Argentina lurches from one folly to another

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Welcome to Trade Secrets. After most of a century in thrall to one self-destructive economic ideology, Argentina’s evidently decided to have a shot at another. Yesterday it elected as president Javier Milei, who wants to dollarise the economy despite not having the dollars to do so, and to savage the size of the state. That’s not to mention his unpleasant associations and objectionable eccentricities in other areas. How a country manages to hop straight from Peronism to reactionary anarcho-capitalism without ever having a go at boring old liberal social democracy is a wonder to behold.

Given Milei has said he wants to withdraw from Mercosur, this certainly adds a bit of spice to the EU’s push to finalise ratification of its trade deal with the South American bloc over the next few weeks. Brussels is trying to get it done by December 6, when Brazil hands over the presidency of Mercosur to Paraguay. Milei will be sworn in on December 10. Ladies and gentlemen, place your bets please!

The rest of today’s newsletter looks at Washington resiling a bit further from its ambitions to set rules for trade in the Asia-Pacific, and examines whether the UK’s Labour opposition is making any more sense over trade policy than the Tory government. Charted waters is on the falling dollar.

Such a terrible trade deal! And such small portions!

If a mainly blank sheet of paper falls into the Pacific Ocean, does it make a sound? Last week’s meeting of the Asia-Pacific Apec grouping principally served as the location for the Joe Biden-Xi Jinping bilateral, at which Biden bizarrely caught some flak for speaking the obvious truth and noting that Xi is a dictator. Any other hope of substance disappeared when, with the White House already having taken the digital bits out of the Indo-Pacific Economic Framework (Ipef) agreements it’s been pushing in the region, congressional Democrats stalled the trade Ipef initiative altogether, citing familiar objections about not enough protection for labour standards.

This wasn’t exactly the worst tragedy to befall the global trading system since the Smoot-Hawley Tariff Act. I’ve said in the past the Ipef is more a Trans-Pacific Partnership (TPP) re-enactment society than an actual trade deal, with no new market access.

But as it happens there was one section — digital and data — that some of America’s Asia-Pacific partners seemed vaguely keen on. There’s a web of digital deals already being created in the region and it would make sense to have the US join in. This would mean Washington catching up the ground it lost after pulling out of the CPTPP, which created provisions securing the free cross-border flow of data. The likes of Indonesia might also have been able to use the Ipef framework to get a critical minerals agreement with the US, which has its beady eye on the country’s nickel exports.

Given the loss of credibility with America’s Asia-Pacific allies it would honestly have been better not to have tried Ipef to begin with. What lessons do we draw from the framework being put on hold?

One: the toxicity of trade deals in Washington, and particularly Capitol Hill, extends to things that aren’t even trade deals and don’t necessarily (opinions differ) need to go through Congress anyway.

Two: the administration has created unrealistic expectations for what trade deals can do. Repeatedly call your trade policy “worker-centred” and the labour unions and their friends in Congress will be all over it like a wildcat strike. Labour standards provisions will be too low for them while being complex and invasive for trading partners. This is also bedevilling what ought to be a simple agreement with the EU on critical minerals.

UK Labour party: better tactics but still a flawed strategy

Mind you, when it comes to signing pointless pieces of paper there are few countries to touch the UK. Conservative ministers love agreeing non-binding memoranda of understanding (MoUs) with individual US states and pretending that they’re Brexit dividends (they aren’t) which mean something economically (they don’t, see Section 11 here). The latest Tory to use MoUs as a campaign prop is business secretary Kemi Badenoch, aspirant leader of the Conservative party (she has a chance), who last week scooted over to Florida to sign a piece of paper with some warm words on it alongside fellow anti-woke warrior Florida governor Ron DeSantis, who wants to be US president (no chance).

From the way the opinion polls are looking, by this time next year it’s going to be a Labour government’s turn to try running a post-Brexit UK trade policy. Last week Kemi Badenoch’s opposite number, the new shadow business secretary Jonathan Reynolds, gave a nicely detailed speech on the subject. 

The good bits: it correctly identified some of the problems with the government’s current approach — pursuing a big range of deals (see the MoUs) for the sake of it, not listening properly to businesses or outside experts, not focusing sufficiently on those areas that would particularly benefit the UK.

The problem: its solutions aren’t very realistic. They’re quite similar to this (actually very good) report from the Resolution Foundation think-tank earlier this year, proposing that the UK should pursue nimbler deals on issues such as mutual recognition and digital trade, which directly benefit Britain’s service sector exporters. 

Nice idea, but substantive, binding, standalone mutual recognition agreements don’t really exist. They usually only function as part of a wider and denser economic relationship such as the Australia-New Zealand Trans-Tasman arrangements or, er, the EU single market. Why would the UK’s trading partners agree separate deals that so obviously play to Britain’s comparative advantage in services? As for data and digital, any agreement will be constrained by the need to retain the data adequacy finding from the EU.

However constructive the government in charge, the logic of prioritising ever-closer economic integration with the EU over fiddling about with deals elsewhere remains. If it’s true, as Reynolds says, that “Brexit is a settled matter” and Labour won’t be seeking to rejoin the single market or the customs union, its approach promises smarter tactics and hopefully fewer meaningless photo-ops but not a fundamentally better strategy.

Charted waters

Further to last week’s Trade Secrets column about the strange absence of a currency war, further evidence that the dollar is behaving like a normal currency ought to, weakening as it becomes clearer that inflation in the US is on the way down and interest rates will at some point be following it.

Trade links

Rises in wages relative to prices mean the cost of a US Thanksgiving dinner in terms of weekly earnings is at its second-lowest ever.  

A terrific piece from FT Brussels colleague Andy Bounds on how some in the EU (certainly Karel De Gucht, trade commissioner at the time) think the bloc didn’t fight a trade war early and hard enough against Chinese solar panels a decade ago and should be speedier and tougher over electric vehicles now.

Good news in transatlantic talks, as Washington reportedly wants to extend the steel and aluminium stalemate with Brussels for two more years. (I’ve argued before that this is the least bad option.) Let’s hear it for messy fixes that keep the global trading show on the road.

Ruchir Sharma, chair of Rockefeller International, argues in the FT that China’s rise as an economic superpower may be reversing.

The South China Morning Post describes how US semiconductor export restrictions are hurting Alibaba and Tencent.

The US policy-relevant academic Dan Drezner says that weaponised economic interdependence and “economic statecraft” are maturing into subjects of serious scholarly debate.

Trade Secrets is edited by Jonathan Moules