Hello from a now almost completely deserted Brussels, and welcome to the last Trade Secrets of the summer (up here in this half of the globe, anyway, let’s not be all northern hemisphericentric about this) before we disappear on our own break, returning on September 6. Today we wrap up what we’ve seen in the trade world so far this year. In summary, it has not been quite as insanely unpredictable as in 2020 — we’d probably have expired from exhaustion if it had — but there have been some very big stories hurtling at us from unexpected angles. There will no doubt be more when we reconvene in the autumn.
Politics take precedence as the pandemic threat recedes
The first thing to note is that actual trade and globalisation are doing OK. Ish. Yes, there has been some quite serious whipsawing of supply chains in certain sectors, particularly anything involving semiconductors. But, as we spent a lot of last year saying, it is mainly political tensions that are driving uncertainty in cross-border movements of goods, services and data. The pandemic did not deliver the big permanent shock to global value chains that many had feared. A big container ship (the Ever Given) got stuck in the Suez Canal for a few days and very entertaining it was too — alert FT readers know a lot more about the hydrodynamics of big boats in shallow waterways than we did before — but it was not a serious threat to globalisation beyond the short term.
The big project launched right at the end of 2020 was one of the first to come unstuck: the EU’s ill-fated Comprehensive Agreement on Investment (CAI) with China. Whether or not you think it is a good idea on its own merits (we’ve been sceptical from the beginning), the communications around CAI were badly mishandled within the EU, raising hackles in the European parliament. And then Chinese counter-sanctions against EU policymakers and law firms (and, bizarrely, a perfectly respectable think-tank) slung the deal indefinitely into the deep freeze. We think our early verdict holds up: this was an unwise gamble by Brussels (and Berlin) that has damaged the EU’s credibility.
The conventional wisdom ahead of the new US administration taking office in January was that Joe Biden’s trade policy would not be madly destructive like Donald Trump’s, and he would look for longer-term collaboration with allies such as the EU on strategic supply chains, but we should not expect a sudden reversal of all the Trump-era policies. Turns out that conventional wisdom was largely right. (It happens sometimes.) Washington love-bombed Brussels with talk of transatlantic harmony, and the US and EU have declared a fudgy armistice on the Airbus-Boeing dispute and promised some kind of deal on Trump’s steel and aluminium tariffs. But setting back the clock to 2016, and pressing on with a positive trade agenda? No. Biden’s focus is very largely domestic.
The real breakout story of 2021 was the issue of Covid-19 vaccines, first a big scrap about export bans either actual or de facto and then a battle over intellectual property waivers for medical products at the World Trade Organization. Mooted by India and South Africa late last year, the WTO waiver debate was rumbling along at medium-profile level until the Biden administration in May suddenly declared itself in favour and it became one of the big global stories of the pandemic. Sadly, though we ourselves said a limited waiver might make sense for tactical reasons, the conversation at the WTO has now settled into a ritual confrontation where India and South Africa demand a super-wide loophole they are not going to get, the EU is cast as a pantomime villain for pointing out IP is not the real issue, and the US, in our view, cynically sits back and enjoys the credit for raising the subject while failing to produce a negotiating text itself or breaking the impasse.
Speaking of which, the WTO finally got its new, dynamic director-general in the form of Ngozi Okonjo-Iweala, a heavy-hitting veteran of the global governance circuit, who announced her determination to inject some energy into the moribund institution and boldly challenge the member governments to make progress. Has this had any effect? Not so you would notice. A ministerial focused on fisheries subsidies a couple of weeks ago clarified differences without really resolving them, and there is not much optimism about the big biennial gathering of ministers due at the end of the year.
Brexit, certainly the Northern Ireland issue, is going about as well as you’d imagine given that the government that signed the deal either genuinely does not understand what it is in it or is pretending not to. In other UK news, Britain appears to be capitulating to Australia in a bilateral trade deal and calling it a victory.
And that is where we’ve got to so far in 2021. Lots of climate and carbon emissions action to come in the autumn, plus the long-running issues of US-China rivalry and the global governance of data and tech, and a vast amount more. We will be back before you know it. As the song says, see you in September.
Charted waters
One of the hot topics of the year so far has been what to do about the shortage of semiconductor chips, a problem laid bare by the pandemic.
Many jurisdictions, including the US and the EU, are looking to address the problem by relying less on exports from Asia, notably Taiwan and China, and spending more on building up domestic capacity.
What is worth bearing in mind is that exports of chips have been in decline for a while now — at least in value terms. Data compiled by Coriolis Technologies, an outfit specialising in trade information, show export values have been falling since 2017.
“There has been a rapid increase in intraregional trade in Asia-Pacific and south-east Asia regions as supply chains from China were relocated to avoid tariffs. Chains are now closer together geographically, so reliance on exports has dwindled,” said Rebecca Harding, chief executive of Coriolis. “The trade war between the US and China since 2016 . . . is pushing the two countries to become increasingly self-sufficient in semiconductor production.”
Given the geopolitical developments of 2021 so far, we only see this trend continuing as plans to reshore production drive down cross-border trade in chips. Claire Jones
Trade links
The Ever Given has finally made it to port! It’s four months since the giant container ship, which weighs nearly 200,000 tonnes, got stuck in the Suez Canal, blocking shipping from around the world. It docked in Rotterdam today and is expected to sail for Felixstowe on Monday before moving on to Dunkirk in France, where it will be inspected further. (Wall Street Journal $).
The House of Lords subcommittee on the Northern Ireland Protocol has published its report assessing the protocol’s impact so far. Meanwhile, it seems supply constraints are one of the factors weighing on the euro area’s recovery.
The chip shortage that has disrupted car and electronics production worldwide (and which we refer to above) looks increasingly likely to last into next year, with Apple revealing that it expects the supply troubles to spread to iPhones (Nikkei, $)
And finally, exports from south-east Asia have surpassed pre-pandemic levels, thanks to the economic recoveries in the US and China lifting demand for the region’s electronics and automotive components (Nikkei, $).
Source: Economy - ft.com
