William Krist's Blog, page 51

Transition Recommendations For Climate Governance and Action

Climate change is unique among the issues facing the President, because both the effects and the policy solutions to the challenge defy neat categorization. Climate change is already or will soon affect every sector of the economy, every community in the nation, and every nation in the world. Reducing the greenhouse gas emissions that drive climate change and helping communities adapt to the unavoidable climate impacts already baked into the system requires domestic investment, rulemakings, and policy changes, as well as robust international diplomacy. That means that every agency has some degree of responsibility for addressing climate change—and so does every policy council in the White House.

This diffusion of responsibility for addressing climate change and furthering climate policy can all too easily lead to confusion and inaction. When everyone is partially responsible, no one is ultimately in charge. That is why the single most important thing a new White House committed to climate action must do is commission as Assistant to the President (AP) an experienced, respected Counselor or Senior Advisor who is 1) a credible leader on climate policy, 2) who sits in the West Wing and 3) who has direct access to and is trusted by the President of the United States, to lead the Administration’s domestic and international efforts on climate change.

Beyond appointing and empowering an AP for climate, there are other important White House organizational changes needed to create an integrated domestic and international vision for climate policy executed across the EOP and the federal government. The White House must have the staff capacity and credibility to manage a whole-of-government effort; policy councils must be bought into the structure of the White House climate effort and actively collaborate on climate policy where needed; and non-policy offices must have dedicated support for the climate effort. Senior White House staff should also regularly engage with senior agency leadership to develop an ambitious climate agenda, monitor implementation, and identify opportunities to increase ambition.

To meet these criteria, the President should:

Issue an Executive Order to create a National Climate Council that is co-equal to the Domestic Policy Council and the National Economic Council to organize and drive White House and Administration actions. (Day 1)

For too long, climate policy has been sidelined as solely an environmental issue. Creating a National Climate Council by Executive Order would elevate climate change as an issue worthy of sustained, national policymaking and communications and create a consistent organizational mechanism for climate change policy in the White House from year to year. The NCC should be headed by the AP for Climate, with a Deputy Assistant to the President for Climate Change and Energy Policy; at least three SAPs, with one dual-hatted to the NEC, one dual-hatted to the NSC, and one dual-hatted to CEQ; and at least eight to ten further FTE staff to begin. Additional FTE positions can be filled using flexible hiring authorities available to CEQ and OSTP.

Launch a 90-day, Cabinet-level effort to craft a Climate Ambition Agenda, to hold the Administration accountable to meeting the President’s stated goals—and go further. (Day 1)

The next administration will need to set ambitious goals and design and implement policies that will put the United States on a path to achieving net-zero emissions no later than mid-century, and restore the U.S. to a position of global climate leadership that incentivizes increasingly strong climate commitments from other major emitters.

To translate those goals and other important policy priorities into a governing plan that will hold the Cabinet accountable for delivering—and delivering on time—the next administration should revive the successful Climate Action Plan approach from the second term of the Obama-Biden Administration. Specifically, at the same time the NCC is created, the President should launch a 90-day Cabinet-level task force to write and publish a new, four-year Climate Ambition Agenda, containing specific, agency-by-agency actions on greenhouse gas mitigation and the clean energy transition, climate change adaptation and resilience, and international climate diplomacy and development.

Embed key aspects of the climate change agenda in other White House policy councils and functions, including CEQ, NSC, OSTP, OMB, and USTR, and cross-functional offices like Communications, Cabinet Affairs, Legislative Affairs, OPE, WHCO, and PPO.

Even with the creation of a National Climate Council, other policymaking councils and cross-functional offices have critical roles to play in furthering an ambitious climate agenda and responsible staff from those councils and offices should be consistently included in NCC meetings and policy planning. As detailed in the full memo:

• The Council on Environmental Quality is best suited to elevate environmental justice to the White House and to lead the agenda on climate change resilience, in addition to its statutory responsibilities for NEPA and historic responsibilities for managing conservation and species issues.

• The International Economics directorate should be re-established within the NSC, with a team of 3-4 staff (one SAP dual-hatted to the NCC, and two to three director-level positions), to work with the State Department on international negotiations and coordinate climate inputs into the President’s bilateral and multilateral engagements.

• The Office of Science and Technology Policy urgently needs to be re-empowered to support federal climate science and clean energy innovation in the U.S. and internationally.

• The Office of Management and Budget can and should be a stronger partner to federal agencies on climate policy. Senior political staff at OMB and its sub-agencies and offices, notably OIRA, should clearly understand that supporting the President’s climate agenda is a central part of their mandate.

• Cross-functional offices, including the White House Counsel’s Office, the communications shop, and the Presidential Personnel Office, should have staff who are dedicated to working on the climate portfolio and empowered to support ambitious activities.

