Waiting game: WTO, supply chains, and industrial policies

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On watch: WTO Ministerial meetings | Resurgent industrial policies | Economic partnerships renewed | ’Just in case’ ordering and other woes | More related research from Hinrich Foundation

On watch: WTO Ministerial meetings

The WTO Ministerial Conference started on Sunday. There is intense scrutiny on the e-commerce moratorium, the proposed waiver of intellectual property rights for vaccine production, and a lack of agreement so close to the meeting. Unsurprisingly, there is scrutiny on the WTO itself. The case for  a strong WTO  to navigate today’s global challenges is made by Stormy-Annika Mildner in a brief by the Observer Research Foundation. The multilateral forum’s role in ensuring that globalization does not fail is highlighted by Pascal Lamy and Nicolas Kohler-Suzuki in Foreign Affairs.   

Soaring energy and food prices are pushing up inflation in most countries. An OECD research indicates that inflation is driving a rise in trade values.   

Mentioned publications

1. India’s digital tariff threat looms over WTO meeting - Doug Palmer, Politico Pro, 2 June 2022
   India is expected to strongly oppose the continuation of moratorium on customs duties on e-commerce trade at the WTO Ministerial Conference. 
2. The World in Disarray: Is This the End of Multilateralism for Trade? - Stormy-Annika Mildner, Observer Research Foundation, May 2022
   The WTO must achieve both short-term goals and long-term reforms to maintain its relevance and address global trade challenges. 
3. Deglobalization Is Not Inevitable – Pascal Lamy and Nicolas Kohler-Suzuki, Foreign Affairs, 9 June 2022 
   Breakdowns in international trade due to the pandemic and war are causing some to proclaim the end of globalization. Is deglobalization inevitable? 
4. Prices push value of G20 merchandise trade to new high in Q1 2022, while services growth slows – OECD 24 May 2022
   The value of international merchandise trade for the G20 reached a new high in Q1 2022 due to a rise in commodity prices even as services trade recorded a slowdown.

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Resurgent industrial policies 

More countries are considering and adopting industrial policies to address new challenges and boost domestic production. While China’s industrial policies have received positive attention for their effectiveness, they are also perceived to skew competition in favor of Chinese companies. The Center for Strategic and International Studies examines Chinese spending on industrial policies in comparative perspective.   

The Biden Administration is using industrial policies and trade tools to build up the US solar panel industry, per the Progressive Policy Institute. However, its attempts to come to a compromise between participants in the industry are coming up short, according to this report from Bloomberg.  

Electric vehicles may soon dominate automobile trade. The Mercator Institute for China Studies warns that Chinese exports could turn EU-China trade on its head, while Robin Harding reports in the Financial Times that Chinese EV exports could turn global trade on its head. Meanwhile, the Biden Administration is applying US industrial policies to support domestic EV manufacturing, according to Bloomberg. 

Mentioned publications

1. Red Ink: Estimating Chinese Industrial Policy Spending in Comparative Perspective - Gerard DiPippo Ilaria Mazzocco Scott Kennedy, Center for Strategic and International Studies, May 2022
   China’s use of industrial policies is well known. How much does China spend on supporting industrial policy, and how does the spending compare with their peers?
2. PPI’s Trade Fact of the Week: Solar Power Installation in the U.S. is Suddenly Slowing Down - Ed Gresser, Progressive Policy Institute, 18 May 2022
   The Biden Administration is using a combination of industrial policies and trade tools to promote and protect domestic production of solar panels.
3. Biden’s Trade Plan to Kickstart US Solar Fails to Win Over Industry – Jennifer A Dlouhy, Brian Eckhouse, and Ari Natter, Bloomberg, 6 June 2022
   When it comes to solar panels, the Biden Administration is struggling to find the right balance between industrial policies and trade enforcement.
4. "Made in China" electric vehicles could turn Sino-EU trade on its head – Gregor Sebastian and Francois Chimits, Mercator Institute for China Studies, 30 May 2022
   How will Chinese exports of electric vehicles to Europe shape the EU economy and EU-China trade?
5. Electric vehicles accelerate China’s looming dominance as a car exporter – Op-Ed: Robin Harding, Financial Times, 1 June 2022
   China’s emergence as a car exporter may upend global manufacturing.
6. Biden Keeps Funds Flowing to Build US Electric Vehicle Supply Chain – Gabrielle Coppola, Bloomberg, 3 June 2022
   How is the US acting to support electric vehicle production? 

