International trade: What you need to know this month

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum./

Author: Sean Doherty, Head, International Trade and Investment; Member of the Executive Committee, World Economic Forum

• This monthly roundup brings you a selection of the latest news and updates on global trade
• Top international trade stories: G7 looks to diversify supply chains away from China; Carmakers urge Britain and EU to rethink post-Brexit trading arrangements; Ukraine Black Sea grain deal extended for two months.

1. G7 looks to ‘de-risk’ China links by diversifying supply chains

G7 countries will look to diversify their supply chains away from China as part of a united approach that aims to reduce their dependence on one country, US President Joe Biden said following this month’s G7 meeting in Japan.

The G7 members say they want to “de-risk” their relationship with China, not decouple from it. “Economic resilience requires de-risking and diversifying,” says the G7 post-meeting statement. “We will take steps, individually and collectively, to invest in our own economic vibrancy. We will reduce excessive dependencies in our critical supply chains.”

The G7 says its “policy approaches are not designed to harm China, nor do we seek to thwart China’s economic progress and development”. However, China does not feel the same way, with the state-backed Global Times newspaper describing the G7 meeting as an “anti-China workshop”.

Beijing has responded by banning US firm Micron Technology from selling memory chips to key Chinese industries, ramping up a trade spat in which the US – along with the Netherlands and Japan – has restricted exports of semiconductor chips and chipmaking tools to China.

China dominates global exports of microchips, which are used in all modern technologies, including mobile phones, computers, electric vehicles and renewable power generation. The level to which states rely on microchips means that any supply interruptions could threaten national security and lead to huge disruptions to global manufacturing.

The G7 has set up a Coordination Platform on Economic Coercion to counter any attempts to “weaponize” trading and economic dependencies. “We affirm the importance of cooperation on export controls on critical and emerging technologies such as microelectronics,” the G7 leaders’ statement adds, saying that its trade ministers will “explore coordinated or joint actions where appropriate against trade-related challenges, including economic coercion”.

2. Post-Brexit trading arrangements threaten carmakers and EVs, vehicle industry says

Britain and the EU urgently need to reconsider their post-Brexit trading arrangements, as tariffs due to come into force next year will batter carmakers in both jurisdictions and slow down the transition to electric vehicles (EVs), according to an increasing number of companies in the industry.

The trade deal agreed when Britain left the EU states that 45% of the value of an EV sold in the bloc must come from Britain or the EU from 2024 to avoid tariffs. However, a battery pack can account for up to half an EV’s cost and Europe is not on track to develop a substantial battery industry this year, the German Association of the Automotive Industry says.

Stellantis – the world’s third-biggest carmaker by sales and owner of 14 brands including Vauxhall, Peugeot, Citroen and Fiat – says British car plants will close and thousands of jobs will be lost unless the Brexit deal is swiftly renegotiated. It wants the government and the EU to extend current rules on the sourcing of parts until 2027 – a request that was echoed by the lobbying body for the European car trade and carmaker Ford.

The German Association of the Automotive Industry also wants the trading changes to be postponed. Tariffs on exports to Britain and imports from it would be “a significant competitive disadvantage for the European car industry in relation to its Asian competitors in the important UK market”, it says. EU car exports to the UK have been falling since 2016, when the Brexit vote happened, but still account for about a fifth of all shipments.

The tariff changes would also imperil the development of e-mobility, as they would hurt the whole EU supply chain including battery makers, causing Europe to fall further behind as a production site, the German Association of the Automotive Industry says. British Finance Minister Jeremy Hunt said following the warnings that the country will ensure EV batteries are produced domestically. Ford is investing $480 million to build e-motor capacity at an engine plant in the British city of Liverpool.

3. News in brief: International trade stories from around the world

The Ukraine Black Sea grain deal has been extended for two more months, in what UN Secretary-General António Guterres hailed as “good news for the world”. The UN and Turkey brokered the deal for an initial 120 days in July last year to help tackle a global food crisis aggravated by Moscow’s invasion of Ukraine, one of the world’s leading grain exporters.

