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AMERICAN DOUBTS ABOUT THE WTO ARE GROWING LIKE WEEDS

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Free Trade Agreements, Global Trade Daily, International Trade

AMERICAN DOUBTS ABOUT THE WTO ARE GROWING LIKE WEEDS

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Polls show that Americans are concerned about the rise of China and what it means for the U.S. economy and global standing.

U.S. leadership in the WTO could serve as a valuable counterbalance to China’s growing influence. But first, Americans need to know why they should care about the WTO.

The jungle is growing back

In The Jungle Grows Back, foreign policy scholar Robert Kagan cautions that the past seven-plus decades of relative free trade and expanding individual freedoms were not inevitable and may be “a great historical aberration” – the jungle grows back.

The World Trade Organization (WTO) was sown from the seeds of democratic, free-market ideals. But China’s state-directed economic approach has growing influence and WTO members have been unable to cultivate modern trade deals to counter it.

Meanwhile, new TradeVistas polling shows Americans are mostly unaware the WTO – which represents the U.S.‘ own free-market principles – has reached this pivotal moment. The WTO’s detractors are free to plant doubts that, left untended, will grow like weeds.

Two-thirds of Americans are ready or open to the idea of leaving the WTO

Presented in detail in our companion article, Do Americans Want the U.S. to Leave the WTO?, a TradeVistas poll conducted earlier this month finds that most Americans either support leaving the WTO or feel “indifferent” or “unsure” about whether to withdraw from the organization.

It’s not that Americans are necessarily focused inward, though COVID-19 has stimulated concerns about the extent of America’s reliance on global value chains. Rather, TradeVistas’ poll finds that Americans overwhelmingly want the United States to be “leader of the global economy”. They just don’t see membership in the WTO as critical to that goal.

leave WTO

What should we learn from these results?

While it might be tempting for trade policymakers to concentrate on converting the vocal minority that supports U.S. withdrawal, two undercurrents in the poll results merit close attention.

First, the subset of strong WTO opponents is substantially outnumbered by those whose views are less strongly held, and the consequences of such indifference should not be ignored. The old adage, “you don’t know what you’ve got until it’s gone,” doesn’t necessarily apply to trade institutions. Recall that when President Trump withdrew from the Transpacific Partnership Agreement on day three of his presidency, polls at the time demonstrated that 72 percent had either not heard about the TPP or “not much”. Are they remorseful now? Generally, no, despite the concerns from industry and the trade policy community. As for President Trump, the political gains from withdrawal were minimal, but neither was there a backlash.

Second, asked whether WTO rules help U.S. companies compete on fair terms or help prevent foreign governments from applying unfair requirements to U.S. companies, a clear majority – even those who strongly supported leaving the WTO — felt it was likely true that the WTO accomplishes those goals. With deeper knowledge and greater understanding of what the global trading rules offer American creators, producers and service providers, Americans may be more inclined to support the WTO, or at least support the WTO’s set of agreements, which they perceive to benefit the overall economy.

Restatement of WTO Q on Rules and Unfair Requirements

Engaging Americans on what’s at stake

Unsurprisingly, a survey by the Pew Research Center this spring found that nearly two-thirds of Americans now have a negative opinion of China. And 9 in 10 Americans see Chinese power and influence as a threat to the United States. Where there’s much less agreement, however, is how the United States should manage its relationship with China, including on trade. All too often overlooked in these discussions is the WTO – an institution whose purpose is to set the rules for global trade and through which the United States could exert its influence to restrain the commercial and economic practices it finds damaging.

In our absence, China is seizing that opportunity. If the United States spent decades building an international system in the likeness of its free-market democracy, China is actively working to remake that system in its own image. China now heads the International Civil Aviation Organization, the International Telecommunications Union, the Food and Agriculture Organization and the United Nations Industrial Development Organization. China recently ran a candidate to lead the World Intellectual Property Organization but the United States led a coalition to oppose it.

And what of the WTO’s majority of developing country members? What is the significance of Afghanistan and Liberia choosing to join the WTO, of Belarus, Iraq, and Timor-Leste in the queue? These are conflict-affected nations that seek to rebuild their post-conflict economies. They see WTO membership as a step toward necessary but difficult economic reforms at home – reforms they hope will reap economic gains that will bring more lasting security and stability. As was originally envisioned, American leadership in the WTO enables the United States to gain from trade while supporting democratic transitions and the expansion of prosperity around the world.

China is making significant infrastructure and financial investments around the world, drawing fragile democracies into their ambit. Americans would understand if the WTO were positioned as a way to counter China’s growing economic influence in the developing world.

How trade policymakers can position the WTO as more relevant to ordinary Americans

The global trade policy community mostly agrees the WTO is in need of reforms to restore its core functions of negotiating trade-liberalizing deals and ensuring effective implementation and enforcement of those trade deals.

