The big event of the week, overshadowing all else in the global trading system, is the 2021 Trade Secrets summit on Thursday, this year again in virtual form. There’s a great programme of conversation and debate about the transatlantic relationship, business and supply chains, trade and climate and all sorts. I mean, we would say that, but really, there is. See the link above for sign-up. It features an interview between today’s Trade Secrets author and the European Commission’s trade chief, Valdis Dombrovskis, focusing on EU-US relations — which as it happens is the subject of today’s main newsletter piece.
One other thing caught our eye in recent days: Joe Biden chiding journalists for not having explained supply chain issues sufficiently. Perhaps the president meant only the White House press corps, which may or may not be true. But elsewhere in the media? Try here, here, here, here and here and, you know what, browse the back catalogue here. We know Trade Secrets is behind a paywall, but surely the White House can spring for an FT subscription. Call it a stimulus or an infrastructure project or something. Treat yourself.
Today’s Charted waters looks at another victim of the snags in global supply chains: the paint industry.
The ad hoc appeal of a deal on steel
Trade folk have had a week now to digest the news of the deal to end the EU-US row over the US’s Section 232 steel and aluminium (aluminum, whatever) national security tariffs. One conclusion on which everyone should agree: the tariff-rate quota solution they came up with is not a thing of beauty. A hugely complicated system of sub-quotas for dozens of separate products seems likely to create rather more security of employment for expensive trade lawyers and lobbyists — the next generation of Bob Lighthizers can start lining up visits to Porsche salesrooms — than for actual workers in the steel and aluminium industries on either side of the Atlantic.
Two questions present themselves. One, is it nonetheless a good idea? And two, does it presage a new and constructive era in transatlantic trade relations? If we had to judge, we’d very reluctantly, mumbling in an embarrassed fashion and with a deep sense of shame and self-loathing, answer yes to the first. But we, or at least today’s author, remain sceptical about the latter.
If you want the sermon on why the deal is economically silly and legally suspect, then the good people at the Cato Institute, keepers of the free-trade flame in the Washington think-tank world, have been thundering majestically from the pulpit as usual. We’d add that it’s not a good look for the credibility of the EU, which has always set its face against tariff-rate quotas and similar managed trade in this context, meekly to give in.
But in practice there is unlikely to be litigation in Geneva against the deal, any more than there has been against similarly jury-rigged arrangements with Canada and Mexico. By suspending the EU’s case against the US at the World Trade Organization, the agreement also avoids the potentially explosive outcome of a dispute settlement panel ruling in the EU’s favour, thus second-guessing the US’s judgment of its own national security needs. (Similar cases from other complainants are still outstanding, of course.)
And while Brussels might have had to swallow some pride on this occasion, one of this year’s other transatlantic patch-up deals, the agreement to suspend the long-running Airbus-Boeing litigation, was actually somewhat more advantageous to the EU. (The WTO dispute settlement system had authorised more firepower for Washington to retaliate with tariffs against Brussels than vice versa.)
We really hate to admit this, but given the shakiness of the world trading system, even these messy makeshift deals are probably better than continuing with tariff wars and politically hazardous litigation. To fudge-fudge is better than to judge-judge, as former UK prime minister Harold Macmillan might have put it.
It’s now become a common criticism that Biden’s trade policy is Donald Trump’s but without the hyperventilating rhetoric. In terms of his wrong-headed analysis of what trade does to the American economy and American workers, that’s a reasonable charge. But we’d contend that the difference in his political tactics is quite meaningful. Trump’s instincts (or rather one of his multiple competing instincts) was to start trade wars in all directions as an end in itself. The Biden administration will defuse trade conflicts with allies such as the EU by doing whatever one-off deals are possible (steel/aluminium, Airbus-Boeing, digital services taxes) within its assessment of what is domestically politically feasible.
The problem is that said assessment doesn’t currently allow for much. It certainly doesn’t seem to cover reviving the WTO in any meaningful way. US trade representative Katherine Tai’s pronouncements on the issue have been a masterclass in avoiding substance, and while the incoming US ambassador to the WTO did say during her Senate confirmation hearing that she wanted to revive the organisation’s Appellate Body, that commitment was as usual made conditional on some major but ill-defined reform.
Now, of course the steel and aluminium deal has a forward-looking and potentially constructive element: to create a carbon club of low-emissions steel producers. However, that rings loud alarm bells about WTO compatibility and whether in fact it will make any difference to emissions at all. (We’ll come back to this issue in due course.) And if the US thinks a steel carbon club is a substitute for the EU’s carbon border adjustment mechanism, which it fears will catch American exports to Europe, well, Rupert Schlegelmilch, one of the top officials working on relations with Washington at the European Commission’s trade directorate, has a fairly definitive answer.
Similarly, the transatlantic Trade and Technology Council is a nice constructive-sounding thing to be doing. But as we’ve written before, the officials involved play down any chance of rapid convergence in anything but minor issues.
So that’s how we read the transatlantic state of play right now. Biden is keen to sound co-operative with Europe, but his domestic political calculation gives him very limited space to do anything substantial beyond improvised fixes to problems as they loom up ahead. Watch out for a lot of performative but ultimately unproductive callisthenics ahead.
Charted waters
Harry Dempsey has a great piece on the woes of another industry suffering owing to global supply chain snags: paint.
Before reading it, we had no idea just how complex the chains involved in producing a single tin of paint actually were. Like other industries, it has also suffered from a rise in costs for key materials. As the chart below shows, paint’s a gloomy picture indeed. Claire Jones
Trade links
The FT has a Big Read on how the travel industry is braced for the post-pandemic world. Vox.EU has a fine obituary of Ronald Findlay, one of the great theorists of the economics of trade.
The latest episode of the podcast Trade Talks gives its take on the EU-US steel and aluminium deal.
Diners in Asia looking forward to sukiyaki and hotpot as the weather grows colder may be disappointed as beef exporters in the US, Brazil and Australia battle disease outbreaks and labour shortages (Nikkei, $).
China’s new data transfer rules would raise costs (Nikkei, $) significantly for foreign companies, conflicting with Beijing’s recent applications to join the CPTPP and digital economy partnership agreement. Alan Beattie, Francesca Regalado and Claire Jones
Trade Secrets Summit — November 11 2021
Source: Economy - ft.com