To download the full report, please click here.

C21_Summary

Christy Goldfuss (Co-Chair), Center for American Progress; former Managing Director at CEQ

Joseph Aldy, Harvard Kennedy School; former Special Assistant to President Obama

Vicki Arroyo, Georgetown Climate Center; former Special Assistant, EPA

Robert Bonnie, Duke University’s Nicholas Institute for Environmental Policy Solutions; former Undersecretary at USDA

Michael Boots, former Acting Chair at CEQ

Jason Bordoff, Center on Global Energy Policy, Columbia; former Special Assistant to President Obama

Megan Ceronsky, Center for Applied Environmental Law and Policy; former Special Assistant to President Obama

Rick Duke, Gigaton Strategies; former Special Assistant to President Obama

Joseph Goffman, Harvard Law School Environmental and Energy Law Program; former Associate Assistant Administrator/ Senior Counsel at EPA

Tim Profeta (Co-Chair), Duke University’s Nicholas Institute for Environmental Policy Solutions

Jason Grumet, Bipartisan Policy Center

Andrew Mayock, former Deputy Director at OMB

Nat Keohane, Environmental Defense Fund; former Special Assistant to President Obama

Kate Konschnik, Duke University’s Nicholas Institute for Environmental Policy Solutions

Brenda Mallory, Southern Environmental Law Center; former General Counsel at CEQ

Jeremy Symons (Project Manager), Symons Public Affairs; former Climate Policy Advisor at EPA; former Deputy Staff Director at Senate Environment & Public Works Committee

Dan Utech, Yale School of the Environment; former Deputy Assistant to President Obama

Memorandum on Priorities for 2021 Economic Talks with China

Economic negotiations with China must be a component of a consistent overall strategy to promote US interests, rather than one element of a menu of mutually inconsistent and constantly changing initiatives. The foundation of this strategy should be a comprehensive program of US economic renewal that maintains American technological leadership, rather than a defensive strategy that seeks to slow China’s technological and economic rise. This strategy of addressing problems at home must include the rebuilding of crumbling infrastructure, reversing recent cuts in federal support for research and development (R&D), and a smarter immigration policy that brings to the United States talented science and technology specialists who will strengthen the US economy.

The overall strategy must recognize that regime change from the Chinese Communist Party, a crisis of the Chinese economy or even a sharp decline in its growth trajectory are all unlikely over the time horizon of this administration. The incoming administration should assume that China’s economy and its influence on the overall world economy will continue to expand.

Neither a general decoupling from China nor the promotion of regime change should be an element of this overall strategy.

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Nicholas R. Lardy is the Anthony M. Solomon Senior Fellow at the Peterson Institute for International Economics and an expert on the Chinese economy. 

To read the full memorandum, click here. 

The Modern Agreement of Amity and Commerce: Toward a New Model for Trade Agreements

As globalization comes under fire for serving the needs of corporate elites rather than ordinary citizens, it is important to recall that trade does not have to aggravate inequality. The rules of globalization matter. If we have better rules for trade, trade will produce better results.

Since the 1990s, trade rules have promoted what economist Dani Rodrik has referred to as “hyperglobalization.” The focus has been on liberalizing capital flows with few—or no—constraints on where that capital goes. However, liberalizing capital flows without rules to foster fair competition incentivizes countries to vie for capital investments—and to engage in race-to-the-bottom policies to secure them. Many countries lower costs through labor rights suppression, environmental deregulation, and de minimis tax rates. They may also use subsidies and currency manipulation to further rig cost structures.

This suite of rules is essentially laissez-faire in its orientation. Any government effort to promote competition is disparaged as a protectionist undertaking. The only goal worth pursuing, in this arrangement, is low cost and high returns, regardless of how they are achieved.

However, this low-cost model is expensive. It pits workers in one country against workers in another, as returns to capital increase while returns to labor decrease; it promotes the degradation of the environment; and it robs nations of sufficient revenues to fund the basic needs of their people. Increasingly, these policies are seen as part of a broader violation of the social contract.

Because of these rules, the global trading regime, and bilateral and regional trade agreements, benefit certain sectors, and certain classes, within each country. Yet, these rules do not benefit all sectors, or all classes. We have papered over these structural concerns by relying on the axiom that trade provides an aggregate good. Yet by focusing on the aggregate good, we ignore that the rules of trade decide, at an individual level, for whom trade is good.

This axiom has also blunted our ability to appreciate the validity of the critiques of globalization, which we too easily attribute to misplaced populist grievances. Increasingly, we assure ourselves that if we simply do a better job in domestic policy areas, such as training and the social safety net, we will address any negative consequences arising from trade. While better domestic policy is certainly important, it is no substitute for reforming the rules of globalization, which themselves favor the elite at the expense of the working class.

