ECONOMY

Businesses, not bureaucrats, are the focus of trade

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A big Trade Secrets hello from Brussels, as we return after our seasonal break. The general post-holiday “rentrée” to work is firmly under way here, though the weather gods are perversely giving Brussels a blast of the summer sun they didn’t manage to produce much of during the actual summer. Also a big Labor Day hello to our American readers, enjoying one of their less frequent days off.

The main focus of talk in town is the German elections, which are coming up on September 26, with Angela Merkel finally leaving the chancellery. We’ll look at the potential impact of a change in ruling party (or the same party with a different chancellor) for the EU’s trade and external policy later this week. Today’s main piece looks ahead more generally about global trade issues and what to keep an eye on until the end of the year.

We want to hear from you. Send any thoughts to [email protected] or email me at [email protected]

What we’ll be looking at for the rest of 2021

We were expecting a bit of a respite from drama with the departure of Donald Trump from office, but the first half of 2021 was quite a bit spicier than we expected. An EU deal with China was sprung on an unsuspecting public and spectacularly hit a brick wall, a trade war broke out over vaccines and metastasised into one on vaccine patent waivers, there was a transatlantic armistice on Boeing-Airbus and the World Trade Organization finally got its new boss.

So what happens in the rest of the year? We hesitate to predict a quieter time again because it looks like tempting fate, but it does seem to us that a lot of the heat has gone out of some of these debates. Last week the European Commission settled its (probably politically unwise) case against AstraZeneca over vaccine deliveries. The main issue now in the rich countries is getting the unvaccinated to accept jabs rather than ramping up domestic supply and battling over export restraints.

The vaccine patent issue at the WTO is going nowhere: it is stuck in a stalemate between the original proponents of the intellectual property waiver, India and South Africa, and most of the rich nations, which remain miles apart on the breadth of the IP suspension and what good it will do. Like the EU-AstraZeneca litigation, we expect the waiver to diminish as an issue as more capacity (obviously nothing like enough, but more) comes on stream around the world.

Meanwhile, the EU-China deal is in indefinite stasis. Brussels and Washington may come to some fudge, which will fix the issue of steel and aluminium tariffs just as they did for Boeing-Airbus, but it’s not the stuff of grand global governance.

Elsewhere, a whole lot of bureaucratic processes are in motion, but few of them are going to produce spectacular results by Christmas. The EU and US will meet in their new bilateral trade and technology council, but it’s hard to see where they will make quick gains. The WTO’s biennial ministerial meeting takes place in late November and early December. But there’s still a lot of doubt about how many representatives are going to be allowed to go to the meetings in person, and certainly there aren’t going to be the usual packed all-night negotiating sessions. If anything is going to be decided it will largely have to be negotiated in advance. As we wrote in June, talks on fisheries subsidies, a possible deliverable for the ministerial, have made very little progress.

Ngozi Okonjo-Iweala, who took over as WTO director-general in March, is famously well-connected and energetic, but her diplomatic efforts haven’t produced any big breakthroughs so far. The EU will push ahead with its plan for carbon border measures, but the climate change conference (COP) in Glasgow in November is unlikely to be a make-or-break moment for the initiative. 

So what is Trade Secrets going to be looking at? Well, the real world as well as just the policy one, for a start. There have been more disruptions in supply chains than we expected, and it will be a good test of the resilience of businesses and the trading system whether and how they get fixed. In the short-to-medium term, the health of trade and globalisation has a lot more to do with pure economic growth than tariffs and regulatory policy, so we’ll be keeping close tabs on the macroeconomic situation — including intersections with trade policy like the coupling of the huge proposed US fiscal package with Buy American procurement provisions.

And if big formal deals (EU-China or the US joining the Trans-Pacific Partnership (CPTPP)) aren’t forthcoming, how are Europe and the US going to engage with Asia and specifically China? Everyone keeps (correctly) saying that the big deal these days is about the intersection of trade and national security. But how exactly, except more bifurcation in tech regulation, is that going to happen? Data and digital are huge global governance issues, but there’s no clear route on how to deal with them. And whether or not the COP produces much, the interaction of climate and trade is going to be a big deal for individuals, companies and investors whatever governments do.

In other words, we’re hoping to have some time and space to lift our eyes a bit from the day-to-day of policy process and take a sustained look at what’s actually happening out there in the world trading system and globalisation more generally. Should be fun. Buckle up. And, as ever, let us know what’s on your mind.

Charted waters

A trend witnessed over the course of the year so far has been the surge in shipping costs. With Christmas coming up, we think this will probably continue during the final stretch of 2021. While the surge has been widely covered, what’s garnered less attention has been the yawning gap between what the shipping industry’s favoured customers are paying and those that are held in less high regard.

We covered the emergence of divergence on the Far East to the US West Coast route for FT Alphaville. We’ve also seen the same trend on the Far East to Northern Europe route, with smaller companies — which are usually charged more than their larger rivals — suffering as a result.

As the chart above shows, the price difference has gone from about $4,000 per container at the start of the year to more like $7,000. It strikes us as similar to what we saw during the great financial crisis, when the gap between larger banks’ funding costs and those of their smaller rivals widened. Claire Jones

Trade links

One of the trade world’s top Covid vaccine distribution gurus, Chad Bown of the Peterson Institute, explains how to repurpose supply chains for jabs that don’t make it through clinical trials.

Today’s round-up from the FT. Prominent EU legal experts have backed the British government’s demand to rewrite the controversial section of the Brexit withdrawal agreement on state aid. David Lubin, the head of emerging markets economics at Citi, argues that the benefits of a surge in government investment in the US and Europe will be muted if it aims to substitute for trade rather than complement it.

Nikkei reports ($, subscription required) that TSMC will raise prices for semiconductors next year, pushed by higher input and logistics costs and demand for chips from electronics and automakers. It’s not just the UK that’s experiencing labour shortages. A lack of workers at farms and food distributors in south-east Asia are being felt (Nikkei, $) all the way in Japanese supermarkets, where the price of palm oil has risen 32 per cent this year. 

Calling all data geeks. Manifest, a supply chain platform, has plotted some supply chains for products and companies ranging from the 1920s to the present and it’s amazing. Alan Beattie, Francesca Regalado and Claire Jones.

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