Aurelia Butler

Hello from Trade Secrets. I have no views on Leopard tanks or their deployment, so if you’re looking for respite from that particular debate, take a seat. In other transatlantic tensions news, much chatter at Davos last week over — what else? — the electric vehicle tax credits in Joe Biden’s Inflation Reduction Act. First up, bellwether senator Joe Manchin of West Virginia said he hadn’t been aware the EU didn’t have a trade deal with the US and hence wasn’t eligible for some of the credits. Expert opinion was divided on whether Manchin was saying this for effect or really hadn’t known. Second, the EU side sounded more emollient than before, at least in private, perhaps finally giving up on battering open the door to the tax credit and instead concentrating on sneaking through the window. Third, businesses seemed pretty keen on the IRA, no doubt in some cases as the potential recipients of largesse.In today’s main pieces, I look at how the World Trade Organization is ruling itself out as a forum to address the said subsidy row, but I will first address the weakness of corporate morality regarding divestment from Russia. Today’s Charted waters looks at how these disrupted times have failed to floor international trade.No one’s Russian for the exitsA thought-provoking and disturbing paper has emerged from the formidable duo of Simon Evenett and Niccolò Pisani, respectively of the St Gallen university and the IMD business school in Switzerland. You might remember a great flurry of activity (or at least of announcement) in the weeks after the invasion of Ukraine last year that image-conscious rich-world multinationals were leaving Russia in a May Day Parade-style display of moral righteousness.If only by observing their willingness to continue trading in other countries with unpleasant regimes, I was sceptical at the time that this was actually being done on principle. Volkswagen and McDonald’s, the latter of particular significance given its symbolic opening in Moscow after the fall of communism, both announced they were pulling out of Russia. But both continue to operate in Xinjiang, the province where China is holding more than a million Uyghurs in camps. Divestment would happen when it was compelled by sanctions, I thought, not by corporate ethics or consumer pressure. Since then, of course, we’ve had the Qatar World Cup: lots of talk about brand reputation being at risk but still a commercial success.Looks like that scepticism was justified. Evenett and Pisani found that fewer than 9 per cent of EU and G7 companies had divested from Russia, above the average from all countries (4.8 per cent) but still not exactly a stampeding exodus. Among the rich nations, US companies were more likely to have left than others, though still below 18 per cent.What do we conclude from this? Probably that we should rely on determined governments rather than corporate voluntarism to isolate repellent regimes. It can be done. Western Europe and particularly Germany’s sharp reduction in usage of Russian gas, for example, is a truly impressive feat, Leopards or no Leopards. It’s also worth about 100,000 pious business executives’ statements about social responsibility.WTO to litigants: go awayQuite the admission from Ngozi Okonjo-Iweala last week over the IRA row. The WTO director-general had a message that in earlier years, at least since the WTO’s binding dispute settlement scheme was created in 1995, would have been unusual. Sort this out on your own: don’t bring it to a WTO dispute panel.The sad thing is that this was probably an astute intervention. (If you find yourself questioning Okonjo-Iweala’s political instincts, you’d better double and triple-check you haven’t missed something.) The US has already deprived the WTO appellate body of judges and flatly said it isn’t going to comply with the ruling on steel tariffs that questioned America’s right to create its own national security loopholes in trade law. It’s as well not to poke the bear too forcefully by questioning its green investment plans as well.As it happens, the only obviously WTO-incompatible bits of the IRA are the local content requirements for electric vehicles. The rest of the subsidies are potentially vulnerable to anti-subsidy duties, but that depends on complainant countries showing a negative impact on their industries.Keeping the IRA away from the WTO leaves the organisation’s dispute settlement system fiddling around with issues such as antidumping duties on about €20mn-worth of frozen frites, the first case to come to the workaround appeals system created by the EU and others. Europe insisting everyone eat Belgian frites (to be fair, the best in the world — apologies to any French people reading) is nicely symbolic, but not exactly the subject that’s going to define the next century of globalisation. To be precise, this isn’t the first time a WTO DG has warned that dispute settlement isn’t the best forum to resolve a problem. Okonjo-Iweala’s predecessor Roberto Azevêdo said the same about those cases against the US using the national security loophole. The right thing to say on both occasions? Probably. But depressing nonetheless.As well as this newsletter, I write a Trade Secrets column for FT.com every Thursday. Click here to read the latest, and visit ft.com/trade-secrets to see all my columns and previous newsletters too.Charted watersThe Financial Times created the Disrupted Times newsletter because we live in what feels like a tumultuous moment in history. The global financial crisis, Covid-19, resurgent nationalism, war in Ukraine and the deteriorating US-China relationship have challenged the idea that globalisation is an unstoppable force. But capitalism, and international trade are resilient beasts.

