supply chains

Assessing IPEF’s Supply Chain Breakthrough

Assessing IPEF’s Supply Chain Breakthrough

This is not what seems to have happened.  Instead, members shared experiences and tried to figure out how to solve challenges that might arise in the future.  Given the rapid timelines, it may not be a surprise that the best “solutions” turned out to be to continue talking.  In fact, most of the supply chain pillar consists of a series of committees to address specific aspects of resilience in the future. This is, frankly, a bit like getting a toothbrush for Halloween.  It’s not a bad idea.  Talking and keeping lines of communication open is important.  But it’s not really what you thought you were getting when you dumped out the bag at the end of the night of trick-or-treating.  As a result, businesses are already showing impatience and disappointment with IPEF.  A group of nearly 30 diverse sizable industry associations just sent a letter to the US Commerce Secretary and the US Trade Representative expressing their concerns about IPEF outcomes.  The key sentence of relevance is “However, we are growing increasingly concerned that the content and direction of the administration’s proposals for the talks risk not only failing to deliver meaningful strategic and commercial outcomes but also endangering US trade and economic interests in the Indo-Pacific region and beyond.” IPEF’s peculiar negotiating structure, as has been noted before, is largely the result of a White House determination that market access of any kind was off the table for the talks.  The letter from businesses highlighted a range of topics that could have been included that did not offer up tariff reductions but could still provide important economic and business outcomes.  These include standards-related barriers to trade, obstacles to remanufactured goods, or specific regulatory challenges for key sectors. Of course, it is possible that these types of issues will end up being identified by the IPEF committee structures, with the creation of new approaches to solve some of the concerns raised by American businesses and firms across the region.  However, it’s also possible committees never get past sharing experiences or never manage to meet at all. The great irony is that governments and businesses do seem keen to address new issues that will be increasingly important in the future like digital trade rules, sustainable trade, or resilient supply chains.  But if the supply chain pillar that has been substantially concluded is any guide, the IPEF as a whole falls woefully short of accomplishing these tasks.  It’s a toothbrush and a lecture rather than a bag with candy.

The WTO: Less Than Half a Glass

The WTO: Less Than Half a Glass

Think about that again for a moment—the World Trade Organization, in 2022, continues to have no explicit rules related to the digital economy and no obvious path to getting something in place either. [The side discussions on electronic commerce did not yield any announcements from participating countries.] Members did agree to start talking about doing something to reform the organization. They have “reaffirmed” the foundational principles and agreed to work towards a solution to a specific challenge on dispute settlement in two more years. Given this dispiriting list of outcomes, why were trade watchers mostly glowingly optimistic? Two reasons come to mind. First, most trade watchers have spent a lifetime building up this institution in one way or another. It’s very hard to witness the slow extinguishment of a dream, passion project, and vocation. Second, because the WTO matters and watching it flounder is genuinely a problem. Given the importance of the global trade body to businesses and consumers, it can feel particularly wrong to kick the organization when it is down. After all, why continue to draw attention to limited outcomes and why not recast the latest outcomes as a historic achievement that highlights continued relevance? It is precisely because a functioning WTO matters so much that it is important to be honest about its pathway and prospects for the future. Sugarcoating a weak package of outcomes doesn’t help focus attention on why the institution has failed to make headway or why members cannot agree on doing important things. Let’s just review for a moment why a functioning WTO is so critical to all of us. It provides a common set of rules and principles that have allowed trade to flourish. It’s like oxygen for the trading system. Extinguish the air and everyone will start to suffer. Without the WTO in place, governments would be free to randomly reset their trade rules on a regular basis. Tariffs could go up or down without notice. Customs checks at the borders could suddenly focus on allowing goods from some locations to pass easily while blocking everything from other firms. It would drive up costs dramatically and the burden would fall most heavily, as always, on the smallest firms.

Managing Supply Chain Disruption in 2022

Managing Supply Chain Disruption in 2022

Firms started developing wide-ranging plans to more effectively become resilient. Locations that had been seen as highly desirable in a pre-pandemic situation started looking more fragile under heavy disruption. Having many just-in-time operations became more of a liability when logistics delays lengthened to weeks or even months. In response, some firms started developing action plans to near-shore or even re-shore some production. In some instances, these activities were already underway as the pandemic followed several years of highly disrupted trade, particularly during the height of the US-China trade war from 2018 onward. For most companies, however, heading in 2022, the actual changes made by firms to adjust to the pandemic has been considerably more modest than might have been assumed. Why? At least four reasons seem important. First, adjustments to supply chains can be quite expensive. At a time of widely fluctuating supply and demand projections, most companies did not want to deploy capital to actually change production or distribution locations. Many of the “resilient” suggestions can also involve substantial costs. Holding additional inventory can be expensive. Creating duplicate chains or even duplicate suppliers for critical parts can involve substantial additional costs. There are often sensible reasons for how a firm organized its supply chain in the first place.

Setting Trade Policies in the Biden Administration

Setting Trade Policies in the Biden Administration

Of course, confirmation is only needed at the top. Restaffing the rest of the vacant posts, however, will also take some time. This includes restarting the pipeline for junior talent in various agencies. At the same time that staff are being rapidly hired or rehired, it will be important to figure out what these people are meant to be doing. Getting alignment on policy is always challenging. The Biden team inherits a disrupted trade and economic policy landscape as well. As Biden’s team members have been saying recently, it will take time to sort out policy priorities and determine next steps. This is particularly true for China policy, where some of the existing policies, like tariffs, are likely to remain in place while others might be adjusted, removed, or even toughened. Incoming staff members will need to spend time taking stock of what policies are in place, which have been partially implemented, which are clearly not working well, what impact any or all of these policies have had, and what opportunities and challenges remain. Biden has already called for a “worker centered” trade and economic policy objective. It remains unclear exactly how this outcome might be best met. Existing policies will need to be recalibrated to better fit revised goals.

Unpacking RCEP: Benefits for Processed Foods

Unpacking RCEP: Benefits for Processed Foods

Managing multiple agreements for the trade of processed foods can be particularly challenging. Food and agricultural products have always been one of the most sensitive topics in trade agreement negotiations, leaving in place often high protectionist barriers. RCEP negotiators, however, were able to liberalize market access for food products, especially those that include more than one ingredient or are processed in any way. The large geographical scope, 15 countries, and the aforementioned concessions, give RCEP the potential to lower barriers and further facilitate and strengthen the development of regional processed food value chains. To illustrate the potential of RCEP to facilitate food trade in the region, consider a Thailand-based diversified food company making peach jam for export. The company uses peaches sourced from China and produces jam in a factory located in Thailand, where the peaches are chopped and then blended with sugar and pectin. The jam is cooked, pasteurised and packaged in jars for export. RCEP’s potential to lower the costs of trade for this and other processed food firms can be outlined under two key benefits: the elimination of existing tariff barriers between member countries and the lowering of compliance costs for regional processed food trade. In most RCEP members, tariffs for peach jam can be up to 30 and 34 percent. RCEP will eliminate those tariffs for ASEAN-based peach jam producers.