality. The effects have been felt broadly: During this time 90% of U.S. workers experienced wage growth slower than the economywide average, while workers at the top (mostly highly credentialed professionals and corporate managers) and owners of capital reaped large rewards made possible only by this anemic wage growth for the bottom 90%. Because the historical legacy of racism has concentrated Black and Latinx workers in the lower half of the wage scale more so than white workers, widespread wage suppression based on class position has inflicted disproportionate harm on them. Further, while women’s wages have grown faster than those for men in recent decades, women’s wage growth still has lagged the economy’s potential. In the fight for a piece of the ever-shrinking share of economic growth available to the bottom 90%, any one group’s gain can feel like another’s loss, leading to political divisions and hindering the formation of cross-racial coalitions based on common interests as workers. In other words, the disappointing wage growth of recent decades is an important economic and political issue.

Yet sluggish wage growth is not a political secret; it has been widely recognized across the political spectrum, even cited by both the Republican and Democratic Party platforms in 2016.1 The root causes of the trend have frequently been misidentified, however. One prominent interpretation is that disappointing wage growth is an unfortunate result of apolitical market forces that one neither can nor would want to alter. Since labor markets are generally competitive and workers and employers have roughly balanced degrees of market power, this argument naively assumes, fundamental apolitical forces like technological change and automation, as well as globalization, have mechanically shifted demand away from non-college-educated and middle-wage workers. But, as this paper will show, the premier research cited in support of an automation/technological theory has itself actually offered empirical metrics that demonstrate that automation/technological change fails to explain wage trends and wage inequality, especially in the period since 1995. Since the automation/technological change explanation is the preeminent explanation drawn from competitive labor market analyses based on equal bargaining power between employers and employees, the failure of automation/technological change to explain wage suppression and wage inequality represents the inability of competitive labor market analyses to adequately explain one of the most salient features of the economy over the last four decades.

Thus, we need to look further for more convincing empirical explanations of why, during a period of rising productivity, hourly compensation for the bottom 90% of all workers has risen so slowly in spite of overall income growth. Doing so requires explaining the key dynamics. The growing wedge between rising productivity and compensation growth for the typical worker financed the increased share of compensation going to top earners, especially those in the top 1% and 0.1%, along with a declining share of income going to labor. In addition, over the last four decades there has been a persistent disparity in the growth of earnings between those in the 90–99% range and those in the middle. Further, wage disparities by gender, race, and ethnicity from the late 1970s, reflecting systemic sexism and racism, remain with us and have sometimes even worsened. Any accounting of where we are and what policies we need must address these issues.

This paper offers a narrative and supporting evidence on the mechanisms that have suppressed wage growth since the late 1970s. We refer in this analysis to wage suppression rather than wage stagnation because it was an actively sought outcome—engineered by policymakers who invited and enabled capital owners and business managers to assault the leverage and bargaining power of typical workers, with the inevitable result that those at the top claim a larger share of income. These policy changes and the change in business practices they enabled have systematically undercut individual workers’ market (exit and voice) options and the ability of workers to obtain higher pay, job security, and better-quality jobs. These corporate and policy decisions had the most adverse consequences for low- and middle-wage workers, who are disproportionately women and minorities, the groups whose legacy of being discriminated against in labor markets means that they especially need low unemployment, unions, strong labor standards, and policy supports for leverage when bargaining with employers.

Neither slow productivity growth nor inevitable economic forces can explain U.S. wage problems. Rather, wage suppression reflects the failure of economic growth to reach the vast majority. It was a “failure by design” (Bivens 2010), engineered by those with the most wealth and power. The dynamics are primarily located in the labor market and the strengthening of employers’ power relative to their rank-and-file workforce (which increasingly includes those workers with a four-year college degree). In other words, the dynamics that have challenged the growth of living standards for the vast majority are based on workers not sharing in economic gains, not, as some have argued, on consumers suffering from monopolistic prices. Changes in product market monopoly and corporate structures have had an impact, but primarily by squeezing supply chain profits and wages rather than by spurring higher consumer prices through much wider profit margins.

