This article is an on-site version of our Trade Secrets newsletter. Sign up here to get the newsletter sent straight to your inbox every Monday
Hello. The Trade Secrets newsletter never sleeps, but it does go fortnightly from today until the beginning of September, and this is my last one till then. In the meantime you’ll hear some fresh voices in the newsletter every other week in the form of handpicked FT colleagues standing in. At this stage of the year it’s traditional for me to do a half-time (more or less) review: what’s happened, what was surprising, what was predictable, what we’ve learned, what to watch out for in the autumn. Charted Waters is on the state of China’s Belt and Road Initiative. The usual email address for any thoughts: alan.beattie@ft.com.
War, famine, pestilence and death. But it’s not all bad
Well, I didn’t see the Ukraine war coming, or the subsequent energy and food crisis, or the severity of the Chinese Covid-19 lockdowns. Then again, neither did many people, or the world would have been much better prepared.
If you had to sum up the experience of 2022 so far it’s as follows: the big external events have been negative, but (and here’s a hostage to fortune) the global trading system has held up reasonably well. Even more heartening, perhaps even shocking for regular readers who know of my scepticism about governments’ handling of globalisation, is that the policy response has been mediocre but not entirely awful.
The year started with, we all hoped, the resolution of supply chain snarl-ups, or at least the puzzle over their cause. In the optimistic corner (including me) were people contending that they mainly reflected a massive surge in consumer durables as households caught up on their goods spending after the lockdown. The pessimistic view was that the pandemic had shown up serious structural issues in the global trading system, particularly the US west coast ports, which could take billions of dollars of investment and years to resolve.
Just when we thought this issue might get resolved, a bunch more supply-side shocks hit including the China lockdowns, which affected factories, trucking and ports, and the interruption to freight and trade from the Ukraine war — specifically gas to Europe and grain shipped through the Black Sea. The resulting inflation and falls in consumer and business confidence have threats of a demand crunch on top. This has more grim implications for trade, which tends to get hit particularly hard in recessions.
What all this means is that if supply chain congestion eases — and cargo rates such as the Shanghai Containerized Freight Index have been flat-to-falling for months — it might be hard to work out for a while if it’s good news (ports increasing capacity or consumer demand normalising by shifting from goods back to services) or bad (weak demand as the world moves into recession).
From the supply chains point of view, that’s going to be the story to watch for the second half of the year. You might think the distinction academic, but it does matter for the policy response — if it’s a demand issue, it’s for central banks and finance ministries to sort out, but if it really is something structural with the global trading system then some combination of regulation and investment will be needed.
Speaking of policy, the big trading powers haven’t exactly seized the moment, though some have done more damage than others. The Biden administration continues, or tries to, down its route of treating supply chain problems as wartime exigencies and throwing emergency powers and federal money at them. Fresh from chartering planes to fly infant formula across the Atlantic to address a shortage caused by inept regulation, the US, after a lot of congressional squabbling, seems likely to go ahead with its Chips Act and shell out more than $50bn for the quixotic aim of creating a semiconductor supply chain inside the US. There’s little sign that Washington has the right analysis or the political unity to improve its trade policy.
China having done its bit to trash world value chains with its Covid-19 lockdown — not trade policy as such, but certainly having that effect — means that of the big three, the EU has done the least harm and even a tiny bit of good. It’s still signing trade deals (albeit so far in 2022 only with a rather small partner in New Zealand). True, it continues to create unilateral instruments that might prove trade-distorting, but the debate over them shows there is at least an awareness that they might have downsides.
Two brighter spots. One, a lot of emerging markets (Brazil, Vietnam and other east Asians, even India to some extent) have done pretty well in resisting the lure of protectionism. Two, although it only had to beat very low expectations, the repeatedly postponed World Trade Organization ministerial meeting, held in Geneva in June, didn’t actually collapse and so can be deemed a moderate success. The deals it did come up with were more about showing that the institution was still functioning than definitively solving a substantive problem, but nonetheless the deals were there.
Globalisation has ridden out the multiple shocks to some extent, and a big hand to the companies actually running it, about whom I’ll write more in the autumn. But those disruptions are threatening to get bigger and it doesn’t seem that governments have a lot of ideas or consensus on how to address them.
And on that cheery note, that’s all from me till September. Mind how you go now.
As well as this newsletter, I write a Trade Secrets column for FT.com every Wednesday. Click here to read the latest, and visit ft.com/trade-secrets to see all my columns and previous newsletters too.
Charted waters
It is a while since Trade Secrets assessed China’s Belt and Road Initiative, perhaps because attempts to rival the global investment plan have got little further than the last time Alan assessed the state of play.
However, that is not to say that the BRI itself has not been changing, not least because of realpolitik in relation to Russia’s invasion of Ukraine as research from the Green Finance & Development Center at Fudan University in Shanghai has found with BRI spending in Russia dropping to zero.
The winner from this has been the Middle East, and Iraq in particular, as the FT noted earlier this year. The concerning perception from the point of those western regions trying to supplant the BRI — ie the US and the EU — is that China’s expansion in the Middle East has been at least in part because of a perception locally that, after withdrawal from Iraq and Afghanistan, western powers were disengaging from the region. (Jonathan Moules)
Trade links
The latest edition of must-listen podcast Trade Talks features the brilliant Lydia Cox, whose work on the burden of steel tariffs to the rest of US manufacturing I’ve mentioned before, on the regressive nature of American trade protectionism.
The US and Canada have started proceedings against Mexico under the tripartite USMCA trade deal over provisions they say wrongly favour domestic companies in the clean energy market.
The US and 17 other economies held a summit about supply chain participation, though if you can find any substance in the resulting statement you’re doing better than me.
Trade Adjustment Assistance, the programme that compensated Americans who allegedly lost their jobs to trade, has lapsed, though to be honest it never really worked anyway.
Trade Secrets is edited by Jonathan Moules
Comments are closed.