It is possible to structure the rules of trade differently. Rather than writing rules to allow corporations maximum flexibility to exploit artificially low costs, we can write rules that promote fair competition. We can write labor and environmental standards that frustrate the ability of corporations to press a race to the bottom. We can write rules that prioritize the sovereign right to regulate over the corporate rejection of governance in the public interest. We can write rules to shine a light around which corporations are paying tax in which jurisdictions.

By writing rules that prioritize fair competition, we cannot only begin to correct the existing imbalance in favor of elites, but we can enable American workers and businesses to compete for customers around the world—all while preserving our values. Indeed, the latter is essential because if we value liberal democracy, we must place greater value on creating markets, both at home and abroad, that support the middle class and strengthen, rather than erode, its purchasing power. The facile argument is that purchasing power is enhanced through cheap consumer goods. However, more thoughtful analysis, such as that offered by Matthew Klein and Michael Pettis in their recent book “Trade Wars are Class Wars,” demonstrates the ways in which government policies promoting income inequality pervert trade and financial flows. These policies promote underconsumption by the people who are most in need, and whose expenditures would do the most to help the economy—the working class. In defending the existing rules of globalization, we focus too much on the consumer, and not enough on the worker.

For decades the prevailing theory has been that trade policy must be insulated from democratic pressures, under the theory that removing such pressures will produce more ideal economic outcomes. However, insulating policy from the influence of the voting public is antidemocratic, and, as we have seen, self-defeating: it leads to a revolt by that same voting public against a regime that, by design, dismisses their views.

Further, far from producing a trade policy free from special interest influence, this approach instead facilitates policy by special interests with preferred access to decision makers—in other words, elites, particularly at financial institutions, pharmaceutical companies, and big tech.

Because of this approach, for many years there have been “one size fits all” bilateral and regional trade agreements. Do these agreements work for developing countries? We have no idea. The U.S. experiment with Central America suggests there is much work to be done to understand the circumstances under which developing countries—and the various classes within those countries—benefit from trade agreements, and the circumstances under which they do not. Do benefits inure to the elite, with, at best, trickle-down benefits to the working class? 

A model that returns to basics allows us to focus on our priorities. The first American trade agreement was with France. Negotiated by Benjamin Franklin and ratified by the Continental Congress, it was called the Treaty of Amity and Commerce.

If trade agreements are meant to serve the overarching goal of improving amity between the parties, then it follows that we must focus on crafting rules that build positive relations between the parties. That is not achieved by rules that promote Darwinian behavior by stateless corporations that have no allegiance to any sovereign.

However, if these are truly to be agreements grounded in amity, then we must recognize that neither we, nor our friends, are perfect. Trading partners rarely comply with all their obligations. Usually it is clear in advance where they will fall short. The European Union does not want as much American beef or chicken as Americans would like them to want. Canada believes its dairy farmers in Quebec are worth saving, even if it means betraying pure market principles. Our trading partners feel the same way about certain sectors in the United States.

It is partly because of such frictions that the girth of these agreements has expanded. The rules grow ever more detailed as every form of possible cheating (or “chiseling,” as a former negotiator called it) is anticipated and more rules are written to prevent it. As a result, the rules constraining government also grow ever more detailed.

Yet this legalistic approach to trade ignores the reality that, for key sectors, determined governments will inevitably find a way to protect that which they wish to protect.

These elaborate rules are, therefore, both too strict and too porous. The rules are functionally deregulatory, but they do not end circumvention of trade rules in politically sensitive sectors.

It is time to take a more realistic view of what trade agreements can achieve. They can promote amity, if we accept that free market perfection is not achievable and, in any event, not the goal; they can promote values, if we think workers, the environment, and the tax base represent values worth prioritizing; they can promote fair competition, if we believe that competition is more important than phony “efficiencies.”

If we return to a model of amity, then we must also ask who the parties to these agreements should be. Not every trading partner seeks amity with us. Interdependent trade relationships with hostile foreign powers put us in a position of dependence on geopolitical rivals. That does not necessarily mean we should never trade with such countries; rather, it means we must consider under what circumstances we are willing to do so. The United States entered into the Treaty of Amity and Commerce in 1778 with France to solidify the relationship in the face of hostilities with Britain. Britain is, of course, no longer an enemy. Relationships evolve, and so should trade agreements.

As global trade tensions grow, we are now seeing discussion of new forms of cooperation between like-minded democratic allies that have much in common with the historic concept of a Treaty of Amity and Commerce—such as the D-10 grouping of leading democracies formed in 2014. What role can trade agreements like this play in promoting better relationships with countries that share our economic and democratic values, and in weaning our dependence on countries that do not?

