Posts Tagged ‘trade’
“The only thing that will redeem mankind is cooperation”*…
Industrial policy is on the rise around the world, as nations (and sometimes regions) create laws and policies that prioritize domestic competitiveness and economic benefit over free trade, using tools like investment, regulation, and tariffs. Increasingly these policies are being animated not only by economic, but also security concerns. (See, e.g., here and here.)
The traditional worry about policies like these is that they create barriers (thus tensions) between countries… which, at a time when the world desperately needs collaborative responses to global challenges like climate change, could be deeply problematic. But Nathan Gardels argues that industrial policy might be precisely what we need to set the stage for meaningful cooperation…
The remarkable story future historians will tell about the late 20th and early 21st century is how inviting a Communist Party-state to enter a global economy built on the capitalist principles of free trade and markets ended up transforming the neoliberal West into a bastion of protectionism and state-directed industrial policy of the same kind now condemned as unfairly advantaging China’s rise.
They will also note the further irony that the logic of opening to China in the 1970s — and of China’s opening to the West — had a national security premise of checkmating the Soviet Union. Half a century on, the Middle Kingdom is more closely aligned with Russia than in the later stages of the Cold War, primarily as a way to do the opposite: checkmate America’s continuing dominance of the very world order that enabled its rapid ascent.
Adding more complexity to this reversal of history are the related global challenges that have arisen in both East and West: decarbonization of fossil-fuel dependency to mitigate climate change while coping with the disruptions of the digital revolution and the advent of artificial intelligence.
These threads of deglobalization, climate and technological revolution have all converged in the competitive assertion of “industrial strategies” in which nation-building is integrally bound up with international security concerns. China is driven by the fear of not catching up, the United States by alarm at losing the upper hand and Europe by the angst of falling behind both and losing its strategic autonomy.
China’s industrial strategy is called “dual circulation,” essentially a policy of self-reliance and resilience in the face of newfound Western hostility. It is aimed at bolstering domestic consumption and production, including conquering the latest AI technologies with its own resources, while off-loading manufacturing overproduction abroad and expanding trading ties in the global South.
The U.S. strategy, as crafted by President Joe Biden, encompasses a broad array of protective tariffs and subsidies. The CHIPs Act and related policies seek to foster homegrown microchip production while denying frontier technologies to China and restructuring supply chains to friendly nations. The Inflation Reduction Act promotes extensive new investment in the green energy transition. Incongruously, at the same time, a tariff of 100% has been imposed on the import of Chinese electric vehicles. Further tariffs on component inputs, such as batteries sourced in China, are already on track.
Following the U.S, the European Union is also set to raise its own stiff tariff hikes on Chinese EVs as it pursues a European Green Deal to transition to renewables on its own terms. Europe also seeks to blunt the impact of the “buy American” restrictions of the IRA so that fleeing capital looking to exploit the subsidized U.S. market does not hollow out its own green industries before they can be firmly established.
Earlier this month, the former European central banker and one-time Italian prime minister, Mario Draghi, has gone the next step and plotted out a detailed, long-term “industrial strategy” to close the gap with the U.S. and China, which he calls “an existential challenge” to the European way of life.
“If Europe cannot become more productive,” Draghi writes in his report, “we will be forced to choose. We will not be able to become, at once, a leader in new technologies, a beacon of climate responsibility and an independent player on the world stage. We will not be able to finance our social model. We will have to scale back some, if not all, of our ambitions.”…
[Gardels unpacks both European and Australian industrial policy..]
… For all these divergent industrial strategies to succeed in the end depends largely on whether sustained nation-building investment outstrips the duration of protective measures that ought to be only a temporary respite from asymmetrical conditions while they are rebalanced.
To the extent these decoupled initiatives do succeed, they will, paradoxically, come to be regarded not as the antithesis of global cooperation, but as the precondition for it. Only when the power centers of China, the U.S. and Europe are assuredly in control of their own destiny will they be secure enough to open up and cooperate on the global issues that impact them all equally…
The case that divergent “industrial strategies” in the U.S., China, and Europe can create the security to open up: “The Precondition for Global Cooperation,” from @NoemaMag.
