Dear Members and Friends:
Hope you are staying well.
For a while it appeared that we were entering “calmer waters,” both economic and political. But now some more storms have set in due to the continuing Russia-Ukraine conflict and COVID in China. The result is more supply chain disruption, escalating prices for everything consumers purchase (especially food and gas), globalization going to regionalization, and shifts in trade policies going forward.
US Trade Policy
On March 30, US Trade Representative Katherine Tai testified before the House Ways and Means Committee on the “Biden Administration’s 2022 Trade Policy Agenda.” We previously provided that Agenda to you. The testimony was a summary of the key features of the Agenda. Although the invasion of Ukraine by Russia had taken place a month earlier, there was no mention of that in Tai’s formal remarks.
In her testimony remarks on China, Tai said:
“While we continue to keep the door open to conversations with China, including on its Phase One commitments, we also need to acknowledge the Agreement’s limitations, and turn the page on the old playbook with China, which focused on changing its behavior. Instead, our strategy must expand beyond only pressing China for change and include vigorously defending our values and economic interests from the negative impacts of the PRC’s unfair economic policies and practices.”
Nevertheless, in a meeting with Canadian Trade Minister Mary Ng in Ottawa on May 5 (articles “USTR Tai says China tariff review will have 'robust' industry consultations” and "US Must Be ‘Strategic’ on China Tariffs, Trade Chief Says"), she said that “all tools were on the table to address rising inflation, including reductions of tariffs on Chinese imports, but that any policy shift needed to keep medium-term goals in mind.” Similar comments on possible tariff reductions were made recently by President Biden, Deputy National Security Adviser Daleep Singh, and Treasury Secretary Janet Yellen. It remains to be seen which items would be on a list for tariff reductions.
Section 301 Reviews
On April 22, USTR released its “2022 Special 301 Report” on the adequacy and effectiveness of the US trading partner countries’ protection and enforcement of intellectual property rights. The report details the USTR’s findings of more than 100 trading partner countries after significant research and enhanced engagement with stakeholders and is done on an annual basis. There were seven countries on the “Priority Watch List,” including China and Russia. There are a number of issue areas involving China. The issues are discussed in detail including developments, progress, and actions taken that should be reviewed by those who may be affected.
At the Ottawa meeting, USTR Tai mentioned that a Federal Register notice will be issued regarding a statutory four-year review of the initial Section 301 tariffs it imposed on Chinese imports in 2018 when the Trump administration had a dispute with Beijing over China's intellectual property and technology transfer practices. That notice, “Initiation of Four-Year Review Process: China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation,” was issued on May 5. The first phase of the review process involves notification to representatives of domestic industries that benefit from the two trade actions under Section 301, as modified, of the possible termination of the actions, and of the opportunity for these representatives to request continuation of the actions.
Trade and Economics Going Forward
We are including two recent reports on the trade and economic impact of the Russia-Ukraine conflict.
The first is a report by the Economist Intelligence Unit (EIU), “The Outlook for Asia Following the Russian Invasion of Ukraine.” Although Asia is not in the eye of the storm of the crisis triggered by Russia’s invasion of Ukraine, it will nevertheless feel its effects. Economically, this will include weaker growth and higher inflation this year for the fifteen countries in the region including China. Several countries are more dependent than others for gas, cereals, fertilizers, and especially arms from either Russia or Ukraine. Investment projects between Asian countries and Russia could be affected partly by sanctions. EIU finds that “One likely consequence of the crisis is that the U.S. will be less able to deliver in the near term on its Indo-Pacific strategy, which is designed to finally bring about the ‘pivot’ in U.S. military and diplomatic resources to Asia first promised in the late 2000s.” They conclude by indicating, “Overall, the Ukraine conflict adds another layer of complexity to the geopolitical environment in Asia.”
The second report, by Fitch Solutions, “Global Macroeconomic Update,” begins by presenting four possible scenarios to the Russia-Ukraine conflict. The most likely scenario, with a probability of 50%, indicates that fighting would continue into the second half of the year before easing to a stalemate by end of year, and that Moscow is unable to make further substantial gains, but Ukraine cannot expel Russian forces. Their findings include:
Global growth will slow but will be supported by elevated savings and a strong labor market
Despite the fact that imports from Russia and Ukraine account for only a small percentage of global imports, supply chain risks can pose significant risks for the global economy in select areas such as gas and food products like wheat, which will cause inflationary pressures and weigh on political stability
European and US growth will slow and be impacted by higher inflation especially in Europe, which is affected more by Russian and Ukrainian imports
Upcoming
The United States is scheduled to host the Ninth Summit of the Americas in Los Angeles this week from June 6-10. The Summits of the Americas, held roughly every three years, serve as opportunities for the Western Hemisphere’s heads of government to engage directly with one another and address issues of collective concern. We will cover the activities in our next update – and the success of the Summit may well depend on who is on the final list of invitees as well as which heads of government actually attend! For more information, see www.ixsummitamericas.org.