This paper provides an explanation of each of the 10 chapters of a Modern Agreement of Amity and Commerce. The agreement sets out a more equitable trading regime with the overarching purpose of fostering positive relations between like-minded parties.

To download the white paper, please click here.

To download the full text for each individual chapter, please click here.

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Beth Baltzan founded American Phoenix, and previously worked for the Office of the United States Trade Representative and the House Ways and Means Committee.

© Open Society Foundations Some Rights Reserved

GTIPA Perspectives: The Importance of E-commerce, Digital Trade, and Maintaining the WTO E-commerce Customs Duty Moratorium

Around the world, countries keep benefiting from e-commerce and digital trade. Keeping a customs-free ethos drives domestic and transnational growth, fosters global integration, sparks innovation, narrows the digital divide, and creates employment opportunities. This is why GTIPA members support keeping the WTO moratorium on customs duties on electronic transmissions. Moreover, COVID-19 serves as a vivid example of the crucial role of e-commerce and digital trade. Electronic transactions have become a key driver in keeping the global economy afloat. If yesterday’s governments, businesses, and citizens had the option of conducting transactions offline, today it is a reality, a key for survival.

Keeping the free flow of digital transactions reinforces overall economic, social, and political stability. Across the spectrum, actors benefit from increased connectivity and expediency while saving on costs, resources, and bureaucratic procedures.

Online transactions help governments in various ways, including by expanding their net of services while improving time and efficiency, making information available to their constituents, reaching vulnerable communities, and modernizing governmental processes. On a wider perspective, electronic transactions also boost ICT infrastructure and the economic growth of countries. Recent studies estimate that digital commerce accounts for 15.5 percent of global GDP.298 Second, citizens gain access to a broader amount of goods and services at a fair price. Given the increased accessibility, firms compete for price and quality, thus benefiting consumers. It should also be noted that digital flows are how it’s possible to connect the unconnected, enhancing inclusive growth.

Finally, businesses—particularly MSMEs—can access untapped markets worldwide, increasing their revenue and resiliency. Accessing and operating in foreign markets is vital for the survival of MSMEs and local entrepreneurial ecosystems. Electronic transactions also facilitate knowledge and data sharing, enabling seamless, digitally integrated global supply chains. Moreover, firms are incentivized to innovate, unlocking more investment resources in both tangible and intangible assets.

Digital economic activity drives economic growth and activates a win-win scenario that maximizes the welfare of big and small players alike. Ensuring electronic transaction flows fosters certainty and predictability for all—an Indian mother using an online payment platform to pay for her son’s tuition in the UK, a Nigerian startup offering ICT services in Vietnam, or a local Argentinian municipality processing the paperwork of one of its ex-pats.

With all of this at stake, WTO members should renew the moratorium on customs duties on international electronic transmissions, and ideally make it permanent and binding. The temporary and ambivalent status of the suspension feeds into the uncertainty that affects the broader trade environment. Therefore, policymakers should acknowledge the palpable necessity and benefits of suspending duties on e-transactions by promoting policies directed to:

Increasing connectivity, including ICT infrastructure and the adoption of emerging technologies.
Investing in intangible assets, including R&D, high-skilled training, and intellectual property rights.
Providing economic incentives for innovation.
Elevating the digital services capacities among developed and developing countries.
Promoting free trade globalization on the international stage.

Far from erecting barriers to trade and transactions, the international community should build bridges to enhance connectivity, economic stability, and survival. An open and tariff-free Internet leads to global economic growth as it makes trade more accessible, dynamic, and innovative.

To download the full report, please click here.

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The Hinrich Foundation Sustainable Trade Index

Sustainability was gaining more traction in the years leading up to the Covid-19 pandemic. Firms stepped up commitments to corporate social responsibility (CSR) initiatives. Investors started incorporating environmental, social and governance (ESG) issues into their asset allocation decisions. And consumers voted with their wallets to support sustainable production, purchasing goods with certified claims regarding their environmental impact and use of labour.

The question now is whether the pandemic puts that progress in jeopardy. There are those who argue that it does; governments and the private sector are in “survival mode,” making sustainability—at least for the duration of the crisis—far less of a priority. The counter-arguments are that, one, the investor community is continuing to use environmental, social and governance standards to guide their allocation decisions and, two, that the best way to prepare for the next crisis, whenever it comes, is to begin preparations now by bolstering sustainability initiatives.

The Hinrich Foundation Sustainable Trade Index (STI) was originally created for the purpose of stimulating meaningful discussion of the full range of considerations that policymakers, executives and leaders from civil society must take into account when managing and advancing international trade. That purpose remains, but we hope that governments and businesses around the world start to also view it as a tool for building resilience into their international trade policy and their economies, more broadly. This, the third edition of the study, seeks to measure the capacity of 20 economies—19 in Asia along with the US as an external benchmark—to participate in the international trading system in a manner that supports the long-term domestic and global goals of economic growth, environmental protection and strengthened social capital.