* Bertrand Russell
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As we reconfigure, we might spare a thought for a man who provided an important part the foundation on which opponents of industrial policy base their arguments: Pierre Le Pesant, sieur de Boisguilbert (or as he is more commonly known, simply Boisguilbert); he died on this date in 1714. A French Enlightenment law-maker and economist, he was the first of the great continental liberals– a proponent of laissez-faire and minimalist government and an early opponent of mercantilist “Colbertisme.” He is considered one of the fathers of the notion of an economic market.
“Our grandfathers lived in a world of largely self-sufficient, inward-looking national economies – but our great-great grandfathers lived, as we do, in a world of large-scale international trade and investment, a world destroyed by nationalism.”*…
There’s a growing chorus of opinion arguing that the era of global trade is ending. To be sure, nationalism and the protectionism it can spawn are on the rise. But is globalization’s decline now locked in? In a recent speech at the University of Tokyo, Bill Emmott questions the conclusions of The Economist (which he used to edit) and others predicting an end to a world in which goods and services flow relatively freely– pointing out the global trade is still very much alive. It’s a provocative talk, eminently worth reading in full; it ends with a framework for thinking about the question…
The history of globalisation that I have outlined has shown the development of international trade in goods and services to have been driven by three main forces:
- Peace, war and international security
- National external trade policies
- Technology, and its effect on transaction costs
It is clear that the biggest discontinuity in the growth of international commerce was caused by what we now know as the two world wars of the 20th century.
Russia’s invasion of Ukraine in 2022 has certainly diverted trade and financial flows considerably, thanks to direct security effects and to sanctions. But neither it nor the other conflicts we can see occurring in the Middle East, Africa or elsewhere have been sufficient to block global trade in a significant way.
Tensions between the US and China similarly have some diversionary effects, and are to some degree echoed in tensions between China and Europe and China and Japan. But those geopolitical tensions would have to get a lot worse to have a major effect on global commerce as a whole, in part because the world economy has become much more complex and multipolar in nature.
The one conflict that would be very likely to have a major “deglobalisation” influence would be a conflict between the US and China over Taiwan, for such a conflict would very likely reach catastrophic proportions and would force many countries to choose sides. We cannot predict how commerce and the exchange of ideas would look after such a conflict, just as my European forebears would have been unable to predict the world after 1918 from the standpoint of 1914 or earlier.
Secondly, nations’ external trade policies. As I commented earlier, there has been a clear trend back towards protectionism since the 2008 financial crisis, one that has lately been reinforced by policies aimed at the energy transition and by US-China tensions.
This has not yet however had a major effect on world trade. It could, of course. The big question is what would happen if Donald Trump is re-elected as US President in November and carries out his promise to impose a 10% tariff on all imported goods, and a 60% tariff on all goods from China.
One quite likely possibility is that other countries – including the EU, the UK, Japan and indeed China – would retaliate by imposing higher tariffs of their own, and we would be in a trade war, one that could escalate higher and higher.
The wider such a trade war became – i.e., taking in more countries – the likelier it would be to make deglobalisation visible in the trade statistics. Nonetheless, we should bear one other thing in mind: this is that services, especially digitally delivered services, have become an increasingly important component of global commerce. How they would be affected is unpredictable.
Third, we need to bring in the related and vitally important force of technology. Falling costs and increasing digital capabilities have been a big factor behind the growth of global commerce. The entry of artificial intelligence means that there is no likelihood of this technological force for cross-border commerce diminishing.
During the pandemic, the science and technology behind vaccine development, production and distribution were all global, even if geopolitics introduced some distortions. Moreover, the basic reason why the US stock market has been driven by the so-called “Magnificent Seven” tech stocks is that the market for all of them is global.
Geopolitics threatens, but as yet it does not decide. External trade policies at present divert, but only an escalatory trade war would be likely to have a major effect. Technology, however, remains the most powerful force in favour of continued globalisation.
The future of globalisation will be determined by the interplay of these three forces. There is no currently pre-determined destiny for globalisation. Many commentators over-play the influence of politics and under-play the role of technology. Extreme outcomes are possible, and need to be prepared for. But we must above all keep an open mind as to what the actual outcome will be…
We see deglobalization everywhere except in trade statistics: “The future of globalisation: a history,” from @bill_emmott and his excellent newsletter, Bill Emmott’s Global View .
