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21. Section 232 reloaded: the false promise of the transatlantic ‘climate club’ for steel and aluminium

Author:
David Kleimann
Publication Date:
07-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
In using the removal of Section 232 ‘national security’ tariffs on steel and aluminium imports as a bargaining chip, the United States demands that the European Union engage in negotiations on “global steel and aluminium arrangements to restore market-oriented conditions and address carbon intensity”. The US demand has reportedly been inspired by a blueprint that would establish an international institutional arrangement – labelled a ‘climate club’ – which would externalise market-access restrictions afforded by US Section 232 tariffs to the customs borders of club members. While the declared objective is to incentivise non-members to adopt low-carbon steel (and aluminium) production methods the US blueprint suffers from various design flaws including inefficient incentives, WTO inconsistency and incompatibility with the EU Carbon Border Adjustment Mechanism. The effectiveness of the proposed US scheme is severely compromised by the plethora of policy objectives it pursues, which go far beyond the goal of incentivising industrial decarbonisation in third countries, including secondary (ie protectionism) and tertiary (ie global power competition with China) objectives. The initial negotiation proposal submitted by the United States Trade Representative (USTR) to European Commission trade negotiators incorporates many if not all the problematic elements of this blueprint, setting the US on a collision course with the negotiation proposal put forward by the European Commission. This paper concludes that the adoption of the scheme proposed by USTR would result in a step backwards for international climate and trade cooperation, whereas not adopting the EU proposal would make for a missed opportunity. Given the sharply diverging negotiation positions and associated respective domestic constraints on both sides, however, policymakers should start to engage stakeholders now to manage expectations towards a low-ambition negotiation result, if any.
Topic:
Security, Climate Change, Industrial Policy, Governance, European Union, Economy, Trade Policy, and Transatlantic Relations
Political Geography:
Global Focus

22. A new measure of aggregate trade restrictions: cyclical drivers and macro effects

Author:
Julia Estefania-Flores, Davide Furceri, Swarnali A. Hannan, Jonathan Ostry, and Andrew K. Rose
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
This paper presents a new measure of aggregate trade restrictions (MATR) using data from the International Monetary Fund’s Annual Report on Exchange Arrangements and Exchange Restrictions. MATR is strongly correlated with existing measures of trade restrictiveness but is more comprehensive in terms of country and time coverage. It is available for an unbalanced sample of up to 157 countries during 1949-2019. We use MATR to re-examine how trade restrictiveness varies with the business cycle, and how the macroeconomy looks in the aftermath of changes in trade restrictiveness. For the sample as a whole, MATR is typically a-cyclical but this average finding is heterogeneous across income groups: aggregate trade restrictions are a-cyclical in advanced economies but are counter-cyclical in emerging market and developing economies, especially in response to increases in unemployment. As to macroeconomic effects, increases in MATR are robustly associated with declines in GDP and in labour productivity (as well as being adverse for a range of other macroeconomic indicators).
Topic:
Industrial Policy, Economy, Multilateralism, and Trade Policy
Political Geography:
Global Focus

23. Rebooting the European Union’s Net Zero Industry Act

Author:
Simone Tagliapietra, Reinhilde Veugelers, and Jeromin Zettelmeyer
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
In March 2023, the European Commission published a legislative proposal for an EU response to the US Inflation Reduction Act: the Net Zero Industry Act (NZIA). It is an unconvincing policy proposal, both for what is in it and for what is not in it. The proposal has five problematic aspects. First, it takes a top-down approach, in which specific technologies are selected for preferential treatment. Preferable would be a technology-neutral approach open to all current and future technologies that help tackle the net-zero challenge. Second, its blanket 40 percent self-sufficiency benchmark for EU domestic cleantech manufacturing by 2030 sends a protectionist signal, is poorly defined and does not reflect the differences in EU capacity in the cleantech sector. Third, it relies on the acceleration of permitting procedures as the main policy instrument, although this is not the main obstacle to cleantech investment in the EU. Fourth, it proposes more strategic use of public procurement. While this is an objective to be supported, the specific proposals are likely to be ineffective because of the way they are designed. Fifth and not least, the NZIA would lack a governance structure that would ensure effective implementation. In addition, the NZIA does not tackle three critical issues. It does not address investment obstacles related to failures of the single market. It does not tackle the coordination problem at the core of developing an EU green industrial policy. Finally, it does not develop an EU-level funding strategy, but rather relies on state aid, with the related risk of fragmentation. The European Parliament and EU countries in the Council of the EU should reboot the proposal and refocus its objectives, sharpening its limited instruments, improving its governance, and adding financial incentives to ensure implementation. In parallel, the EU should develop a broader green industrial policy strategy that leverages the single market in a credible manner, building a solid new governance framework and a new EU-level funding approach.
Topic:
Climate Change, Industrial Policy, Governance, European Union, Trade Policy, and Industry
Political Geography:
Europe