The key results and findings from the 2020 STI include:

For the first time, there is a tie atop the index. Japan and South Korea both receive scores of 75.1 (out of 100), placing them five points clear of Singapore in third place (70.0) and a group of three other economies—Hong Kong, Taiwan and the US—in the high 60s. These six together have been the mainstays at the top of the index throughout the three, slightly different iterations of the STI that have now been published since 2016. But this is also the first time for either Japan or South Korea to rank first in the index; Singapore was number one in 2016 and Hong Kong in 2018.
The economic pillar is, in this edition, by far the most tightly packed, which was also the case in 2016. The difference in scores between the top-ranked economy, Hong Kong at 69.1, and the economy at the bottom, Laos at 44.6, is just barely over 25 points. The only consequential moves in the top half of the pillar were by China and the Philippines. China continued its ascent up the ranks, although more because of consistency than progress. The Philippines rebounded to 9th, where it began in 2016 before slumping to 15th in 2018.
To the praise Taiwan already garnered this year for its effective handling of the Covid-19 outbreak, we can add the accolade of being first in the social pillar of the STI, the second time it achieved the rank. It is further recognition that the economy is getting many things right.
Japan registers the strongest performance in the environmental pillar (80.0), leading the same group of four—Singapore (78.7), Hong Kong (77.4) and South Korea (75.2), being the other three—that has excelled, with a few exceptions, across all three pillars of the STI from the start. Then there’s a considerable drop. China and the US come next in the rankings, but are both 20 points below the top four in scores.
Pretty much all we can be certain of is that there is going to be another crisis at some point. Preparedness matters. The original intention behind the STI was not necessarily to serve as a tool for crisis preparation. But it has taken on that dimension. We hope that governments and firms around the world, not just in Asia, will use it as such.

To download the full report, please click here.

Hinrich Foundation Sustainable Trade Index 2020 - Final

© The Economist Intelligence Unit Limited 2020

Forecast 2025: China Adjusts Course

Forecasting is a fraught exercise. It is made all the more daunting when paradigms shift, testing basic assumptions and altering drivers of change. If 2020 has yielded any lessons, it is that the foreseeable future invites more questions than it provides concrete answers. 

Yet amid these muddied dynamics, the search for clarity is more important than ever. From the existing global system to relations between preeminent powers, the status quo may be irreparably shaken. What lingers in the air is a palpable sense that an era of creative destruction is upon us. It is an unfolding drama where the ending has yet to be written. 

The starring role that China plays in this drama makes understanding its general trajectory—from the economy to domestic politics and technology development to energy policy—of immense interest and import to the world, and particularly for its peer competitor the United States.  

So what kind of China should be expected by 2025? That singular question animated this effort to forecast the country’s path forward over the medium term. 

Our simple answer: A China that will be near-majority middle class for the first time, with increasing technological parity with Silicon Valley and a less carbon-intensive energy landscape, all under the aegis of a stronger Xi Jinping and his vision of governance. Achieving these outcomes will require trade-offs, in this case a China that will likely redouble on domestic priorities and moderate its appetite for global adventurism.

This view of a more capable yet more outwardly cautious China is based on a composite of four scenarios across specific functional areas, bounded by the timeframe through 2025. It is also predicated on several macro assumptions and key factors that are likely to determine China’s behavior over that time period. In other words, this forecast exists within a defined scope, the elements of which are explained below.    

WHY 2025?

We decided on a medium-term time frame for several reasons. First, conditions can change on a dime, but we believe five years, relative to a 10- or 20-year forecast, is a more manageable timeline to provide relatively concrete and specific scenarios for the future of China’s political economy.

Second, the five-year cycle also coincides with China’s own 14th Five-Year Plan (FYP, 2021-2025) that essentially sets the parameters on what to expect in terms of priorities and key agendas. In addition, the time period also overlaps with the new US administration and veers into the first years of Xi’s third term. 

Three, Chinese leaders themselves have imbued this next FYP cycle with more significance than usual because it begins the 15-year period leading up to 2035, the midway status point for Xi’s national rejuvenation agenda that runs up to 2049. In this context, the 15th and 16th FYPs will be building directly on the outcomes of this five-year cycle even more so than in the past.

Still, five years can be an eternity in an environment where current shifts accelerate and unexpected factors manifest to knock China from its intended path. These uncertainties could lead to various permutations of China’s trajectory and a wider range of outcomes than we currently expect.

Recognizing this degree of uncertainty, we nonetheless aimed to distill, to the best of our abilities, a clear and comprehensive view of how China’s political economy will be shaped. 

