Welcome to Trade Secrets. It’s another week of trade tensions between the big powers on display, or at least being uneasily suppressed. Narendra Modi is in Washington, and ahead of his visit India’s power minister helpfully decided to bash Joe Biden’s green investment binge, criticising renewables subsidies for undercutting production in low-income countries. Li Qiang, the new Chinese premier, is visiting Europe, with both sides trying not to ignite tensions. Charted Waters looks at the frailty of China’s economic recovery.
Cash from compliance
Ursula von der Leyen made a bold claim on her visit to Latin America last week, saying that the EU and Brazil would work to finalise the EU-Mercosur preferential trade agreement (PTA) by the end of the year.
The deal has stalled since it was signed in 2019, partly because of concerns about the Amazon (and, more prosaically, beef imports). The situation has been complicated by the EU’s new deforestation regulation, which prohibits the import of seven commodities — including beef, soyabeans and palm oil — from recently cleared land. This chart from the UN Food and Agriculture Organization shows the problem.
As the regulation starts being applied, a familiar dynamic will no doubt kick in. Bigger and better-organised producers, who can afford the complicated traceability and monitoring procedures, including geolocation and time-stamps for production, can benefit from the rules creating barriers to entry from smaller producers.
You see this in a lot of EU regulation. Big manufacturing companies moaned when Brussels brought in the REACH chemicals directive, but now they’ve mastered compliance they’re fairly OK with it. The GDPR data privacy regime was soon nicknamed the “Google Data Protection Regulation”: big tech companies have more capacity to follow the rules.
One of the biggest fights over the deforestation regulation is of course palm oil — already a cause célèbre after the European parliament put a de facto import ban on it. Indonesia and Malaysia have suspended trade talks with the EU amid much frothing about hypocrisy (Europe has, after all, razed vast forests for farmland over centuries) and neocolonialism.
Some farmers find it easier to clear the compliance bar. Those who have already qualified for the Roundtable on Sustainable Palm Oil (RSPO) standard, an international certification scheme, will meet the EU’s requirements with relative ease.
One association of Indonesian growers, the Union of Palm Oil Smallholders (SPKS), welcomes the deforestation regulation as a business opportunity. But the organisation claims only “over 70,000” members out of a total of several million palm oil smallholders in Indonesia. A much bigger grouping of associations vehemently opposes the regulation, saying that the EU should exempt smallholders from the regulation, recognise Indonesia’s own certification programme as adequate and apologise in writing for even suggesting it (a bold gambit, admittedly, but if you don’t ask you don’t get).
As ever in trade, rivalries within countries are pivotal in shaping disputes between them. Overall, governments like Brazil, Indonesia and Malaysia are solidly sceptical of the EU’s new rules. But some producers will see a commercial opportunity where others see unfair discrimination.
A new US ports crisis averted for now
Every now and again, something pops up to remind us of the great supply chain snarl-ups of 2020-2022. The crisis has eased rapidly: freight rates and “dwell times” in ports are sharply down.
Almost certainly it wasn’t better ports and container handling or the lifting of Covid lockdowns that fixed the problem. It was simply the waning of the extraordinary surge in demand for consumer durables and hence container traffic. If that ever comes back, the crisis might too, especially in Los Angeles and Long Beach, the dysfunctional US west coast ports that were its main locus. Experts from the shipping industry have told me they haven’t been fixed.
Last week the west coast ports tentatively resolved a labour dispute with dockers (longshoremen) after 13 (seriously, 13) months of negotiations that had threatened to choke the ports ahead of the summer season. The Biden administration weighed in to the talks to get the draft deal over the line. Good for it, but the fact Washington had to intervene to stop a major snarl-up suggests the west coast ports’ chronic problems haven’t really been resolved.
The ports’ traditionally combative labour relations create stoppages and hinder automation. Their terminals are small and have poor infrastructure, particularly connecting container trade from ships with road and rail.
Biden’s other intervention during the crisis came in October 2021, when he persuaded the unions to run a container handling operation 24 hours a day (incredibly, unlike world-class ports such as Rotterdam in the Netherlands, they previously shut at night). But that didn’t make much difference: distribution warehouses and the like also tend to run only in the daytime, so typically no more than a couple of consignments came through during night shifts.
The end of the labour dispute is obviously a good thing, and credit to the administration for its help. But deep-seated problems with the bottlenecks of US container trade remain.
Charted waters
Talking of the problems of recovering from Covid, here is a sobering chart about the fragility of China’s post-pandemic rebound. The country has domestic problems with the housing market — one of the two key economic drivers — suffering from a lack of buyers. But exports are also vital for the world’s second most populous country, and these have been hit by the cost-of-living challenges in other countries making consumers unwilling to buy the stuff Chinese factories make.
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Monetary policy is providing some support to Chinese exporters. The renminbi fell to a six-month low against the dollar after the People’s Bank of China cut its main policy rate last Thursday. However, the more intractable problem is US restrictions on Chinese tech products, and its knock-on effect on Chinese trade with its neighbours Japan, South Korea and Taiwan as the excellent news analysis by FT reporters in China and Hong Kong explains. (Jonathan Moules)
Trade links
French internal markets commissioner Thierry Breton told Politico he was pushing for an anti-dumping investigation on Chinese electric cars, a potentially huge trade dispute in the making, though other member states are more cautious.
The Wall Street Journal says that the New Development Bank, set up by the Brics countries as a rival to the World Bank, has virtually stopped making loans and is struggling to raise dollar funds to pay its debts, having been hit by the reputational damage of having Russia as a major shareholder.
My colleague Peter Foster has superbly covered the Resolution Foundation think-tank’s admirable new report into UK trade policy. It’s really worth a read, and I’m not just saying that because I agree with its criticism of the UK’s current preferential trade agreement strategy and also joined a panel at the report’s launch.
A lot of World Bank financing labelled as combating climate change is nothing of the sort, a new report finds.
Trade Secrets is edited by Jonathan Moules
Source: Economy - ft.com
