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Hello from Brussels. In today’s newsletter we update you with developments in a variety of running stories, which have a common theme: multilateral policymaking is a bit of a shambles, but attempts to fill the vacuum with bilateral or indeed unilateral — sorry, “autonomous” — actions are problematic. It’s the kind of wailing and rending of garments (in a snarky, low-key way) on which we thrive. To balance it out, next week we’ll argue that the prospects for actual trade are actually quite good, despite the occasional efforts of governments to get in the way and muck things up.
Today we have three items for you lucky people, so the style of today’s newsletter is a little different.
Charted waters delves into inflation and supply chains.
The flimsy US framework that won’t worry China
First up, we’ve more news on China’s bid for dominance of the Asian trade architecture and whether the US is going to do anything serious about it. On Tuesday we noted that the Biden administration, having said it had no plans to join the CPTPP (the Comprehensive and Progressive etc, you know the one), will instead launch some exciting frameworks for economic co-operation in Asia. US trade representative Katherine Tai unveiled the first one yesterday, with Japan, and in an interview with the Financial Times said the US needed a “course correction” in Asia. Judge for yourself, but to us this US-Japan framework looks like a talking shop with no binding commitments in sight. We particularly enjoyed the commitment to undertake “co-operation in regional and multilateral trade-related fora”, given that the US remains largely absent from the big debates in the World Trade Organization and isn’t joining the only deal in the Asia-Pacific region that really matters (the aforementioned CP thingy).
In related chin-stroking news, the US, Japan and EU have got the band back together in the form of their trilateral partnership to come up with new definitions of government subsidy that China can then reject out of hand the second they present them for discussion at the World Trade Organization. Forgive our negativity, but this trio did their first gig in 2017, and after long periods of stalling over “creative differences” they have yet to release even a demo version of their first album.
Brussels bigs up tree-hugging coffee-growers
Today’s second development comes from Brussels, where the European Commission yesterday released its plan for greening trade/imposing neocolonialism over developing country exporters (delete according to preference), with the launch of its plan on preventing deforestation. It will require companies importing or selling certain commodities (beef, soyabeans, palm oil, coffee, cacao and timber) into the EU market to prove their products’ tree-hugging credentials. It has the usual attributes of Brussels’ attempts to impose high standards through trade, for which see also the EU’s food and farming regulations. It may be well-meaning (though no doubt with a strand or two of protectionist sentiment in there), but the difficulty of monitoring and implementation means some imports will quite likely be kept out because of the costs of compliance, probably those coming from smaller producers and poorer countries. It’s also, for all Brussels’ talk of international partnership and co-operation, unashamedly unilateralist and potentially WTO non-compliant.
You might argue that the world’s forests and the climate can’t wait for a multilateral solution or that this presents a model others can build into a wider agreement, and you may be right. But the EU has already been here with its de facto ban on imports of palm oil, and the likes of Malaysia and Indonesia do not regard Brussels as pioneering the enlightened making of environmental policy.
The China-India awkward squad is on patrol
Lastly, we turn our attention to the big climate change Conference of the Parties (COP26) in Glasgow, which over the weekend finally ended after nearly two weeks. (Why such gatherings have to be about twice as long as any other annual policy summit is quite beyond us.) In the end, it didn’t turn into a bunfight over climate and trade as some feared. The EU getting its carbon border adjustment mechanism (CBAM) proposal out well ahead of the game with limited product coverage and a multiyear lead-in has managed to turn the arguments about carbon emissions protectionism into a technical debate about system design and WTO compatibility, at least for the moment.
No, what we’d take from COP26 is that China and India’s last-minute dilution of the promise to phase out coal shows they are prepared to be the awkward squad at international policy summits and portray it as sticking up for developing countries against rich-world hypocrisy. This doesn’t bode well for the big WTO ministerial conference, now less than two weeks away. Delhi has been a pain about more or less everything on the agenda, and the Indian media have been reporting that the Modi government remains unhappy with the latest proposal for the one big deliverable of the meeting, a deal on fisheries subsidies. More on the WTO ministerial next week and the week after.
And there we have it. Co-ordinated policy in trade is in short supply, but attempts to fix it with partial initiatives aren’t an obvious roaring success. A cheery thought.
The Bank for International Settlements published an interesting paper last week, arguing that most of the inflation we’re seeing right now is down to bottlenecks in global supply chains. (FT Alphaville’s Izabella Kaminska has written it up here.)
The chart adds weight to that argument, showing that — as one would expect if world trade was indeed triggering inflation — most countries have witnessed a surge in inflation.
However, it also goes to show that the inflation we’re seeing right now is not entirely down to snags in supply chains. Inflation in the US is about two percentage points higher than on this side of the Atlantic. We think this has something to do with the tenor of the US’s fiscal stimulus, which has boosted consumer demand here more than anywhere else on the planet. Claire Jones
One of China’s biggest chipmakers has warned (Nikkei, $) it may have to drop orders from foreign clients next year to prioritise domestic demand, Nikkei Asia has learned.
The consultancy McKinsey argues that there is a lot of room to make the world’s trade finance industry more efficient to help more marginal companies access the global trading system. (We’ll be writing about trade finance before too long.)
UK retailer Marks and Spencer warns that the EU’s efforts to fix the post-Brexit Northern Ireland problem with a system of labelling goods by destination could make things worse.
The FT’s editorial board opines that Joe Biden and Xi Jinping should talk more.
Singapore’s prime minister has offered (Nikkei, $) the US the Digital Economic Partnership Act it signed with New Zealand and Chile as a starting point for a regional digital trade pact like CPTPP. Alan Beattie and Francesca Regalado