MACRO ASSUMPTIONS

Grappling with the complexity of current dynamics and the numerous factors at play is important. As such, it was necessary to bound our forecast within clear assumptions for the five-year time period. These assumptions are:

China’s political economy will remain largely what it is today, ruled by a strong Chinese Communist Party (CCP) led by General Secretary Xi Jinping.
Direct US-China military confrontation is unlikely, but competitive dynamics and tensions will become more explicit and play out across all major geographies. 
Globalization will likely continue to stall as countries turn more inward and regionalism becomes more prominent. 

We also eschewed low probability, high impact “fat tail” scenarios, such as a “Taiwan confrontation” or a “political transition crisis.” Such scenarios remain possible, but what’s possible is not necessarily what’s probable. They are, however, certainly worthy of discussion and continued monitoring beyond this product because of their outsized impact on the future of China and global markets.

In our view, these macro assumptions preclude entertaining the outlier scenarios above and set parameters on the domestic and global environment in which China will operate—an environment that can both facilitate and constrain China’s behavior. If these key assumptions are undermined over the medium term, then the entire forecast will need to be reevaluated accordingly.

KEY FACTORS

In addition to these macro assumptions, it’s important to determine what key factors may have changed that inform how we think about China going forward, to help avoid over-reliance on simple, straight line projections. We believe there are two key factors, one domestic and one external, that have changed and that matter for our forecast to a considerable degree:

1. Stronger center, weaker localities: from dealing with debt and growth to executing on reforms and environmental initiatives, local governments are being kept on a much shorter leash and are less able to freelance relative to just five years ago. The main manifestation of this dynamic will be Beijing’s continued fiscal hawkishness and increased actions to induce local compliance with central mandates.

2. Global power under global scrutiny: Beijing faces its toughest external environment in about a generation, centered on US-China tensions. China likely can no longer count on a relatively stable external environment, one of the key ingredients that has facilitated its economic success to date. Its conduct and intent, both domestic and foreign, will be put under a global spotlight, forcing it to respond. 

Building on these factors and the macro assumptions, our team constructed base case scenarios for China’s economy, politics, technology, and energy. Each base case represents the most likely outcome over the five-year time period. Needless to say, these base cases do not represent the totality of scenarios. But we believe they are the most probable realistic outcomes based on our understanding and approach to analyzing China.

SUMMARY OF BASE CASES

This forecast product has four components: economy, politics, technology, and energy. Each section contains the lead analyst’s base case calls, followed by specific assumptions and leading indicators, and then in-depth analysis of each base case with assigned probability. Each section then concludes with a less likely secondary scenario as a complement to the base case.

Economy: Eluding the Middle Income Trap

Houze Song

By 2025, Beijing will have had little choice but to reform its way out of challenges that result in a Chinese economy that will likely become more open, balanced, and efficient.
China faces one of the most daunting external environments in decades, which ironically will likely push Beijing to further embrace foreign direct investment (FDI) and improve the business environment.
On the domestic front, China’s “internal circulation” agenda will be less about self-reliance but focus on improving productivity and inducing more local competition, while keeping a lid on financial risk.
The pursuit of reform priorities means that at the end of the 14th Five-Year Plan (FYP, 2020-2025), China will likely have eluded the “middle-income trap” and become a near-majority middle-class country.

Politics: Stronger as Xi Goes

Neil Thomas

In 2025, Xi Jinping will remain General Secretary of the Chinese Communist Party (CCP), Chair of the Central Military Commission, and President of the People’s Republic of China. He will likely emerge the strongest he has ever been after the 20th Party Congress in 2022.
It’s unlikely that a clear successor will emerge from the 2022 political transition, to avoid diluting Xi’s authority as the CCP focuses on executing his domestic reform agenda.
Xi will likely focus his power on “the politics of execution” in his third term, as the 14th FYP begins his strategy to transform China into a superpower by 2035. This program will strengthen governance, discipline, and ideology to enhance Beijing’s ability to transmit policy through central agencies and local governments.
A strengthening focus on domestic priorities will involve some trade-offs, so Xi is unlikely to announce any major new foreign policy initiatives in the next five years.

Technology: Fragile Tech Superpower

Matt Sheehan

By 2025, China’s technology ecosystem will have matured and be on par with Silicon Valley in terms of dynamism, innovation, and competitiveness.
That dynamism will increasingly take the form of industrial applications of information technology, as the locus of Chinese innovation shifts from the consumer internet to the industrial internet.
China will largely succeed in deploying highly capable “new infrastructure”—cloud computing, 5G networks, smart cities, and surveillance networks, among others—to facilitate this transition to the industrial internet.
US export controls on semiconductors will act as a modest brake on China’s new infrastructure rollout. But expanding restrictions on semiconductor manufacturing equipment will mean that China remains vulnerable to future interruptions to its supply chain for advanced chips.