24. The Regressive Nature of the U.S. Tariff Code: Origins and Implications

Author:
Lydia Cox
Publication Date:
06-2023
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
Tariffs are often thought of as taxes that fall uniformly across goods or industries. In reality, however, the U.S. tariff schedule is extremely complex—the modern‐​day tariff code comprises 4,394 pages of tariffs on 19,347 varieties of goods. As a result, there is a lot of variation in tariff rates, even within narrowly defined categories of goods. We study this complexity through the lens of a little‐​known but consequential pattern in the modern U.S. tariff schedule: tariff rates are systematically higher on low‐​value versions of goods relative to their high‐​value counterparts. For example, the tariff on a $400 handbag made of reptile leather is 5.3 percent, while the tariff on an $8 plastic‐​sided handbag is 16 percent. Through a comprehensive analysis of U.S. tariffs over the past 100 years, we show that this regressive pattern is, and has been, a systematic feature of tariffs for decades. Our findings are emblematic of a more fundamental feature of U.S. tariff policy: tariffs set to meet policy objectives of the past have persisted through vast changes in the economic landscape and, despite their historical origins, are still affecting consumers today.
Topic:
Economics, Tariffs, and Trade Policy
Political Geography:
North America and United States of America

25. US Trade Policy Options for Pacific Islands States Require Washington’s Political Commitment

Author:
Marcus Noland
Publication Date:
07-2023
Content Type:
Special Report
Institution:
East-West Center
Abstract:
The Pacific Islands have emerged as a zone of contestation in the ongoing rivalry between China and the United States. While the US has long been the dominant military power in the region, China is raising its profile through activities like port visits, military exercises, and establishing diplomatic and security ties with regional states like Kiribati and the Solomon Islands. In 2018, Chinese leader Xi Jinping visited Papua New Guinea for the Asia Pacific Economic Cooperation (APEC) summit. President Biden was supposed to visit PNG in May 2023, in the first ever visit of a sitting US president to the Pacific Islands, but that trip was scuttled due to the debt ceiling fiasco in Washington. In the economics sphere, the US has attempted to counter China’s Belt and Road Initiative (BRI) together with Japan and Australia through the Blue Dot Network and the Indo-Pacific Infrastructure Trilateral to promote high-quality, transparent, and sustainable infrastructure development. The region contains considerable natural resources, and the US has been working with Pacific Island nations to promote sustainable resource management, in contrast to China’s alleged illegal, unreported, and unregulated fishing in the Pacific. What has been missing, however, is a trade policy component to the US strategy to counterbalance China’s exploration of a free trade agreement with the Pacific Islands Forum (PIF).
Topic:
Foreign Policy, Economics, Politics, and Trade Policy
Political Geography:
China, North America, United States of America, and Pacific Islands

26. A New Horizon in U.S. Trade Policy: Key Developments and Questions for the Biden Administration

Author:
Trevor Sutton and Mike Williams
Publication Date:
03-2023
Content Type:
Policy Brief
Institution:
Center for American Progress - CAP
Abstract:
This issue brief examines some of the key trade initiatives pursued by the Biden administration to date. It then sets out key questions facing U.S. trade policy in a global environment defined by volatility and renewed ambition to tackle the great challenges of the 21st century, such as climate change, inequality, and great power competition.
Topic:
Foreign Policy, Climate Change, Treaties and Agreements, European Union, Inequality, Economy, Trade Policy, and Strategic Competition
Political Geography:
Europe, North America, Asia-Pacific, United States of America, and Americas