(Image above: source)
* Paul Krugman
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As we tackle trade, we might recall that it was on this date in 1178, about an hour after sunset, that five monks from Canterbury saw “the upper horn [of the Moon] split in two.” They reported their experience to the abbey’s chronicler, Gervase, continuing (as he reports) “From the midpoint of the division a flaming torch sprang up, spewing out, over a considerable distance, fire, hot coals and sparks. Meanwhile the body of the Moon which was below writhed, as it were in anxiety, and to put it in the words of those who reported it to me and saw it with their own eyes, the Moon throbbed like a wounded snake. Afterwards it resumed its proper state. This phenomenon was repeated a dozen times or more, the flame assuming various twisting shapes at random and then returning to normal. Then, after these transformations, the Moon from horn to horn, that is along its whole length, took on a blackish appearance.”
In 1976, a geologist suggested that this was consistent with the location and age of the 22-km lunar crater Giordano Bruno. However, such asteroid impact would have ejected debris causing an astonishing meteor shower, which was never reported. So, while that is plausible, it’s now considered more likely that the sighting of 1178 was an exploding meteor that just happened to line up with their view of the Moon.
“We shall not cease from exploration, and the end of all our exploring will be to arrive where we started and know the place for the first time.”*…
… a circular journey of discovery that can be accomplished much more quickly today than 110 years ago…
In 1914 John G. Bartholomew, the scion of an Edinburgh mapmaking family and cartographer royal to King George V, published “An Atlas of Economic Geography”. It was a book intended for schoolboys and contained everything a thrusting young entrepreneur, imperialist, trader or traveler could need. As well as the predictable charts of rainfall, temperature and topography, it had maps showing where you could find rubber, cotton or rice; maps showing the distribution of commercial languages, so that if you wanted to do business in Indonesia you knew to do so in Dutch; and maps showing the spread of climatic diseases, so that if you did find yourself in Indonesia you knew to look out for tropical dysentery. It also contained the map you see here, which told you how long it would take to get there from London: between 20 and 30 days.
This is an isochronic map – isochrones being lines joining points accessible in the same amount of time – and it tells a story about how travel was changing. You can get anywhere in the dark-pink section in the middle within five days – to the Azores in the west and the Russian city of Perm in the east. No surprises there: you’re just not going very far. Beyond that, things get a little more interesting. Within five to ten days, you can get as far as Winnipeg or the Blue Pearl of Siberia, Lake Baikal. It takes as much as 20 days to get to Tashkent, which is closer than either, or Honolulu, which is much farther away. In some places, a colour sweeps across a landmass, as pink sweeps across the eastern United States or orange across India. In others, you reach a barrier of blue not far inland, as in Africa and South America. What explains the difference? Railways.
In the early 1840s an American dry-goods merchant called Asa Whitney, who lived near New York, travelled to China on business. It took 153 days, which he thought a waste of time. When he got back he began lobbying for a transcontinental railroad connecting Lake Michigan with Oregon, which had a trade deal with China. The railroad, he thought, would cut the journey time to China to about 30 days and open up the market. Similarly, the British invested so heavily in the Indian railway that between 1860 and 1880 it extended from 838 miles to 15,842 miles. If you compare this isochronic map to one from the 1870s, by Francis Galton, you see the difference. Bombay is quickly accessible by sea; the rest of India less so. Likewise, there is no spit of pink reaching across the Russian Empire on Galton’s map, because there was no Trans-Siberian Railway. As the geographer L.W. Lyde says in his introduction to Bartholomew’s atlas, “isochronic distances…change with every additional mile of railway brought into use.” What was the one thing a young entrepreneur needed most? A train ticket…
“Time Travel,” by Simon Willis in Intelligent Life/1843 Magazine
That was then. Now entrepreneurs and other travelers are reaching for a different kind of ticket– now we have aviation…
In late 2015 the Rome2Rio team spotted a beautiful travel map on Intelligent Life. The map, which was published by venerable mapmaker John G. Bartholomew in 1914, illustrated how long it would take to travel from London to destinations across the globe.
We were excited to see such a fantastic visualisation of travel times and we were curious to see what had changed in the 100-odd years since; especially at such a world-changing juncture in travel technology. The first commercial flight took place on January 1st, 1914, so travel times started changing drastically soon after this date.