Energy: Setting Course for Peak Emissions

Ilaria Mazzocco

By 2025, China will be close to achieving peak emissions as a result of more ambitious actions to bolster renewables, pivot toward market mechanisms, and enhanced energy efficiency measures.
Renewables will benefit from cost competitiveness relative to coal even in the absence of subsidies.
Power sector reforms announced in 2015 will see meaningful progress to better support Beijing’s decarbonization efforts.
These factors will mean that non-fossil energy sources such as nuclear, wind, and solar will be the major beneficiaries relative to coal over the medium term.

 

This analytical product has been a collective MacroPolo endeavor. We harnessed our specialized knowledge and our broad understanding of how China functions to arrive at a comprehensive assessment of the country’s trajectory.

It was a challenging process to say the least, as all attempts at forecasts are. Yet through it all, this very exercise sharpened and disciplined our own thinking. Whether you agree with our assessment, we hope you find it as useful and clarifying as we did in creating it.

To download the full report, please click here.

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Damien Ma is the Director of MacroPolo

Houze Song is a Research Fellow at MacroPolo

Neil Thomas is a Senior Research Associate at MacroPolo

Matt Sheehan is a Fellow at MacroPolo

Ilaria Mazzocco is a Senior Research Associate at MacroPolo

© 2020 MacroPolo

China Issues New Export Control Law and Related Policies

On October 17, 2020, the Standing Committee of China’s legislature, the National People’s Congress (NPC), passed the Export Control Law of the People’s Republic of China, which goes into effect on December 1, 2020 (Chinese text and unofficial English translation).The passage follows three rounds of legislative deliberations since China’s cabinet, the State Council, first presented a draft to the NPC in June 2017. The law realizes a longstanding Chinese government goal of elevating and consolidating ministry level export control authorities under one national-level legal and policy framework. The new law defines China’s export control authorities as a joint mechanism of units under both the State Council and the Central Military Commission that perform export control functions. The action is part of a broader effort by China’s President Xi Jinping to build out national security authorities and reflects themes—such as China’s right to development—as broad justifications for national security-related trade actions.

The final language includes several new provisions that appear aimed at creating a Chinese policy counterweight to the U.S. government’s use of export control authorities to restrict the transfer of U.S. dual-use technology to China, including provisions for retaliatory action and extraterritorial jurisdiction. (See CRS In Focus U.S. Export Control Reforms and China: Issues for Congress.) The United States and other governments—such as those in Japan, Taiwan, and Europe—have tightened China’s access to sensitive technology through strengthened export control authorities and licensing practices over the past two years. Relatedly, there has been a marked upswing over the past year in the number of countries that have sought to ban or impose conditions on the participation of China’s telecommunications firm Huawei in their 5G networks, particularly in Europe.

The Export Control Law gives the Chinese government new policy tools and justifications to deny and impose terms on foreign commercial transactions—both inside and outside of China—on the grounds of China’s national security and national interest. The Chinese government traditionally has sought to restrict foreign investment and imports to advance national industrial goals, although there have been prominent examples of China controlling the export of strategic commodities, such as coke, fluorspar, and rare earth elements. China for some time also has used ad hoc import restrictions to create commercial and political pressures on its major trading partners, a tactic that Beijing has used most recently with Australia and Canada in restricting agriculture and commodity trade. The law gives China’s government new rationales and processes to impose terms on transactions among firms and within joint ventures and other partnerships within China, as well as on exports and offshore transactions. Key licensing factors include not only the particular technology, end use, and end user, but also an entity’s “social credit” rating, highlighting how the government may seek to leverage and enhance the emerging role of China’s social credit system as a policy tool to influence corporate activity. 

The law authorizes the government to exercise export controls in retaliation against other countries’ actions, to impose temporary (up to two years) export controls on items not on a control list, and to broadly justify actions with several open-ended clauses. The law also includes provisions for China’s participation in international discussions and regimes and global rulemaking on export controls according to the principles of equality and reciprocity, a sign that China could become more active in trying to set rules and norms that advantage China.

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Karen M. Sutter is a Specialist in Asian Trade and Finance at the Congressional Research Service.

 

Interim. Report on the Economic and Trade Agreement between the United States of America and the People’s Republic of China: AGRICULTURAL TRADE

Conclusion

All indications are that the substantial increases in China’s agricultural purchases will continue and benefits will redound for years, if not decades, as U.S. farmers and ranchers continue to build strong connections with China’s consumers who can see for themselves that U.S. agricultural products are unmatched in quality and affordability.