As we will discuss, six factors can collectively explain most of the growth of wage inequality and the erosion of labor’s share that resulted in wage suppression over the last four decades (specifically 1979–2017):

Austerity macroeconomics, including facilitating unemployment higher than it needed to be to keep inflation in check, and responding to recessions with insufficient force;
Corporate-driven globalization, resulting from policy choices, largely at the behest of multinational corporations, that undercut wages and job security of non-college-educated workers while protecting profits and the pay of business managers and professionals;
Purposely eroded collective bargaining, resulting from judicial decisions, and policy choices that invited ever more aggressive anti-union business practices;
Weaker labor standards, including a declining minimum wage, eroded overtime protections, nonenforcement against instances of “wage theft,” or discrimination based on gender, race, and/or ethnicity;
New employer-imposed contract terms, such as agreements not to compete after leaving employment and to submit to forced private and individualized arbitration of grievances; and
Shifts in corporate structures, resulting from fissuring (or domestic outsourcing), industry deregulation, privatization, buyer dominance affecting entire supply chains, and increases in the concentration of employers.

Concretely, our analysis attempts to account for the 43 percentage point divergence between the growth of productivity (net of depreciation) and median hourly compensation (wage and benefit) growth between 1979 and 2017. This 43 percentage point wedge excludes any impact of the differing measures of prices used to inflation-adjust productivity and compensation growth. Had median hourly compensation grown with net productivity it would have increased from $20.48 in 1979 to $33.10 in 2017 ($2019). In fact, median hourly compensation was $23.15 in 2017, a $9.95 shortfall from the net productivity benchmark.

We estimate that the first three factors—the impacts that are largest and best measured, i.e., excessive unemployment, eroded collective bargaining, and corporate-driven globalization—explain 55% of the divergence between growth in productivity and median hourly compensation, and specific other factors included above—a diminished overtime salary threshold, employee misclassification, employer-imposed noncompete agreements, and corporate fissuring-subcontracting and major-buyer dominance—explain another 20%. Together, the factors for which we have been able to assess their impact on the median wage can account for three-fourths of the divergence between productivity and median hourly compensation growth from 1979 to 2017. Other factors that we have not been able to empirically assess—increased wage theft and weak enforcement, anti-poaching agreements, increased discrimination, forced arbitration agreements, guestworker programs, and increased prevalence of employer-created “lawless zones” in the labor market where workers are deprived of effective labor protections because of their immigration status—have also contributed to wage suppression.

Our analysis also seeks to account for the falling wages at the 10th percentile and the growth of the wage gap between the 10th percentile and the 50th. We find that these are readily explained by excessive unemployment and the failure to maintain the real value of the minimum wage, factors that have lowered the earnings of the bottom third. Other factors for which we do not yet have good measures of their impact (increased wage theft, the increased share of workers without effective legally protected rights due to their immigration status, and employee misclassification) likely play a role as well. In contrast, our analysis of data (in a section below and in Appendix A) related to automation and skill-biased technological change finds that these factors have had no impact on the suppression of median wages for at least the last 25 years.

Wages

To view the original report, please click here. 

The Cost Of Brexit: March 2021

We estimate that leaving the single market and customs union had reduced UK trade by 11 per cent in March 2021. That is on top of a 10 per cent hit to trade between the referendum and leaving the single market.

Last month, our cost of Brexit model showed that leaving the single market and customs union had reduced the UK’s total goods trade by 5 per cent in February. Using the data for March, which was released today, we estimate that goods trade is now 11 per cent, or £7.7 billion, lower. There are two reasons why our estimate worsened between February and March. Trade growth in the countries that make up our ‘doppelgänger’ UK outstripped Britain’s, widening the gap with our modelled economy that stayed within the single market and customs union. The ONS has also revised February’s trade data downwards. It is important to remember that monthly trade data is volatile, so it will take several more months to be certain about the effect of Brexit on the level of UK goods trade, but it is becoming clearer that the impact cannot be dismissed as temporary.

To read the rest of the article on the Centre for European Reform, please click here.

March 2021

China-LAC Trade: Four Scenarios in 2035

Trade between China and Latin America and the Caribbean (LAC) experienced dramatic growth since the early 2000s. Going forward, China is poised to solidify its position as a leading regional trading partner. 

By 2035, trade values will likely reach unprecedented levels. This, accompanied by greater Chinese investment and financial flows, will further increase China’s economic importance for LAC countries, with potential implications for prosperity and geopolitics in the region and beyond. In addition, the composition of LAC exports to China is likely to differ from today’s. Regional governments and businesses must think and plan ahead. 

