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What Xi and Biden forgot to mention on the economy



US President Joe Biden speaks virtually with Chinese leader Xi Jinping from the White House in Washington, US, 15 November 2021 (Photo: Reuters/Jonathan Ernst).

Author: Tom Westland, ANU

According to the official readout, in their virtual summit this week, US President Joe Biden and Chinese President Xi Jinping discussed ‘managing competition responsibly’. For Biden, the talks were a chance to press Xi on China’s actions in Hong Kong and its assertive posture in the Taiwan Strait, as well as human rights abuses in Xinjiang. Xi, for his part, warned Biden against leading the United States into a new Cold War against China.

Missing on the agenda was any serious discussion about the problems facing the global economy as it recovers from the deep recession of 2020.

Aside from some worthy breakthroughs, like the agreement to hold bilateral ‘stability’ talks on nuclear issues, it’s not clear what Xi’s and Biden’s responsibly managed competition will look like. If it looks anything like the managed trade that now governs the economic interactions of world’s two largest economies, then ‘competition’ is a wild misnomer. The trade war between the two countries, and the ensuing ‘Phase One’ trade deal, represent the worst kind of anti-competitive policy kludge, designed to protect politically favoured industries in the United States and kicking out Australian and Canadian farmers and gas suppliers who can produce more efficiently than their American counterparts. In economics as in sport, competition is best managed by neutral umpires, not by the participants themselves.

The failure of the two presidents to discuss what they could do to shore up the economic recovery is a big, missed opportunity. There is a desperate need for bolder leadership that tackles the short-term pressures and – just as importantly – the longer-term structural fault lines. The global economy was looking decidedly sickly even before COVID-19 struck. The Brexit referendum in June 2016, and the election of a populist protectionist to the White House later that year, marked the start of an inward turn in the advanced economies. The yield curve for US Treasuries inverted in May 2019, usually a reasonably reliable harbinger of recession. The structural damage to the world economy inflicted by Britain’s exit from the European Union and the tariffs put in place under President Trump has been masked by the much greater immediate destruction wrought by the pandemic, but as the recovery gains pace, it will become increasingly difficult to ignore.

Though the Biden administration has more or less made peace, though on the wrong terms, with Europe — lifting the Trump-era tariffs but imposing quotas on steel and aluminium exports from the bloc —it has stuck with Trump’s belligerent posture towards China. It has maintained tariffs on a broad swathe of Chinese imports and continues to hold back exports of semiconductors in the name of national security – even though the likely long-run effect will just be to stimulate semiconductor manufacturing elsewhere.

The effect of both of these policies is to restrict the supply of consumer goods in the United States. That isn’t the only reason for the US experiencing the highest inflation rate since George Bush Sr was president. Compared to the ‘Great Resignation’ of workers not wanting to return to low-paying jobs and the logistical issues at American ports, though, it is a problem that is easily fixed – at least in theory. The domestic politics of removing the Trump tariffs might be tricky, but Biden could use his power to issue broad exemptions that would render the tariffs a dead letter. Biden will also remember the political fate of the last two one-term Presidents, both of whom presided over economic contractions that stemmed in part from tighter monetary policy in the face of inflationary pressures.

Inflationary pressures, in the United States and elsewhere in the global economy, may be only temporary, and for the most part central bankers are choosing not to overreact by precipitously raising rates and choking off the economic recovery. But the task is made harder by senseless trade restrictions that have not yielded any tangible security or economic benefits to the countries imposing them. Ever since the dismantling of the Corn Laws, economists have known that removing barriers to international trade lowers prices; politicians, though, captured by special interests, often have to be dragged screaming and kicking to recognising it.

Though he touched on it only lightly in the summit, President Xi and his advisers would be well aware of the possible impact on the Chinese economy of policy tightening in the United States…

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Fixing fragmentation in the settlement of international trade disputes



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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WTO ministerial trading in low expectations and high stakes



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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Getting Vietnam’s economic growth back on track



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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