The European Union and the UK have adopted a memorandum of understanding to boost co-operation on the regulation of financial services and establish a joint EU-UK Financial Regulatory Forum. “Future engagement in financial services will be built on a shared commitment to preserve financial stability, market integrity, and the protection of consumers and investors,” Mairead McGuinness, the EU Commissioner for Financial Services, said in a statement.

The US and Taiwan have reached an agreement on the first part of their “21st Century” trade initiative, covering customs and border procedures, regulatory practices and small business. Once the initial deal is signed, negotiations will begin on more complicated trade areas including agriculture, digital trade, labour and environmental standards, state-owned enterprises, and non-market policies and practices.

What is the World Economic Forum doing on trade facilitation?

The Global Alliance for Trade Facilitation is a collaboration of international organisations, governments and businesses led by the Center for International Private Enterprise, the International Chamber of Commerce and the World Economic Forum, in cooperation with Gesellschaft für Internationale Zusammenarbeit.

It aims to help governments in developing and least developed countries implement the World Trade Organization’s Trade Facilitation Agreement by bringing together governments and businesses to identify opportunities to address delays and unnecessary red-tape at borders.

Global Alliance for Trade Facilitation | Benefits of Trade

For example, in Colombia, the Alliance worked with the National Food and Drug Surveillance Institute and business to introduce a risk management system that can facilitate trade while protecting public health, cutting the average rate of physical inspections of food and beverages by 30% and delivering $8.8 million in savings for importers in the first 18 months of operation.

China and Ecuador have signed a free trade agreement (FTA), lowering tariffs for 99% of the Latin American country’s exports, including agricultural and agro-industrial products. China already has FTAs with Peru, Chile and Costa Rica, and its increasing links in Latin America are unlikely to please the US, The Financial Times reports.

India and Britain are struggling to make progress in free trade talks due to differences on some key tariff lines and investment protection rules. Britain is also in talks on updating its free trade deal with Switzerland. The countries are leading service exporters, but their current free trade deal was signed 50 years ago, long before the arrival of the internet

Trade policies need to change to support efforts to substitute plastics with natural and sustainable materials, according to a new UNCTAD report, which says import tariffs are often lower for plastic products than they are for substitutes. Plastic substitutes make up 2% of total global exports, compared with 5% for plastics, the report says.

Digital trade and e-commerce ecosystems in 10 African countries will receive a boost from a $1.5 million project set up by the African Development Fund and the Smart Africa Alliance. The Institutional Support for Digital Payments and e-Commerce Policies for Cross-Border Trade Project (IDECT) will offer training and capacity-building programs and are expected to reach 600 participants, 60% of which will be women and young people.

Supply chain managers are in high demand in the aftermath of various disruptions to global trade, The Financial Times reports. There was a doubling in the number of US job postings for supply chain managers on LinkedIn between 2019 and 2022, and a 36% rise in UK adverts for the same role on website Indeed last year, compared with 2019.

Over three-quarters of EU member states conducted more than half of their intra-EU exports with just three countries in 2022, according to Eurostat data. Germany was the only nation in the 27-member bloc that shipped less than 40% of its EU-destined exports to just three countries.

4. More on trade from Agenda

Regional integration was a major topic of the World Economic Forum’s Growth Summit 2023, which took place on 2-3 May. In a session titled Regional Trade and Cooperation in a Fragmenting World, top business and trade officials discussed how best to foster regional trade and how regional cooperation can bolster the global economy.

Experts are concerned about growing fragmentation of the global economy along geopolitical lines. However, a failure to transcend strategic interests with free trade could mean lower economic growth worldwide, generally higher costs for everyone and greater instability, writes John Letzing, the World Economic Forum’s Digital Editor for Strategic Intelligence.

A mutually beneficial relationship between trade and labour is needed to ensure equitable globalization. About half the trade agreements concluded between 2011 and 2020 included labour provisions, compared with 22% in the previous decade, and more multi-stakeholder cooperation can boost this further.

Meanwhile, preferential trade agreements (PTAs) continue to proliferate. Yet experts are noting that PTAs can be good—and bad. An analysis by Bruegel (not on Agenda but noteworthy) states that the trend towards PTAs have “dangerous systemic implications” in today’s geopolitical environment.