Let’s be honest, however. Though vital for the health of the WTO, the average American is not interested in the minutia of tweaks to the WTO’s dispute settlement system, in the vernacular “special and differential treatment” for developing countries, or the definition of a market economy. When the trade community is too focused on those details, it risks losing sight of the broader need to attract American public support for the institution itself.

To position the WTO’s role more prominently in Americans’ understanding, trade policymakers should appeal to citizens in the following ways:

To Americans’ sense of fairness:

The average American is interested in basic fairness and in ensuring that major economies play by the same rules. Before the WTO, countries that signed onto its predecessor, the General Agreement on Tariffs and Trade, were called Contracting Parties. The GATT was a contract. Americans like contracts; we are good at writing contracts. We enter them voluntarily when the terms are favorable and mutually agreeable.

The United States negotiated favorable terms under the GATT and then the WTO. If those terms no longer serve the United States well, it can negotiate different or additional terms. But the United States can only do that if it remains a member.

To Americans’ need for control over their own destiny:

The average American feels conflicted about international organizations because they fear a loss of sovereignty. However, WTO rules do not prevent national policies to promote domestic jobs and growth. Rather, the disciplines of the global trading system compel governments to adhere to the norms of transparency and non-discrimination as those policies are developed and implemented.

If the American public perceives the U.S. government has made poor policy choices, that’s on our policymakers, not the WTO. And if we fail to treat companies from other nations in a non-discriminatory manner, we can be sued in the WTO just as we can sue other governments. But: only our elected representatives in Congress can change our laws. It would be helpful for more Americans to understand this.

To Americans’ desire to be left alone:

TradeVistas’ polling affirms that Americans feel contradictory impulses when it comes to their world view. This is nothing new. Americans have shown tremendous generosity when it comes to protecting other nations, but that does not mean most Americans think it is (or should be) our role. Many Americans believe others in the world deserve fundamental economic freedoms, but often feel we should mind our own business. Americans built many of the international institutions that exist, but today exert relatively little influence over them and often feel threatened by them. We’d prefer to be left alone.

Counterintuitively, the global trading rules and the WTO itself mesh well with this approach. As an extension of the American ideals of free-market democracy, the global trading rules are designed to protect individual economic freedoms, not to constrain them. Though governments are its members, the rules are designed to keep government as much out of the way of individuals and companies as possible – to let them thrive under regulations that are no more trade restrictive than necessary. The rules are accepted because most other nations in the world are also aligned with a free-market orientation.

The global trade rules are a scaffolding around a building that rests on the foundations of free-market democratic ideals. Leadership by America and its allies are what holds that building up – not the rules themselves. We are free to hold contradictory views but we have much to risk by acting in contradictory ways. In other words, it’s not enough to support the rules, we have to fight for them. Otherwise, the jungle grows back.

Q on US leader of global economy

To Americans’ concerns about China:

The United States and like-minded nations are the individual bricks in the edifice of free-market democracy. Beyond our own internal disagreements, Americans generally agree that China stands for something else.

Here again, author Robert Kagan cautions:

“History shows that world orders, including our own, are transient. They rise and fall. And the institutions they erected, the beliefs that guided them, and the “norms” that shaped the relations among nations within them—they fall, too. Every international order in history has reflected the beliefs and interests of its strongest powers, and every international order has changed when power shifted to others with different beliefs and interests.”

There is certainly room for criticism that China has “gamed the WTO system,” or that the current global trade rules are insufficient to prevent China from gaining an unfair advantage in global markets where American companies compete. Americans could be convinced that other WTO members share this concern and are willing to follow an American lead to preserve the benefits of the global trading system. More compelling perhaps, is to show them that U.S. withdrawal from the WTO serves China’s interests more than it does ours.

Tend to weeds now before the jungle grows back

Right now, the WTO appears a garden that has not been properly tended. Weeds are growing where they are not wanted.

My former colleague and WTO negotiator Mark Linscott recently wrote, “The drift and malaise in the WTO has been a collective failure [by its members] over a number of years,” attributable to “a lack of leadership, a frequent resort to entrenched bad habits, particularly in pitting the developing world against the developed one, engaging in action-numbing group think, and [failure] to find creative ways to achieve breakthroughs.”

If we continue this way, it will soon become hard to discern the roots of our intentional plantings from those of the weeds as they became intertwined. After all, there is no “weed” in nature – weeds are the state of nature.

What Mark describes is the default that WTO members must fight against. And if the WTO is to endure, we must also compel the American public to fight against its own default – a lack of awareness and indifference.

______________________________________________________________________

Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fifteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.

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Archives, Global Trade Daily, In The News, International Trade

President Trump’s Executive Order Ends Hong Kong Country of Origin

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On July 14, 2020, President Trump signed into law an Executive Order that ends Hong Kong’s differential treatment compared to the People’s Republic of China (“PRC” or “China”). The President’s action follows the Chinese government’s decision in late May to impose new national security legislation on Hong Kong that outlaws any act of “secession,” “terrorism,” or “collusion” with a foreign power.