To provide greater insight into future commercial scenarios, “China-LAC Trade 2035” aims to trigger policy discussions and influence actions based on how this growing relationship may evolve. Drawing on economic modeling developed by the Pardee Center for International Futures at the University of Denver, as well as varied assumptions regarding economic growth and trade relations, this report outlines four scenarios for China-LAC trade through 2035.1

Scenario 1, Current Path: Despite China’s rise, the United States will remain LAC’s top trading partner through 2035. This will occur even though, from 2021 to 2035, LAC-China trade is expected to increase 1.8 times the expansion rate of global trade, reaching more than $700 billion (more than doubling 2020 figures). 
Scenario 2, Partners in Flux: By 2035, China will have overtaken the United States as LAC’s main trade partner in goods. The development will result in a historically low degree of LAC trade dependence on the United States. In 2020, LAC was about three times more dependent on the United States for exports than on China. By 2035, the United States trails behind China by 1.2 percent. China will represent more than 40 percent of exports from Brazil, Chile, and Peru. 
Scenario 3, Demise of the Agricultural Bonanza: The sectoral composition of LAC exports to China changes over the next fifteen years; in particular, a steady decline is seen in the share of agricultural shipments. This scenario has major implications for governments and companies, because agricultural products accounted for around one-third of LAC exports to China in 2020. In parallel, LAC-China materials trade—such as metal and mineral commodities—will continue to rise, but at a slower pace. In 2035, China could represent 45 percent of total LAC materials exports, compared to 3 percent in 2000. 
Scenario 4, Balancing Act: An unprecedented level of mutual trade dependence emerges between China and LAC, largely driven by growing LAC imports from China. By 2035, a larger number of LAC countries would have China—instead of the United States—as their top import partner. Further, this scenario also points to historically high trade deficits for LAC in its relations with China, a thorny issue that might spark policy debates. 

This report acknowledges the sharp differences across LAC countries. While the objective is to consider the region as a whole, it highlights Brazil and Mexico as case studies of regional heterogeneity. Brazil may enter a challenging moment in its trade relations with China as agricultural exports lose relative importance. This, along with a rise in Chinese imports, is expected to cause Brazil’s current trade surplus to shrink. For Mexico, the report reveals that the United States is expected to preserve—and even increase—its share of the country’s imports, bucking broader regional trends. In addition, by 2035, Mexico is likely to also make progress in the diversification of its export destinations through China and other markets. 

Ultimately, when analyzing the likely contours of LAC trade in 2035, what emerges is that China and the United States will probably account for similar shares of the region’s overall trade, but with important distinctions across LAC countries. It also becomes clear that the sectoral composition of LAC exports to China is likely to change considerably over the next fifteen years, with significant implications for several countries. Across the different scenarios, China’s participation in LAC overall trade range from 15 to 24 percent, up from less than 2 percent in 2000. 

In light of these potential developments, this report offers stakeholders in LAC, China, the United States, and elsewhere elements to explore different future scenarios and proactively contemplate the “what ifs” of China-LAC trade relations. By planning ahead, they will be in a better position to navigate these uncertainties now and in the future.

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To read the full report by the Atlantic Council, please click here. 

The President’s 2021 Trade Policy Agenda

Testimony of Ambassador Katherine C. Tai

United States Trade Representative

Senate Finance Committee Hearing on The President’s Trade  Agenda

Watch Hearing Here

MAY 12, 2021

Thank you Chairman Wyden, Ranking Member Crapo, and Members of the Committee for inviting me here today to testify on the President’s Trade Agenda.

Our worker-centric trade policy is a key part of the Biden-Harris Administration’s effort to Build Back Better.

We are making real strides towards ending the pandemic. There are pockets of progress and hope. But we still have a lot of work ahead.

I want to thank Congress for passing the American Rescue Plan, which has already helped get shots in arms and money in the pockets of millions of Americans. We’re seeing the economic benefits of that quick action here in the United Sates. We’re on track for a full economic recovery, more needs to be done.

The American Jobs Plan and the American Families Plan would combine to make the United States a healthier, safer, more prosperous, fairer, and more competitive nation. They would make bold investments that build a better foundation for decades of economic growth.

We know these extraordinary times demand extraordinary leadership and creativity to find solutions that can defeat COVID-19. The announcement last week that the United States will not let intellectual property rights get in the way of saving lives is just one part of the Administration’s global effort.