We created a new map using Rome2Rio’s routing engine and unique repository of transport data… It is clear that travel times have improved immensely. Modern air, rail and road infrastructure has led to a ten-fold increase in travel times across the dark pink parts of the map.
Globalisation is also readily apparent. Journeys that would have taken 10 to 20 days by boat and train have been replaced by the speed of air travel, with most of the world now accessible within ½ to 1 day. This change is most apparent in Asia. In 1914 reaching Beijing, Shanghai, Hong Kong and Tokyo would take up to 40 days. Now, these powerhouses are a day’s travel from London.
Island destinations have benefited from the advances in technology as well. Locations such as the Bahamas, Bermuda, Seychelles, Mauritius and Madagascar are all with ½ a day’s travel, suggesting demand for direct flights by holiday makers. For those who prefer colder locales, visiting the world’s coldest city, Yakutsk, is a breeze in comparison to the area surrounding it; from London, it takes ¾ of a day…
“Time flies? According to these maps it does,” from Rome2Rio
What a difference a century– and a new technology– can make…
* T. S. Eliot, “Little Gidding,” The Four Quartets
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As we fasten our seatbelts, we might recall that it was on this date in 1935 that was Amelia Earhart became the first person successfully to fly from Honolulu, Hawaii to Oakland, California. It had been attempted numerous times before by other pilots who’d been foiled by mechanical trouble; Earhart had none. Indeed, it is said that during the final hours of her flight, she relaxed to the broadcast of the Metropolitan Opera from New York.
Sadly it was just two year later that she went missing while attempting to fly from Lae Airfield in Papua New Guinea to Howland Island (about 1,700 nautical miles southwest of Honolulu). She was never seen again.
“The way we eat has changed more in the last 50 years than in the previous 10,000″*…
And that change is coming for China… Even as trade tension tighten between China and the U.S., foreign investment in China drops, and talk of decoupling grows (see, e.g., here and here), one sector of American business is doubling down on the Chinese market…
There’s been no shortage of tough news for China’s economy as some of the world’s biggest brands consider or take action to shift manufacturing to friendlier shores at a time of unease about security controls, protectionism and wobbly relations between Beijing and Washington.
Count Adidas, Apple and Samsung among those looking elsewhere.
But as a tumultuous 2023 for the Chinese economy comes to a close, there has been at least one bright spot for Beijing when it comes to foreign investment: American fast-food chains have decided a market of 1.4 billion people is simply too delicious to pass up.
KFC China’s parent company opened its 10,000th restaurant in China this month and aims to have stores within reach of half of China’s population by 2026. McDonald’s is planning to open 3,500 new stores in China over the next four years. And Starbucks invested $220 million in a manufacturing and distribution facility in eastern China, its biggest project outside the U.S.
This is surely not what Chinese President Xi Jinping had in mind as he made the case to American CEOs about the upside of China’s “super-large market” last month while he was in San Francisco for a summit of world leaders. The investments in fast food and other consumer goods, while Washington is curbing exports of computer chips and other advanced technology, don’t fit into China’s own blueprint for modernizing its economy…
Unlike manufacturing plants, fast-food franchises are relatively easy to set up and break down and don’t have to worry about IP security/theft. So, even as trade policy hardens and manufacturing/tech companies lean away, “American fast-food companies find China’s 1.4 billion population too delicious to resist,” from @BusinessInsider.
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As we supersize that, we might spare a thought for Fred Turner; he died on this date in 2013. One of the first employees hired by McDonald’s entrepreneur Ray Kroc, Turner rose quickly through the ranks, and succeeded Kroc as CEO in 1977.
Turner founded Hamburger University in 1961 and was a co-founder of Ronald McDonald House Charities.
“Clothes make the man. Naked people have little or no influence on society.”*…
On the defining characteristic of civilization: Peter Frankopan, Marie-Louise Nosch, and Feng Zhao on the history of textiles, with special emphasis on silk…
Some say that history begins with writing; we say that history begins with clothing. In the beginning, there was clothing made from skins that early humans removed from animals, processed, and then tailored to fit the human body; this technique is still used in the Arctic. Next came textiles. The first weavers would weave textiles in the shape of animal hides or raise the nap of the fabric’s surface to mimic the appearance of fur, making the fabric warmer and more comfortable.