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Economic partnerships renewed

The US is working to maintain its status as a key trading partner around the world. This month has seen renewed economic engagement with Taiwan, per Bloomberg, including the launch of the US-Taiwan Initiative on 21st-century trade. This week’s Summit of the Americas saw the US   announce a new partnership focused on the Americas, in the context of increasing Chinese primacy in economic relations with Latin America, according to Reuters.   

Countries are increasingly adopting “economic security” measures to protect their economies. How are India, Vietnam, and Indonesia adopting and adapting “economic security” measures like investment screenings, export controls, and import bans, in response to shifting geopolitical realities. The Center for Strategic and International Studies unpacks the issue. 

Mentioned publications

1. U.S. Launches Initiatives to Boost Economic Ties with Taiwan – Yuka Hayashi, The Wall Street Journal, 1 June 2022
   Will the launch of a new initiative between the US and Taiwan mark an economic and trade breakthrough after decades of difficult trade relations?
   • United States and Taiwan Announce the Launch of the U.S.-Taiwan Initiative on 21st-Century Trade – Office of the US Trade Representative, 1 June 2022
2. Exclusive: Under Biden, China has widened trade lead in much of Latin America –  Adam Jourdan, Marco Aquino, Matt Spetalnick, Reuters, 8 June 2022
   China’s trade reach into Latin America has eroded US influence there.
   • Fact Sheet: President Biden Announces the Americas Partnership for Economic Prosperity – The White House, 9 June 2022
3. Economic Security in Emerging Markets: A Look at India, Vietnam, and Indonesia – Matthew P. Goodman and Matthew Reynolds, Center for Strategic and International Studies, 17 May 2022
   How are India, Vietnam, and Indonesia operationalizing the concept of “economic security”? 

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’Just in case’ ordering and other woes 

Ordering is shifting from “just in time” to “just in case”. How will this affect inventories, supply chains, and trade flows? The return of the inventory cycle is predicted by The Economist. American department store chain Target may present an early example of the cycle’s challenges, explains the Wall Street Journal.  

High-tech product manufacturing has faced plenty of disruptions over the past few years. The latest may be shortages of cutting-edge semiconductors, reports the Wall Street Journal. Apple prepares for supply chain disruptions by shifting some iPad production out of China and into Vietnam for the first time, according to Nikkei Asia. In retaliation for economic sanctions, Russia may be legalizing IP theft, explains the Economist. 

Mentioned publications

1. The return of the inventory cycle – The Economist, 4 June 2022
   Companies have changed inventory practices from “just in time” to “just in case”, prompting the return of inventory cycles. 
2. Target Inventory Warning Portends Retail Bloodbath – Jinjoo Lee, The Wall Street Journal, 7 June 2022
   Target demonstrates how its inventory is already out of step in real life.
3. Chip Shortage Threatens Cutting-Edge Tech Needed for Next-Generation Smartphones – Asa Fitch and Jiyoung Sohn, The Wall Street Journal, 9 June 2022 
   A shortage of equipment for producing cutting-edge chips may cause a shortage that will reverberate through supply chains for high-tech goods. 
4. Apple to shift iPad capacity to Vietnam amid China supply chain woes – Cheng Ting-Fang and Lauly Li,  Nikkei Asia, 1 June 2022 
   For the first time ever, Apple is shifting iPad production out of China due to concerns over the stability of its supply chain in China. 
5. Has Russia legalized intellectual-property theft? – The Economist, 4 June 2022 
   New laws in Russia authorize use of IP from “unfriendly countries” without permission or payment, effectively dismissing intellectual property rights. 

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More related research from the Hinrich Foundation:

• WTO agenda reveals fault lines too wide to bridge
• The geopolitics of electric vehicles: techno-nationalism reshapes the automotive industry
• Indo-Pacific Framework: A best-case outcome given US constraints
• India's return to free trade deals – a decade in the making

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