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Trade

Resolving the US–China trade impasse

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U.S. President Donald Trump and China

Author: Yukon Huang, Carnegie Endowment

Just a month ago, an agreement to end the US–China trade war was deemed likely. Then came a flurry of accusations and another round of tariffs that have put negotiations on hold. Why did this process unravel so quickly and what might be the endgame?

Beijing ostensibly recoiled after senior leadership saw the entire package of demands as an infringement on national sovereignty. Meanwhile, Washington became more unified in its objectives and sensed that politically it was not the right time to strike a deal. Under such conditions, many saw an enduring solution as unlikely given the complexity of the issues. Any agreement would have been more of a negotiated truce, transforming the process from an unruly to a more regulated trade war.

This trade war began with US President Donald Trump’s fixation with bilateral trade deficits and his desire for a headline grabbing package of Chinese purchases. This concern is seen as misguided, as is the proposal to ask China to buy more from the United States and less from others, which would contravene World Trade Organization (WTO) regulations.

The United States business community’s accusations about China’s unfair investment practices and violations of intellectual property rights are more difficult to resolve. The proposed regulations did not guarantee that implementation would be smooth, but a good-faith agreement is preferable to a prolonged trade war.

What eventually undid the negotiation process, however, are the concerns of Washington’s geo-strategists and political community who see the trade war as a clash between two great powers. Their goal of getting China to abandon its innovation ambitions, thereby constraining its ability to challenge America as the dominant economic power, proved to be an outcome that Beijing could not accept.

Levying punitive tariffs is less about curbing trade deficits and more about using tariffs as a tactical weapon to rein in China’s technological ambitions. Security concerns highlighted by Huawei’s expansion into 5G communications and the growing competition in developing artificial intelligence have added a sharper edge to this debate.

The oft-discussed security concerns may be exaggerated but the political reverberations will not go away. The recently imposed curbs on America’s exports of high-tech products may have a devastating impact on Huawei, but it will also damage America’s innovative capacity and disrupt global supply chains. These troublesome developments highlight the need to rethink acceptable norms and regulatory mechanisms for knowledge transfer across nations, while recognising that China’s size and role of the state give it certain advantages.

We now face the textbook ‘prisoner’s dilemma’, which tells us that when trust breaks down between two rational, self-interested actors, agreement is impossible and both sides end up worse off. Can an outsider help break the stalemate?

Europe is too preoccupied with its domestic concerns while Asia, as the most directly affected region, has more at stake. But…

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Trade

Fixing fragmentation in the settlement of international trade disputes

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Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.

Fragmentation in Global Trade

Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.

Challenges with WTO Dispute Settlement

The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.

The Path Forward for Global Trade

Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.

Source : Fixing fragmentation in the settlement of international trade disputes

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Trade

WTO ministerial trading in low expectations and high stakes

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The WTO’s 13th Ministerial Conference is set to focus on e-commerce transparency, investment facilitation, and admitting new members. However, progress may be hindered by disputes, especially regarding fisheries subsidies.

The World Trade Organisation’s 13th Ministerial Conference

The World Trade Organisation’s (WTO) 13th Ministerial Conference is set to take place in Abu Dhabi on 26–29 February, with expectations of deals on electronic commerce transparency, investment facilitation for development, and the admission of Timor Leste and the Comoros as WTO members. Despite these positive developments, the expectations are relatively modest compared to promises made at the 12th Ministerial Conference, which included addressing fisheries subsidies and restoring a fully functioning dispute settlement mechanism by 2024.

Challenges in Dispute Settlement and Agricultural Trade Reform

However, challenges remain, especially in the deadlock of dispute settlement since December 2019 due to a US veto on the appointment of Appellate Body judges. Progress in restoring the dispute settlement mechanism has stalled, and discord continues regarding India’s grain stockholding policy as a potential illegal subsidy. Restoring a fully functioning dispute settlement mechanism hinges on addressing US concerns about perceived bias against trade remedies in relation to China’s state subsidies.

Geopolitical Tensions and the Future of Trade Relations

The likelihood of reaching agreements amid geopolitical tensions between Western democracies and China appears slim, with issues surrounding subsidies and global supply chains causing rifts in trade relations. As nations focus on self-reliance within the global value chain, opportunities for trading face obstacles. Advocacy for open markets and addressing protectionist sentiments remains crucial for fostering resilience to external shocks and promoting economic growth.

Source : WTO ministerial trading in low expectations and high stakes

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Trade

Getting Vietnam’s economic growth back on track

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Vietnam’s economy grew 8% in 2022 but slowed in 2023 due to falling exports and delays in public investments. The economy’s future depends on structural reforms and reducing dependency on foreign investment.

Vietnam’s Economic Roller Coaster

After emerging from COVID-19 with an 8 per cent annual growth rate, Vietnam’s economy took a downturn in the first half of 2023. The drop was attributed to falling exports due to monetary tightening in developed countries and a slow post-pandemic recovery in China.

Trade Performance and Monetary Policy

Exports were down 12 per cent on-year, with the industrial production index showing negative growth early in 2023 but ended with an increase of approximately 1 per cent for the year. Monetary policy was loosened throughout the year, with bank credit growing by 13.5 per cent overall and 1.7 per cent in the last 20 days of 2023.

Challenges and Prospects

Vietnam’s economy suffered from delayed public investments, electricity shortages, and a declining domestic private sector in the last two years. Looking ahead to 2024, economic growth is expected to be in the range of 5.5–6 per cent, but the country faces uncertainties due to geopolitical tensions and global economic conditions.

Source : Getting Vietnam’s economic growth back on track

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