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Hello from DC, where we have some great news to share! Starting late last week, our Trade Secrets family expanded to include Aime Williams, who was previously covering foreign policy and defence here in the Washington bureau. She’ll be regularly writing for the newsletter, with her first dispatch to come next week, and will otherwise be reporting on US trade policy alongside yours truly.
In other news, trade aficionados will be delighted to know that the US trade representative has just released a huge tome on the failings of the appellate body of the World Trade Organization’s dispute settlement system. Meanwhile, I exchanged a few words with Peter Navarro, Donald Trump’s decoupler-in-chief, about the coronavirus outbreak and the lessons we can draw about medical supply chains for today’s main story. Our person in the news is Hun Sen, Cambodia’s prime minister, while our chart of the day looks at the downturn in US seaborne imports across various sectors.
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A new front in the supply chain war
“This is a wake-up call for an issue that has been latent for many years but is critical to US economic and national security.” So said Peter Navarro, President Donald Trump’s senior trade adviser, to Trade Secrets last night.
Last week in this newsletter I wrote about the economic impact of the coronavirus outbreak, and how it threatened to derail, or at least delay, Beijing’s planned purchases of $200bn of US goods under the fragile trade truce that takes effect on Valentine’s Day.
But the infectious disease rattling China is triggering angst in Washington for a different reason as well. Speaking to Trade Secrets, Navarro said it had exposed the vulnerability of America’s medical supply chain, which like many other sectors, is closely intertwined with the rest of the world, especially China.
It is a view shared by other Trump administration officials and even some lawmakers on Capitol Hill. Since Trump took office, his administration has moved to highlight the risks in America’s technology supply chains, hence the crackdown on Huawei. It has also focused on the growing gaps in the US defence supply chain, hence the drive, however spurious, towards national security-based tariffs on foreign steel, aluminium, and possibly even cars.
Now, there is a new front in the supply chain war. The coronavirus has raised concerns that America’s access to finished pharmaceuticals, drug ingredients and medical supplies such as masks could be hostage to fortune in a crisis if it is dependent on imports. Navarro said his worries were not all about China, but extended to US allies as well. And he wanted to start by making sure US government agencies were “fully applying” the “buy American rules” in order to boost domestic production of items from masks to ventilators and antibiotics.
Navarro is not suggesting an import ban for key medical imports, which could deprive US consumers and businesses of immediate access to vital products © Eric Thayer/Bloomberg
Officials in Beijing will be eyeing Navarro’s reaction to the coronavirus outbreak with some nervousness. In Geneva yesterday, the Chinese delegation warned WTO members against introducing new trade restrictions on Chinese goods, calling any such measures an “overreaction” as well as “unnecessary”.
Navarro is not suggesting a wholesale import ban for key medical imports. Such a move could foster more American production in the sector over the long run but could backfire dangerously at the outset by raising costs and depriving American consumers and businesses of immediate access to vital products. It’s also important to note, as one healthcare industry lobbyist pointed out to me, that no drug manufacturers have so far complained to the FDA about supply chain problems.
But even if the coronavirus outbreak has peaked and gradually fades away over the coming months, as we all hope, this issue is now firmly on the radar at the White House and in Congress.
Navarro’s notes of alarm on medical supply chains were also interestingly accompanied by a warning to China on its continued tolerance for exports to the US of fentanyl, the deadly opioid, and counterfeit goods more generally. Although the “phase one” agreement reached with Beijing called for a series of Chinese measures to crack down on counterfeiting, Navarro told us he had not seen any movement so far in the direction of fulfilling those pledges.
“The one benefit of an otherwise ugly authoritarian system is that Chinese government officials have the ability to stop the trafficking of counterfeit goods in its tracks,” he said. “But so far . . . we are not seeing any progress and as many as 100,000 Americans a day may be defrauded and potentially harmed by Chinese contraband coming to America by air parcel delivery, both counterfeits and controlled substances like fentanyl.” That may not bode well for the rest of the agreement.
Charted waters
US seaborne imports of furniture, machinery/electronics, clothing and chemicals fell in the last quarter of 2019. But while the clothing slump worsened in January — tariffs having been applied to the sector in September 2019 — furniture imports, where tariffs were applied in September 2018, were down just 0.1 per cent on an annual basis.
Person in the news
Cambodia’s prime minister Hun Sen refuses to ‘bow down’ to foreign demands © AFP
Who is it?
Hun Sen, Cambodia’s autocratic prime minister, who has held power for more than 35 years.
Why is he in the news?
The EU is set to revoke some of Cambodia’s trade privileges with the bloc today over human rights concerns, and Sen has not backed down. Defiant in the face of domestic economic damage, particularly to Cambodia’s garment industry, he said earlier this week that he would not “bow down” to foreign demands. In moves that have attracted criticism from the EU and the US, since 2017 Sen’s government has arrested and tried the opposition leader Kem Sokha on treason charges, outlawed his Cambodia National Rescue party and cracked down on independent media.
Don’t miss
- The EU’s chief Brexit negotiator, Michel Barnier, has said that people in the UK should “not kid themselves” about the offer they will get on financial services in a trade deal, as he warned the UK it would not be granted a permanent deal allowing the City of London access to European markets.
Read more - Robert Lighthizer, the US trade representative, has issued a critical report on the WTO’s appellate body, claiming that its actions had “harmed the United States and its citizens, workers and businesses”.
Read more - Mastercard has won approval to enter the Chinese payments market after securing access for US card companies was made a provision of Trump’s US-China trade deal.
Read more
Tokyo talk
The best trade stories from the Nikkei Asian Review
- Mitsubishi Aircraft, an upstart in an industry dominated by global multinationals such as Boeing and Airbus, is using the withdrawal of its rivals from the Singapore Airshow as an opportunity to show its commitment to Asia.
Read more - Mazda has suspended the reopening of its SUV factory in Nanjing for the third time due to the coronavirus, after suspending production at another plant in Japan due to difficulty in acquiring products from China.
Read more