We will pursue text-based negotiations at the WTO, which may take time. But I am encouraged that other countries have already announced that they will roll up their sleeves and join us.

We will also continue to ramp up our efforts – working with the private sector and all possible partners – to expand vaccine manufacturing and distribution around the world, including access to the raw materials needed to produce those vaccines.

This comprehensive effort will not only save lives, but also help heal the economy. And as we re-engage the world, our trading partners, and international institutions from a position of strength, support from Congress gives us more authority and opportunity to deliver results for the American people.

We want a fair international trading system that promotes inclusive growth and reflects America’s universal values. Trade policy must respect the dignity of work and value Americans as workers and wage-earners.

For too long, we have overlooked the effect of our trade policies on individual workers, who are human beings, living in a community trying to survive and thrive. The worker-centered trade policy outlined in the President’s Trade Agenda builds on progress made in the USMCA. Our

goal is to foster broad-based, equitable growth, increase innovation, and give workers a seat at the table.

The Transparency Principles I announced last week reflect the Administration’s commitment to comprehensive public involvement in developing trade policy. The Principles, along with the appointment of our Chief Transparency Officer are just the starting point.

For the first time, the President’s trade agenda included the goal of racial equity. Our thoughtful, sustained engagement with new – and all too frequently silenced – voices will give the Biden-Harris Administration a better understanding of how our proposed policies affect all communities. And we will consider those effects on people of color, minority owned businesses and aspirational entrepreneurs before making policy decisions.

Trade policy must also help protect the environment and fight climate change. For too long, we’ve seen a race to the bottom that suppressed environmental protection to attract investment.

We can use trade tools to incentivize a race to the top, and build a cleaner and brighter future, with new market opportunities and high-paying, quality jobs. And by encouraging fresh, collaborative thinking, we can forge consensus among diverse groups and find solutions that we never knew existed.

Our farmers, ranchers, fishers and food processors will benefit from our new approach and they are essential to meeting our climate and sustainability goals. We are turning the page on erratic trade policies. USTR’s goal is to pursue smarter policies that expand global market opportunities while enforcing global trade standards and ensuring that trading partners live up to their commitments.

Sustained, American leadership and re-engagement with our allies, trading partners and economic competitors will be key. The Leaders’ Climate Summit in April showed that we can rally the world to tackle big challenges. In the early meetings with my counterparts, I have stressed that the United States will be a constructive partner and we welcome the frank and open dialogue.

We will work with the World Trade Organization’s new Director-General Dr. Ngozi Okonjo-Iweala and like-minded countries to reform the WTO’s rules and procedures so it can be a relevant force for good in the 21st century global economy.

We are also working with the European Union and the United Kingdom to resolve the ongoing Boeing-Airbus dispute and are having constructive discussions to address the real problem of overcapacity in the steel and aluminum sectors coming primarily from China. These talks will take time, but I believe a resolution is possible and worth pursuing.

Those two issues underscore the importance of our ongoing comprehensive efforts to address trade frictions with our allies and strategic partners so that we can turn to focusing on the challenges facing us today and tomorrow.

We will not hesitate to call out China’s coercive and unfair trade practices that harm American workers, undermine the multilateral system, or violate basic human rights. We are working towards a strong, strategic approach to our trade and economic relationship with China.

We welcome the competition. But the competition must be fair, and if China cannot or will not adapt to international rules and norms, we must be bold and creative in taking steps to level the playing field and enhance our own capabilities and partnerships. I’ve been encouraged that our trading partners also recognize this challenge and they are willing to find a common approach to our shared concerns. Our security will depend on diversifying and securing the supply lines for the products. Improving our trade relations with trusted Allies and partners will not only improve our prosperity but our national security.

Closer to home, we are using every tool available to make sure our existing agreements work and have a positive impact on real people. The United States-Mexico-Canada Agreement gives me confidence that this approach is worthwhile.

We must invest and commit to the agreement’s full and successful implementation. USMCA is a starting point for future efforts in the region that explicitly acknowledges climate change, aggressively addresses global forced labor issues, and expands the benefits of trade to women and historically underserved communities.

I will enforce the new standards, follow through on our commitments, and use the agreement to ensure that Canada and Mexico do too.

The updated agreement now includes the most comprehensive, enforceable labor and environmental standards of any U.S. trade agreement – and, I would argue, any trade agreement. And this week, you’ve seen that we’re committed to using the tools.

