Trade Wars

Trade in 2022 – a minefield awaits

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Compliments of the season, and welcome to the first Trade Secrets of 2022. First of all, our format is changing from today. Instead of a four-day-a-week newsletter, I’ll write a full Monday briefing and midweek opinion column. The content will be similar to before but the views even more distinct. As always, I’m open to helpful advice, lavish praise, and free abuse, all of which can be reached by email – [email protected] Today’s main article looks back into the rest of the year and concludes that, whatever your idea of ​​normalcy, we probably won’t come back to it.

We want to hear from you. Send your comments to [email protected] or email me at [email protected]

Globalization survives a hostile environment

My last set of predictions for the coming year, 2020, had such a high success rate that I hesitated to repeat the exercise in case the massive role of luck in this occasion became too obvious. In any case, globalization since the pandemic has not been mainly framed by a set of careful processes (trade agreements, dispute settlement cases) with clearly observable results. So instead of falsely accurate predictions, here’s what I’m watching in 2022.

  • Supply chains are a headache. The jury is still out on the culprit behind the biggest problem in global trade today, supply chain disruptions that have persisted for several months. I remain quite convinced by the arguments of the members of the optimistic Team Temporary Rebound In Consumer Durables Demand rather than by the gloomy Team Enduring Supply-Side Rupture. But I admit that my hopes of easing shipping and supply chain congestion late last year turned out to be a bit premature.

    Even if you primarily believe the demand thesis, the Omicron variant of the coronavirus has obviously disrupted ports, manufacturing, and the food supply across the world. By the middle of the year, assuming the Omicron wave has calmed down somewhat, we should have a clearer sign of how deep the problems are.

  • Prepare as governments come to the “rescue”. The longer supply chain problems persist, the more political discussions there will be on industrial policy and the greater the chances of truly stubborn government interventions such as a global race for subsidies for semiconductor production. The best thing governments can do for globalization in the near term isn’t so much in trade policy as it is in macroeconomics and public health: keep domestic demand buzzing and people vaccinating and dressing up.

    Yet longer-term challenges such as climate change and technological rivalry will keep governments under constant pressure for militant trade policy. An example: The Biden administration’s response to the EU’s carbon pricing plan has been to suggest an anti-China managed trade alliance of questionable effectiveness and legality, and to add some national favoritism on electric vehicles to start. China has not cut itself off from the world, but has embarked on its first “dual circulation” journey in China. Economic nationalism is becoming contagious.

  • The strategic rivalry of the great powers and the Asia-Pacific. Everyone agrees that a dominant role in the Asia-Pacific region is the grand prize of trade governance, but the leadership efforts of the United States appear to be quite weak. The Biden administration has indicated it will continue to fight to try to make Donald Trump’s deal with China work. Instead of joining the CPTPP (Comprehensive and Progressive etc., you know that one), the United States is proposing what appear to be fragile and life-saving bilateral memoranda with some of its members. Desperate for a strong American presence, U.S. allies in the region (Japan, Australia, New Zealand and others) will wonder how much they can slow down China’s bid to join the CPTPP. The strategically autonomous Europeans were presented with an early test of their resolve for a more geopolitical trade policy in the form of China’s intimidation against Lithuania. It will be a huge challenge for the EU to weave trade into a coherent and sustainable strategic approach, even with the energetic French people running the show for the first six months.

  • There aren’t a lot of big trade deals on the table. There is not much to compete with the CPTPP in terms of formal agreements involving the dominant trading powers. Big EU-US irritants, including Airbus-Boeing and the steel and aluminum dispute, have been fixed, but there are few signs of a transatlantic substance beyond that. In addition to concluding pending deals with New Zealand and Australia in the second half of the year, the EU is primarily focused on arming more bilateral tools against what it sees as unfair competition. The December World Trade Organization ministerial, postponed due to Covid-19, will meet again at some point, probably around the middle of the year. But even if he is considered successful, he probably won’t make it into the top five, maybe the top 10, the most important things to happen in world trade. The United States is reluctant to embark on a major relaunch of the WTO before the midterm elections in November.

  • The UK has announced its annual surrender to the EU. I have a solid prediction for 2022. The UK’s tough New Years talks with the EU over the Northern Ireland Protocol will end in a sweet retreat. It’s always like that.

  • What form of globalization can survive? There are too many sustained disruptions to the trading system – climate change, data wars, technological rivalry, cybersecurity – for the pandemic to be a shock that goes away and allows normalcy to return. Yet despite everything, I’m quite optimistic that the 30-year expansion of globalization, which has withstood multiple shocks, will continue to resist implosion. The question is how he will adapt to stay alive.

Chartered waters

The following graph – from Harry Dempsey’s excellent Big Read of yesterday’s supply chain crisis – shows how much freight shipping rates have increased during the pandemic.

In the decade before the coronavirus, shipping goods in containers was so cheap that the industry, plagued by excess capacity, struggled to make a profit, according to the article. Some carriers went bankrupt and the market consolidated so that the world’s top nine carriers now control 83% of the tonnage.

As this graph shows – and this was noted previously by this bulletin – there are signs that shipping rates have recently come down, at least on the most popular routes. However, there remains an expectation that the world will have to learn to live with high freight rates and this fuels the economic debate over inflation, given the link between shipping costs and the final price of goods.

The New York Federal Reserve has designed a new index of pressures on global supply chains.

Shipping industry experts told the FT that supply chain disruptions are expected to persist this year.

Former EU Trade Commissioner Cecilia Malmstrom optimistically suggests that the EU (which, it should be noted, borders the Arctic and Atlantic Oceans) should join the trans-Pacific CPTPP.

Noah Barkin of the German Marshall Fund think tank describes how German industry rallied to defend its close trade relationship with China in the face of skepticism from the new government in Berlin.

France’s official program for its six-month presidency of the Council of EU Member States highlights the need to create an anti-coercion tool to deter intimidation by other trading powers.

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