27. Despite disruptions, US-China trade is likely to grow

Author:
Megan Hogan and Gary Clyde Hufbauer
Publication Date:
10-2023
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
The United States and China hit record trade levels in 2022, despite a prickly relationship, suggesting that calls for severe or even total economic decoupling between the world’s two economic superpowers may be ill-advised, say Hogan and Hufbauer. The dollar value of US-China trade grew significantly between 2019 and 2022, notwithstanding declines in trade flows of certain products such as semiconductors and aircraft due to the trade war. The persistence and even growth of the two countries’ total trade despite political and economic disputes reflects the mutual benefit that private firms see in this commercial relationship. The authors conclude that partial decoupling between the United States and China has not, so far, redrawn the world trade map. Nor does it seem likely to do so on an aggregate trade basis between now and 2025.
Topic:
Foreign Policy, Bilateral Relations, Trade Policy, and Semiconductors
Political Geography:
China, Asia, North America, and United States of America

28. Food insecurity: What can the world trading system do about it?

Author:
Alan Wm. Wolff
Publication Date:
10-2023
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
Russia’s invasion of Ukraine, a major supplier of grain to the Middle East and Africa, has triggered deep concerns over access to affordable food across the globe. The alarming rise in food insecurity across the world due to conflicts makes it increasingly urgent to set ground rules for sharing food in global markets and getting food to places most in need to avoid starvation and famine. The most glaring and relevant gap in the rules of the world trading system pertains to sharing food in times of scarcity. The authors recommend using the World Trade Organization’s (WTO) long-standing accords on agriculture as a basis to provide guidelines for supplying food to global markets, especially areas in need. The most obvious shortcoming in the rules is that WTO members are largely free to restrict exports of food. The WTO rules need to be updated to take into account climate change, extreme weather, military conflicts, pandemics, and other factors that interfere with food production. The WTO can specify factors that an exporting country must take into account when imposing an export restriction on food, and it can require consultations to deal with severe disruptions in world food trade. It can also serve to mediate the interests of food exporters and importers in enhancing food security.
Topic:
Agriculture, World Trade Organization, Food Security, and Trade Policy
Political Geography:
Global Focus

29. America's payoff from engaging in world markets since 1950 was almost $2.6 trillion in 2022

Author:
Gary Clyde Hufbauer and Megan Hogan
Publication Date:
12-2023
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
International trade may not be as popular in the United States as it once was, but this updated PIIE study demonstrates that the payoff to the US economy from globalization has been significant. Gains from trade since 1950, facilitated by vastly improved transportation and communications, added up to $2.6 trillion in 2022, lifting US GDP by 10 percent. These gains averaged $7,800 per person and $19,500 per household in the United States in 2022. Despite these gains, trade barriers were erected under former president Donald Trump and continued under the Biden administration, spurred by concerns over trade-related job loss. These protectionist policies, coupled with the global financial crisis and the COVID pandemic, have slowed globalization. To be sure, trade has inflicted losses on certain US workers. Between 2001 and 2016, more than 300,000 workers annually lost or switched jobs because of imports. In comparison, more than 50 million workers change jobs each year. Americans enjoy large but less visible gains from trade through cheaper and more varied products and increased productivity at firms. Instead of restricting trade, US policymakers should adopt better safety nets for displaced workers and ensure that economic growth is more widely shared.
Topic:
Globalization, Markets, Labor Issues, Economic Growth, and Trade Policy
Political Geography:
North America and United States of America

30. Deglobalisation and Protectionism

Author:
Uri Dadush
Publication Date:
11-2022
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Trade in goods has slowed markedly since the global financial crisis (GFC), but there is no deglobalisation: most countries have seen increased international integration across nearly all goods, services and factor markets. China has become more self-reliant and is a notable exception in goods trade. Despite some dramatic instances, protectionism has largely been kept at bay and trade in goods remains quite free, perhaps freer than it was before the GFC. The proliferation and deepening of free trade agreements have contributed to this outcome. There has been deglobalisation of capital markets, but not because of protectionism. Despite efforts to erect barriers in some sensitive sectors, technology flows quite freely across borders because of the internet. However, trade policy uncertainty increased after the election of President Trump, a trend that persists under President Biden, and the biggest challenge is to avoid backsliding. There are many missed opportunities in the globalisation of services and of capital flows – especially those to developing countries. Increased migration remains potentially the largest source of gain from globalisation, but it is also the most fraught politically.
Topic:
Economy, Trade, Trade Policy, and Competition
Political Geography:
Global Focus