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There has been a shift in perception from “dog trusts dog” to “dog eat dog”, but in practice this has not been that great a shift, according to FT chief economics commentator Martin Wolf. The above chart uses data from a report published by the McKinsey Global Institute in November.McKinsey found that global flows are now being led by intangibles, services and human skills and most of these flows have proved robust during the recent disruptions. (Jonathan Moules)Trade linksTrade ministers launched a climate coalition to try to tackle green issues by, among other things, addressing them in multilateral trade policy. The US is a member, which makes you wonder how far it will get. See above.The Netherlands, home of the world-class semiconductor machine company ASML, says it won’t automatically accept US export controls, which it has blamed for unfairly affecting its sales to China, but some kind of compromise seems likely nonetheless.Brazil and Argentina said they were looking at setting up a common currency: I’m confident I will be retired if not dead by the time it actually happens.My FT colleague Peter Foster in the excellent Britain after Brexit newsletter looks at the difficulty of micromanaging immigration after the end of free movement of labour from the EU. Nicolas Lamp at Queen’s University in Canada, building on his work with Anthea Roberts from the Australian National University about competing narratives of globalisation, looks at what that means for international trade co-operation.Trade Secrets is edited by Jonathan Moules More

LUSAKA (Reuters) -Two of the world’s most powerful finance officials are visiting Zambia this week, a reflection of the growing concern shared by Western officials about how China and other creditors are handling the African country’s debt.Zambia requested debt relief under the Group of 20 Common Framework nearly two years ago, but progress has been glacial at best, despite increasingly urgent appeals to China and private sector creditors to reach a deal.Frustrated by the delays, U.S. Treasury Secretary Janet Yellen and International Monetary Fund Managing Director Kristalina Georgieva arrived for separate visits in Zambia on Sunday. Both see a new sovereign debt roundtable – introduced late last year – as a way to make progress on long-stalled debt restructuring processes.While the overlap was coincidental, the two will meet informally while in Lusaka, a Treasury official said.Yellen told Reuters en route to Zambia she supported the roundtable as a forum for discussing general principles of debt relief.”I think that’s a helpful approach and hopefully the specific cases will be easier to deal with,” Yellen said.Georgieva and Yellen will both participate when the roundtable meets for the first time in India next month on the sidelines of the Group of 20 finance officials. The specific date and guest list are still being worked out.Georgieva, who helped initiate the roundtable along with World Bank President David Malpass, told reporters this month it aimed to resolve broader issues such as transparency, timing of treatments and how to set cutoff dates for loans, but was not intended to replace the existing Common Framework.“The roundtable is a good idea, but the expectations should be kept very modest,” Indermit Gill, World Bank chief economist, told Reuters. He said it could help build more trust among parties, especially Chinese officials, struggling to find a common approach among disparate lenders.Former senior Treasury official Mark Sobel said the roundtable could bring parties together for talks but it remained unclear if it would deliver results.”The leaders of the roundtable need to have a focused agenda with clear goals and timelines, build a collective spirit and then keep the pressure on all parties to deliver results,” he said, adding the Common Framework had been “a flop” so far but remained the “the only game in town.”URGENT NEED FOR DEBT RELIEFYellen told reporters she had underscored the urgent need to cut debts of heavily indebted countries when she met Chinese Vice Premier Liu He in Zurich on Tuesday, warning failure to do so would set back development in poor countries and could lead to more war, fragility and conflict. Restructuring Zambia’s debt was critically important, she said during a briefing in Lusaka. The delay in debt treatment is taking its toll on Zambia, according to the World Bank’s Gill: per capita income has slipped from middle-income to low-income status and about 60% of people now live in extreme poverty.”All the bad things that happen when a country declares default have happened to Zambia,” he said.Zambia’s President Hakainde Hichilema urged creditors on Monday to quickly agree the content of a debt restructuring and warned if no conclusion was found soon it may distort economic recovery efforts.Gill sees parallels with the late 1970s, when the Federal Reserve raised rates to curb inflation, sending the U.S. economy into the worst recession since the Great Depression during the early 1980s.High U.S. interest rates ushered in what was labelled the “Lost Decade” in Latin America, landing many countries in default. “To some extent a similar thing could happen now,” Gill said.Yellen, however, noted rates were nowhere near those seen under Volcker and inflation was not out of control.”We’re in a higher interest rate environment, and that’s something that’s linked to the strong dollar, and weaker currencies for many emerging markets, but also Japan and other countries,” Yellen said. More