America’s farmers and ranchers are the best in the world when it comes to producing safe, high quality foods and agricultural products. For too long, however, unfair trade practices by many of our trading partners prevented our farmers and ranchers from competing fairly and providing their great products to the rest of the world. This was especially the case with China. The Phase One Agreement marks a historic opportunity for U.S. agriculture. In just a few short months, the provisions in the Agreement have yielded a great harvest for our farmers and ranchers. The results are evident in the record sales to China for our farmers in a wide range of important products. Even more importantly, the required structural changes in the Phase One Agreement are being implemented, further opening one of the world’s biggest markets to U.S. farmers and ranchers. With the achievements in place already, and with more to come, the Phase One Agreement will benefit United States agriculture for years and decades in the future.

To download the full report, please click here

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The Implications of a No-Deal Brexit for the EU

As the end of the transition period nears, the EU must prepare for a fundamentally different and more conflictual relationship with the UK. Whatever the outcome of the Brexit negotiations, there will be profound economic, political and geopolitical implications for the EU.

While the EU as a whole might be better placed than the UK to absorb the economic shock of a no-deal, the fallout within the EU will be uneven, resulting in winners and losers. The asymmetrical impact and differential capacity and willingness of national governments to mitigate the shock could exacerbate regional disparities and unbalance the EU’s internal level playing field. As the economic realities of Brexit will be felt differently across the Union, it might become more difficult to maintain the same level of EU unity post-no-deal.

The EU-UK relationship can be expected to become more conflictual and competitive, particularly in the absence of common rules under a no-deal. Regardless of whether a deal is reached, the UK government’s willingness to breach international law is likely to have a lasting effect on trust and has brought an element of precariousness into the relationship. This lack of trust and predictability will also affect the EU’s and UK’s ability (and willingness) to amplify the other’s voice in the geopolitical and security sphere, at a time when the UK’s departure is weakening both sides’ respective weight and capabilities.

All these negative repercussions will be intensified should the talks end in an acrimonious divorce. In any case, the potential for a no-deal by accident or design remains high. The only way to secure a deal at this point is for Boris Johnson to make a double U-turn on his red lines and the Internal Market Bill. Nevertheless, even so, the deal would be a thin and precarious one with low levels of trust, while the threat of further treaty breaches would impede the normalisation of the EU-UK relations. The EU, therefore, must anticipate a much more conflictual and difficult relationship, no matter the eventual outcome.

To download the full paper, please click here.

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Jannike Wachowiak is a Junior Policy Analyst in the Europe’s Political Economy Programme at the European Policy Centre.

© 2019, European Policy Centre

DFC’s Roadmap for Impact

Through the U.S. International Development Finance Corporation (DFC), the U.S. Government (USG) accelerates the flow of private capital to less developed countries by supporting private sector investments that cannot obtain financing from other sources. This support is essential to advancing key sectors, such as infrastructure, agriculture, and health, which improve the quality of life for millions and lay the groundwork for modern, inclusive, and sustainable economies. Equipped with new financial tools, DFC has the flexibility to catalyze private capital to spur development, advance U.S. foreign policy, and generate returns for the American taxpayer—a triple impact.

DFC’s Roadmap for Impact (Roadmap) takes into account global development needs to establish portfolio-wide development priorities. The Roadmap identifies opportunities to increase private investment in low-income countries (LIC) and lower middle-income countries (LMIC)—targeting 60 percent of total portfolio projects in LICs, LMICs or fragile states. It also recognizes the importance of supporting projects that are significantly developmental or that target the most vulnerable populations in upper middle-income countries (UMICs). In addition, the Roadmap defines priority cross-cutting development themes and sectors, and it establishes investment goals and development metrics in order to focus DFC’s investment activities and measure our progress.

The Roadmap outlines capabilities and resources that are required to achieve these development goals, with an emphasis on enhanced coordination within DFC and across USG initiatives, departments and agencies, development finance institutions (DFIs), international financial institutions (IFIs), and other members of the development community. It also emphasizes the importance of transparency and enhanced social and environmental standards in the design and sustainable execution of DFC-supported projects in order to demonstrate that the U.S.-led model of development advances the best interests of Americans, host countries, and the planet whenever we invest.

The Roadmap does not reflect an exhaustive list of the sectors where DFC invests; rather, it focuses on sectors where DFC investments and technical assistance can have the greatest, measurable development impact over the next five years. Working closely with newly created U.S. Embassy deal teams, particularly with the Departments of State’s and Commerce’s DC Central Deal Team, as well as with DFC liaisons at U.S. Agency for International Development (USAID) missions worldwide, DFC can expand its client base and broaden the markets it serves. It will not be easy; and it will require additional resources, private capital to invest alongside, changes to processes, and patience. But DFC is committed to prioritizing the most highly developmental projects in the most underserved communities worldwide.

To download the full report, please click here.

DFC's Roadmap for Impact