Hello from Brussels, and welcome to the penultimate Trade Secrets of 2021. The final one comes on Monday, when we’ll do a wrap-up of the year, and then we’ll be back in January with a change in format and even more licence to have strong opinions, if you can imagine. Today’s main piece is on the UK’s first full year of truly independent trade policy, which hasn’t necessarily turned out as many (including us) assumed.
Charted waters has the stats on how the world’s semiconductor makers have, despite all the talk of shortages, actually increased production over the course of the pandemic.
Diplomatic skill but ministerial eccentricity
It’s almost exactly a year since Trade Secrets predicted (and was subsequently vindicated, in our admittedly biased judgment) that the UK’s annual capitulation over trade talks with the EU was drawing nigh. In 2018 it was the recognition there was no middle way between single market membership and a bilateral trade deal; in 2019 it was accepting a customs border in the Irish Sea; in 2020 it gave way on “level playing field” issues about restraining trade-distorting behaviour.
And this year? Well, the UK seems to be retreating from its position that no one on the island of Ireland may acknowledge the existence of the European Court of Justice lest they be banished to a penal colony, or something. And it’s given the French the fishing licences it said it wouldn’t. The fact that a senior UK official told journalists from EU media one thing and then Downing Street unconvincingly contradicted it shortly afterwards is about par for the course in the UK’s Brexit dealings: not just a retreat but a disorderly one.
In other trade capitulation news, the UK is reaching its first real agreements for independent preferential deals by giving Australian and New Zealand negotiators pretty much all the agricultural market access they asked for. An Australian attack encountered more English resistance in the first Ashes Test last week, and that’s saying something.
It’s also not been a great start for the UK’s pretensions to combine foreign policy and trade. As our brilliant Financial Times colleagues discovered, the Biden administration has held up a deal over the Trump-era steel and aluminium tariffs until Britain grows the hell up (our characterisation, not the administration’s) over Northern Ireland.
So, is Global Britain a bit of a joke? Is the government just following the line of least resistance to give the impression of activity? Sort of, but not entirely.
First of all, the UK’s Civil Service and diplomatic operations seem to be functioning pretty well — remembering that the Department for International Trade, which handles bilateral and regional trade deals and World Trade Organization issues, is distinct from the Cabinet Office which is in charge of post-Brexit relations with the EU.
True, the ministerial pretensions overlaid on this are frequently silly. A claim that the UK “helped to broker” a fairly minor deal on service sector regulation at the WTO was news to most observers of the trade body. And a speech from the junior trade minister this week comparing Brexit to the American Declaration of Independence was simply embarrassing. But the general sense in Geneva, for example, is that the UK has engaged cogently at the WTO, if having little direct impact given its relatively small size.
It remains to be seen how well the UK will conduct itself in its big project of applying to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, more commonly known as the CPTPP, membership of which will in any case have minimal economic benefit for the UK. But it shows some organisation and determination to get the bid together, an initiative that owes much to Crawford Falconer, the veteran New Zealand trade official now working as the UK’s chief negotiations adviser. In other “small but not invisible consolation for leaving the EU” news, the UK has also been able to take a more constructive position on addressing digital and data issues in trade deals.
For our money, though, the most striking thing the UK has done — and it’s not what we expected — is to override the UK agricultural lobby to get the Australia and New Zealand agreements done. The speed with which the UK gave way in negotiations was a defeat in a mercantilist sense. But it’s pretty impressive, in a slightly nihilistic way, that the same Conservative party that has espoused agricultural protectionism for centuries was prepared to shaft its own farmers to get there.
Certainly Liz Truss, the then trade secretary (now promoted to foreign secretary), isn’t universally admired for her sophistication of ideological vision, and the abruptness of the decision doesn’t suggest a systematic and predictable model of (vile expression) “stakeholder management”. But whether you think it’s a good idea or not you have to admit that it’s a pretty bold move for a Tory secretary of state, especially one representing a heavily rural constituency, to eliminate farm tariffs for two of the world’s most efficient agricultural exporters.
Will the government be able to withstand incurring similar political heat in Northern Ireland to defuse the situation with a comprehensive retreat there? We’re total amateurs at judging this, but ministers have shafted unionists twice, so it would be surprising if they were squeamish about doing so a third time, especially with the EU already offering some concessions to fix the problem. Their need to keep picking fights with the EU to distract attention among their English voters away from the shambles elsewhere might be more enduring.
The bottom line is this. In trade policy, the UK has a competent Civil Service and somewhat eccentric but not ineffectual ministerial direction. Paradoxically, the thing that ought to give it more credibility now is to retreat from an untenable position on Northern Ireland and hence offer further evidence it’s not the prisoner of domestic constituencies. But that seems like the kind of coherent strategic thinking that has yet to emerge.
Charted waters
The speeches and research of Hyun Song Shin, the Bank for International Settlements’ head of research, are always well worth a read. His latest is no exception. As Martin Sandbu touched on in this column, Shin makes a convincing case that manufacturers have risen to the challenge of high demand for their wares.
It’s a theme that we’ve hit on on quite a few occasions in Trade Secrets this year. And we thought that regular readers would appreciate this compelling chart on what’s been going on in the market for semiconductor chips. As you can see, chipmakers have met much of the additional pressure and raised sales substantially.
We’re not quite as convinced as Martin that capitalism and globalisation have had an amazing pandemic, but we do think the world’s makers of chips and many other products for which demand has rocketed deserve recognition. Claire Jones
Trade links
After severe shortages, could the world soon see a semiconductor chip glut? Chipmakers are investing billions of dollars to expand production capacity, but Nikkei reports (Nikkei, $) that analysts say the industry’s cyclical nature means the global semiconductor shortage will inevitably give way to too many chips being produced. Meanwhile, Joe Miller heads to ‘Silicon Saxony’ to speak to people in Europe’s busiest chipmaking region. The Indian government has approved (Nikkei, $) $9.94bn-worth of incentives to spur local manufacturing of semiconductors and display panels, putting up a challenge to China, Thailand, Indonesia and Vietnam.
Pandemic-related face mask production and government support have boosted the beleaguered French textile industry but not created many jobs.
Citi has produced a bumper report on what it will take for supply chains to normalise.
The Chinese intimidation of Lithuania underlines the opaque nature of Beijing’s coercive economic statecraft. Francesca Regalado and Alan Beattie
Source: Economy - ft.com