The innovative rapid response mechanism will allow us to address long-standing labor issues in Mexico. Today I am proud to announce the inaugural use of this mechanism in our request that Mexico review whether workers at a General Motors facility in Silao, located in the State of Guanajuato, are being denied the right of free association and collective bargaining.

I commend the Government of Mexico for stepping in when it became aware of voting irregularities earlier this year. I am proud to partner on this shared goal of helping both Mexican and American workers prevent a race to the bottom. This use of the rapid response mechanism demonstrates that we will act when workers in certain facilities are denied their rights under laws necessary to fulfill Mexico’s labor obligations.

As you can see, we have our work cut out for us. But I’m confident that we can walk, chew gum, and play chess at the same time. The professional and dedicated public servants at USTR are working hard to implement the President’s trade agenda. And I am proud to carry the strength and creativity of our small, but mighty agency into the room today.

Thank you for your time and I look forward to your questions.

Free Trade Agreements Have Limited Impact (Because Manufactured Goods are a Perfect Market)

Introduction

Free Trade Agreements between two or more countries or parties have been the centrepiece of international trade policy since the formation of the World Trade Organisation 25 years ago. Since 1995, no major round of multilateral trade liberalisation has been concluded, but there has been a sharp rise in the number of bilateral trade agreements. While some of these agreements have real consequences for trade in services and some administrative rules for trade, most of them do not because they focus mainly on tariffs on industrial and agricultural goods. Yet the economic gains from these reductions are now extremely limited. In fact, it is now difficult to improve the global market in goods by cutting tariffs. 

Tariffs are low, particularly for non-agricultural goods

It is estimated that in 1947 the average global tariff for all goods was between 20 and 30%. By 1952, and the first rounds of the GATT, this had reduced to 14%. At this point there were still significant tariffs on swathes of agricultural and industrial goods, for example the average UK tariff on finished manufactured products was 21.4% at the end of the 1950s. By the time of the Uruguay round in the second half of the 1980s the average developed country tariff for all industrial goods was only 6.3%, reducing to 3.8% as a result. The impact can be seen in the chart below, notably showing average applied industrial tariffs of lower than 4% in the EU, US, and Japan. 

NG-series-Paper-4-1

To read the full paper by the European Centre for International Political Economy, please click here. 

Regulating the Globalisation of Data: Which Model Works Best?

Novel flows that define the future of globalization require new regulatory approaches, which are likely to differ between countries. So too for regulatory approaches to personal data.

Globally, there are three different regulatory models for personal data: the model applied by the US, based on an open approach to transfer data and process data locally; the model developed by the EU, which is a model based on so-called conditional transfers and processing; and finally, the model put forward by China, a framework that lurches towards autarky.

The differences in regulatory approaches reflect different economic realities, and it is important to better understand how and why countries regulate in the way they do – particularly in the EU and US. The EU’s regulatory approach seeks model followers among trading partners and offers adequacy for countries following a different model. Many countries apply a similar model and, together, they cover a big portion of global trade in data-reliant services.

In contrast, the US model has fewer followers and represents a much smaller share of trade. However, this model comes with other benefits as it allows firms to experiment more than in the EU and China, leading to more digital innovations with data and faster growth of new firms with a strong boosting effect on productivity. The US model aims to capture the benefits to prosperity that comes from data-based innovation.

The China model is in a league of its own. It is a large economy in itself and its economic scale has served the country well by developing many new and fast-moving digital technologies; China therefore shares some impulses of an experimental approach. Yet, this regulatory approach comes along with great restrictions, which inhibit the cross-border integration with other countries. The China model has the lowest number of followers and represents the smallest share of digital services trade. China’s closed economy makes it therefore much harder to regulate internationally.

These three blocs have chosen regulatory models that reflect their institutional structures and economic opportunities. Hence, there may not be one model that fits every type of economy: there is rather a path dependence in the way regulations are developed.

However, it is important to acknowledge that the different regulatory structures will produce different economic outcomes. The US model will generate a lot of innovation-led growth – but not necessarily a lot of innovation-driven trade. European outcomes are the opposite: the regulatory structure doesn’t produce as much Schumpeterian growth, but it encourages trade and Smithian growth.

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To read the full policy brief by the European Centre for International Political Economy, please click here.