Hello from Trade Secrets. In today’s main piece, we look at how the Ukraine war, as well as finally giving the EU some geopolitical backbone (though how firm that will be in the longer run remains to be seen), has helped transatlantic co-operation on trade-related security issues. Charted Waters looks at one of the reasons why co-operation with China will still be necessary.
Vladimir Putin, the great transatlantic unifier
I’ll be honest: when the EU and US set up the Trade and Technology Council last year I feared it would disappear into the bulging “fruitless transatlantic trade gabfest” folder and never be seen again. In theory it’s a good idea — take newer, often behind-the-border issues such as AI, foreign direct investment (FDI), semiconductor production, media disinformation and so on and put them into a flexible discussion forum rather than have them slowly suffocate in endlessly stalled formal trade negotiations. In practice it involves a lot of issues (security screening of FDI being a classic one) where the two sides have different approaches and the EU doesn’t have collective competence to set rules anyway.
The first meeting in Pittsburgh last September didn’t hugely change my mind. For one, the build-up was dominated by a big scrap on the EU side where French internal markets commissioner Thierry Breton, semiconductor industrial interventionist supreme, was cross at not being invited and France had a semi-serious go at postponing the entire meeting over the Aukus submarine deal. (Remember that?)
I had various conversations following the meeting suggesting that the sides were engaging in good faith but a long way from agreeing coherent binding transatlantic co-ordination. And then came Russia’s invasion of Ukraine, which has overturned a bunch of certainties, particularly about the EU’s ability to act collectively on issues involving national security. It seems like the second meeting of the council, which will be in a tech and business hub on the outskirts of Paris in the middle of May, might be quite a bit more constructive than the previous one. Breton is allowed to come, which will help.
As an example: imposing trade and financial sanctions and export controls has been a sore transatlantic spot for a while. The US is often keener on slamming on restrictions than the EU is — see Donald Trump’s blocks on semiconductor exports to China, for example, or successive US administrations’ sanctions on Iran. And Washington isn’t shy about using extraterritorial powers in effect to force European and other third-country companies to comply, to the point where the EU has constructed (rather ineffectual) mechanisms to protect them from the fallout.
But along with the freeze on Russian central bank assets and going after oligarchs’ yachts and so on, one innovation of the international sanctions on Russia was the very fast imposition of export controls on an agreed list of products (from high-tech equipment used to process semiconductors to submarine engines) co-ordinated closely between the US and EU. This is a welcome reversal of the general trend of export control regimes, particularly the American one, drifting away from international standards.
Now, of course it’s relatively easy to get swift action and co-operation over something like Russia during the Ukraine war. Almost from the very beginning the US and EU have stood together in terms of objectives and the means to achieve them. It probably wasn’t his original intention, but Vladimir Putin’s been great for EU unity and transatlantic co-operation. It’s going to be harder to turn this into some kind of routine system with regard to third parties like China, let alone Iran, where the EU has a considerably less confrontational strategy than the US.
Still, it’s useful to have an actual example to create precedent and show that co-ordination is possible and put more impetus behind the entire TTC project. At least it’s definitely worth paying attention now.
As well as this newsletter, I write a Trade Secrets column for FT.com every Wednesday. Click here to read the latest, and visit ft.com/trade-secrets to see all my columns and previous newsletters too.
Charted waters
Globalisation has been broken by recent events. But even in these disrupted times (a good name for a newsletter, and you can sign up for ours here) countries need to co-operate with those they do not trust to prevent the global crisis getting worse. Not necessarily Russia, but certainly China given its position today as a global superpower.
As the above chart shows, and was clearly explained by Martin Wolf in his latest column, at the very least, the west will need to co-operate with China over the management of developing country debt.
Trade links
The FT looks at how Russia’s invasion of Ukraine disrupted Europe’s breadbasket.
China’s severe Covid-related travel restrictions are continuing to push up global inflation through constricting supply chains.
A video of a day-long conference on the economics of Brexit hosted by the “UK in a Changing Europe” research network. Particularly enjoyable is the Peterson Institute’s Adam Posen going in double-footed on the damage to Britain’s economy from leaving the EU (starts around 30 min). Meanwhile, the UK’s deadline for actually checking imports to Britain is delayed once again.
The newly confirmed US ambassador to the World Trade Organization says Washington is prepared to negotiate to reform the dispute settlement system it has put into the deep freeze, but as usual offered no details about how that might happen.
The global fuel and commodity price shock will reduce growth and damage food security in sub-Saharan Africa, the IMF warns.