A Look Ahead: Global Trade Policy in 2021
Global trade and investment experienced sharp declines as the COVID-19 pandemic shut down economies, closed factories and disrupted supply chains. Trade is forecast to fall by 9.2 percent in 2020. Foreign investment flows fell by 49 percent in the first half of the year. Trade began to recover in the third quarter, led by China and the fast-growing East Asian markets, but the outlook for 2021 remains uncertain and dependent on how well the pandemic is managed.
G20 and APEC leaders met this month and trade was on the agenda of both forums. The International Monetary Fund warned leaders that economic recovery will lose momentum if the pandemic is not brought under control and advised countries to reduce commercial barriers and ease trade tensions to support global growth.
Here’s a look at how different countries and regions are approaching policies that either promote or protect their strategic interests.
China’s latest five-year plan includes provisions to promote self-reliance in technology sectors grow exports in tech and green manufacturing. It’s also designed to make China more self-reliant in sectors such as semiconductors and reduce energy and food imports. China and 14 other Asia-Pacific markets have just completed the Regional Comprehensive Economic Partnership (RCEP). While it is the largest trade agreement by combined GDP and extends China’s economic influence across the region, it does not advance liberalization as much as the Trans-Pacific Partnership or other bilateral agreements that many of its members already have in place. India dropped out of the negotiations. European and U.S. multinationals that do business in Asia will watch closely for how their operations may be impacted and how the agreement will be enforced.
The European Union has a strategic interest in preserving the global rules-based order embodied by the World Trade Organization (WTO) and wants to work with the United States, Japan and others to steer WTO reform. Europe is also revising its trade strategy to focus on promoting global standards in areas such as tech regulation, antitrust, human rights and climate. The EU shares many of America’s concerns about China’s unfair trade practices but favors a more nuanced approach that promotes multinational cooperation rather than unilateral action. In addition, London and Brussels are trying to finalize a UK-EU trade agreement by year’s end.
In Africa, Nigeria has ratified the African Continental Free Trade Area (AfCFTA), which goes into effect on January 1. Leaders across the continent hope the agreement, passed in 2018, will increase intra-African trade by 50 percent and help African small and medium-sized businesses compete globally. While many states have yet to ratify the agreement, Nigeria is Africa’s largest market and its ratification may spur others.
The COVID pandemic has particularly hit Latin America hard and recovery will be slow. Brazil’s export-oriented economy suffered from declining global demand early in the pandemic, but exports began to rebound in the third quarter. Global commodity prices are recovering and trade between the region and Asia is picking up.
Finally, there is much attention focused on the United States as the Biden-Harris administration prepares to take office in January. President Trump has sought to promote reciprocity with trading partners and reduce the U.S. trade deficit. He has preferred unilateral negotiations over the WTO system and urged U.S. companies to decouple operations from China. He negotiated the U.S.-Mexico-Canada Agreement and has held bilateral talks with the United Kingdom, Japan, India, South Korea and Brazil.
President-elect Biden says he will focus first on the U.S. economic recovery before starting new trade negotiations. Like Trump, Biden wants trade agreements to benefit U.S. workers and enable U.S. companies to compete globally. His approach will insist that agreements include strong worker rights and climate provisions. Presidential trade promotion authority (TPA) expires in July 2021, so the incoming President will have to secure a renewed TPA to launch new trade talks.
In the short term, there will be change in presidential tone. The Biden team wants to work with Europe on WTO reform and promote rules-based trade, even as it navigates ongoing disputes in steel and aluminum, digital taxes, agriculture and commercial aircraft. Biden supports USMCA but will closely monitor how Mexico adheres to its labor and energy provisions. He has not committed the U.S. joining the Comprehensive & Progressive Agreement for Trans-Pacific Partnership, which was finalized by 11 states after the U.S. withdrew from Trans-Pacific Partnership in 2017.
Biden has criticized President Trump’s tariffs on imports from China but has not said he will remove them unconditionally. There is bipartisan support in Congress for tougher trade, technology and investment policies to counter China, so Biden may continue to use existing trade laws to tighten export controls, scrutinize business deals between Chinese and U.S. firms, and selectively ban tech products and platforms that raise national security and privacy concerns.
Trade liberalization has benefitted global business, driven broad if uneven economic growth, created complex supply chains and fostered a spaghetti bowl of bilateral and multilateral agreements. Trade has also played a role in responding to the pandemic, allowing countries to access food and medical supplies and facilitating new ways of working through traded IT products and services. Global businesses are looking ahead to a period of greater stability and certainty in trade policy that helps investment and business decision-making.
Edited by Jillian Nystedt
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