LONDON (Reuters) – The Bank of England must decide next week how much higher it will raise borrowing costs as it tries to bear down on Britain’s double-digit inflation rate without adding too much stress to an economy already close to recession.BoE Governor Andrew Bailey said last week that inflation might have turned a corner after it fell in November and December, but at above 10% it is still more than five times the BoE’s 2% target.Bailey has also warned that a shortage of workers could make it harder to bring down inflation by fuelling strong wage growth and creating too much heat in the economy.INTEREST RATES SEEN CLOSE TO PEAKThe BoE was the world’s first major central bank to raise rates when it began pushing up borrowing costs in December 2021 and it is expected to announce its tenth hike in a row on Feb. 2. Investors are mostly betting on another half percentage-point increase to 4.0% and that Bank Rate will peak at 4.5% soon. GRAPHIC: Rate hike push expected to level off – https://www.reuters.com/graphics/BRITAIN-ECONOMY/myvmogwlgvr/chart.png INFLATION FALLING BUT WARNING SIGNS REMAINBritain’s main measure of inflation – the consumer prices index – hit a 41-year peak of 11.1% in October before edging down in November and December to stand at 10.5%.The BoE predicted in its last forecasts, published in November, that CPI would slow to about 5% by the end of this year. That forecast might be lowered in next week’s new projections after a sharp fall in gas prices.But the BoE may be worried by how core inflation – which excludes volatile items such as food and energy – has not fallen, and by faster price growth in the service sector, which could mean high inflation is getting embedded in the economy. GRAPHIC: Inflation mixed bag – https://www.reuters.com/graphics/BRITAIN-ECONOMY/jnvwywzdkvw/chart.png BRITONS REIN IN FUTURE INFLATION EXPECTATIONS Bailey and his colleagues can take some comfort from signs that public expectations about future inflation are falling, potentially easing demands for higher pay. The YouGov/Citi measure of inflation expectations in five to 10 years’ time – which the BoE watches closely – has fallen for four months in a row although it remains higher than before the pandemic. GRAPHIC: Is inflation peaking? – https://www.reuters.com/graphics/BRITAIN-ECONOMY/klpygzoyxpg/chart.png INFLATION HEAT BUILDS IN THE LABOUR MARKET For now, however, wages excluding bonuses are rising at their fastest pace on record, other than during the COVID-19 pandemic when the data was distorted by government support. Average weekly earnings, excluding bonuses, rose by an annual 6.4% in the three months to November. But that was still not enough to protect pay from the corrosive effect of inflation. GRAPHIC: Inflation heat in the labour market – https://www.reuters.com/graphics/BRITAIN-ECONOMY/lbpggodxepq/chart.png UK’S SHRUNKEN LABOUR MARKET WORRIES BOEThe BoE sees the shrinkage of the workforce as a worrying pointer for future pressure on pay. Other rich economies are also struggling with a lack of workers but Britain’s problem has been compounded by post-Brexit restrictions on migrant workers from the European Union. The inactivity rate has edged down in recent months as more people look for work but it remains above its pre-pandemic level. GRAPHIC: Strength in the labour market – https://www.reuters.com/graphics/BRITAIN-ECONOMY/gkplwxzowvb/chart.png UK ECONOMY – THE G7 LAGGARDBritain’s economy seems to have dodged a recession in the second half of 2022 but economists expect it will fall into one this year, further setting back its return to its pre-pandemic size. Britain is the only Group of Seven economy yet to get gross domestic product back above its level at the end of 2019. GRAPHIC: Low on confidence – https://www.reuters.com/graphics/BRITAIN-ECONOMY/dwpkdanwxvm/chart.png CONSUMERS STILL IN THE DUMPS Britain’s consumers are the key drivers of the economy and they seem to be in no mood to spend heavily as inflation keeps on making them poorer. The GfK index of consumer confidence fell back in January after rising for three months and was close to its lowest level since the survey began in 1974. GRAPHIC: Not out of the woods – https://www.reuters.com/graphics/BRITAIN-ECONOMY/akpeqarkjpr/chart.png More