The shift from skin clothing to textiles is recorded in our earliest literature, such as in the Babylonian Epic of Gilgamesh, where Enkidu, a wild man living on the Mesopotamian steppe, is transformed into a civilised being by the priestess Shamhat through sex, food and clothing. Judaism, Christianity and Islam all begin their accounts of their origins with a dressing scene. A naked Adam and Eve, eating from the forbidden tree, must flee the Garden of Eden. They clothe themselves and undertake a new way of life based on agriculture and animal husbandry. The earliest textile imprints in clay are some 30,000 years old, much older than agriculture, pottery or metallurgy…
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… The technology behind silk had long been a historical puzzle. The recent archaeological discovery of a 2nd-century BCE Han dynasty burial chamber of a woman in Chengdu has now solved it. Her grave contained a miniature weaving workshop with wooden models of doll-sized weavers operating pattern looms with an integrated multi-shaft mechanism and a treadle and pedal to power the loom [see illustration above]. Europeans wouldn’t devise the treadle loom, which enhances power, precision and efficiency, for another millennium.
This technology, known as weft-faced compound tabby, also emerged in the border city of Dura-Europos in Syria and in Masada in Israel, dating to the 70s CE. We can, however, be confident that the technique known as taqueté was first woven with wool fibre in the Levant. From there, it spread east, and the Persians and others turned it into a weft-faced compound twill called samite. Samites became the most expensive and prestigious commodity on the western Silk Roads right up until the Arab conquests. They were highly valued international commodities, traded all the way to Scandinavia….
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… The word ‘text’ comes from Latin texere (‘to weave’), and a text – morphologically and etymologically – indicates a woven entity. We can therefore say that history starts not with writing but with clothing. Before history, there was nudity, at least in the Abrahamic tradition; clothing thus marks the beginning of history and society. The representation of nudity as part of a wild and pre-civilised life mirrors the European colonial perspective of the naked human as ‘wild.’
Across the world today, there are two main ways to dress: gendered into male and female, and stylistically into clothing tailored to fit the body, or draped/wrapped around it like the Roman toga or the Indian sari. Fitted clothing dominates globally, especially after the Second World War, with blue jeans and T-shirts now ubiquitous across all continents.
Today, a T-shirt on sale in any shop around the world is the result of a finely meshed web of global collaboration, trade and politics. From cotton fields in Texas or Turkmenistan, to spinning mills in China, garment factories in Southeast Asia, printers in the West, and second-hand clothing markets in Africa, a T-shirt travels thousands of kilometres around the world in its lifetime. On average, a Swede purchases nine T-shirts annually, and even if they are made to last 25 to 30 washes, consumers tend to discard them before. Greenpeace found that Europeans and North Americans, on average, hold on to their clothes for only three years. Some garments last only for one season, either because they fall out of fashion, or because the quality of the fabric, tailoring and stitching is so poor that the clothes simply fall apart.
This is the impact of fast fashion that has taken hold since the beginning of the 21st century: for millennia, clothing had always been expensive, worth repairing and maintaining, and made to last. Along with the acceleration of consumption came falling prices and an ever-narrowing margin for profit. The fast-fashion business model requires seamless global trade, inexpensive long-distance transportation, cheap flexible labour and plentiful natural resources. That equation is changing in a world that is warming and where trade barriers are coming up. The future of fabrics, textiles and clothing is bound up in the great themes of the present – and the future…
Eminently worth reading in full: “A silken web,” from @peterfrankopan and @NoschMarie in @aeonmag.
For more, see the full UNESCO report from a chapter in which (“The World Wide Web”) this was adapted: Textiles and Clothing Along the Silk Roads (2022)
* Mark Twain
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As we dress, we might recall that it was on this date that American audiences in America first encountered a heroine whose costumes went from regal to humble then back to regal: Snow White and the Seven Dwarfs premiered. An animated musical fantasy film produced by Walt Disney Productions and released by RKO Radio Pictures, it was based on the 1812 German fairy tale by the Brothers Grimm (here and here), it is the first full-length cel animated feature film and the first Disney feature film.
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