The United States government objects to this legislation and believes that it has compromised Hong Kong’s autonomous status, which justified  Hong Kong’s differential treatment from China for a number of purposes. As President Trump stated following the signing of the Executive Order, “Hong Kong will now be treated the same as mainland China…no special privileges, no special economic treatments and no export of sensitive technologies.”

As a result of the Executive Order, any imported Hong Kong origin goods will now be considered Chinese origin and will be subject to the Section 301 tariffs on certain Chinese imports, or any antidumping or countervailing duty orders applicable to China.

The Executive Order also eliminates any passport preferences for persons from Hong Kong as opposed to those from the PRC and revokes any Export Administration Regulation (“EAR”) license exceptions for exports, re-exports, and in-country transfers pertaining to Hong Kong. The order also authorizes steps to end other forms of U.S.-Hong Kong cooperation unrelated to international trade, such as the Fulbright exchange program.

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Robert Stang is a Washington, D.C.-based partner with the law firm Husch Blackwell LLP. He leads the firm’s Customs group.

Jeffrey Neeley is a Washington-based partner with the law firm Husch Blackwell LLP. He leads the firm’s International Trade Remedies team.

Turner Kim is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

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Archives, Global Site Selection, Global Trade Daily, International Trade

Global Trade Talk: Navigating Geopolitical Currents in a Changing Southeast Asia

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Global Trade Talk is part of an ongoing series highlighting international business, trade, investment, and site location issues and opportunities. This article focuses on the conversation between Simon Tay, Chairman of the Singapore Institute of International Affairs and Keith Rabin, President, KWR International, Inc.

Hello Simon. How have you been? Before we begin can you tell our readers about your background and current activities?

I am Chairman of the Singapore Institute of International Affairs (SIIA). We focus on the Association of Southeast Asian Nations (ASEAN), a regional organization comprised of ten countries in Southeast Asia, as well as the wider Asia Pacific and Singapore’s role as a hub for trade and investment and greater integration in the region. This includes a range of geopolitical issues including the rise of China, the role of the US, and most recently the coronavirus pandemic, which is serving as an accelerator for changes that have been occurring over the last decade.

Professionally, I am an attorney and was a member of Parliament from 1997-2001, serving during the Asian financial crisis. Then during the 2008 global financial crisis, I was stationed in New York at the Asia Society where we first met. These experiences have given me a unique perspective on the impact of globalization and other trends we have experienced over the past two decades.

While ASEAN currently possesses the third-largest economy in the Indo-Pacific and fifth largest in the world, many foreigners have never even heard of the regional group nor do they recognize its potential. Can you talk about how ASEAN evolved, what it represents as a commercial market and investment destination, and in terms of security and its global importance? What opportunities and obstacles and investment themes are of particular importance to foreign companies and investors in the coming years?

I don’t blame people for not knowing ASEAN. When one looks to Asia, one’s eyes are first drawn to the giants. China in particular has done very well over the past twenty years and no country has grown faster during that time. As it developed and labor costs and standards of living rose, Southeast Asia began to capture the attention of businesses, and deservedly so. ASEAN now has growing appeal, because of greater integration as we create an ASEAN Community with increased consumption and growth. That is why many people refer to us as the fifth largest economy in the world.

The reality, however, is a bit short of that – as we are not really one country or one system. We are, however, working to realize the “ASEAN 2025 Vision.” This is a roadmap adopted in 2015 to articulate regional goals to create a more cohesive ASEAN Community. SIIA is currently working on the ASEAN mid-term review, which is examining our progress, and how crises such as the pandemic can strengthen our will to more fully integrate. While an unfinished project, given the diversity in the region, it is — in some ways — every bit as ambitious as the establishment of the European Union (EU). The trend is toward closer integration.

Before the Asian financial crisis, which began in the summer of 1997, the region was mostly viewed, at least in the US, through the lens of the Vietnam War. Over the last twenty+ years we have advanced, however, and growth in ASEAN has been reinforced. This is true both in developed countries such as Singapore and Thailand, developing nations such as Vietnam and Myanmar, and those in between. Before the pandemic, ASEAN as a whole was growing at a faster rate than China. While the pandemic is hitting our people and economies hard, the region should still outperform the world.

The fundamentals are real. ASEAN is ascending from a lower base, leaving substantial room for further growth. There are many opportunities as countries raise consumption and leapfrog using software, digital innovation, and a greater online presence. Diverse sectors can do well, including labor-intensive manufacturing, infrastructure, services, consumer markets, and others that are part of the new economy.

As you note many people view ASEAN as being similar to the EU, a vehicle grouping together a group of countries into a more integrated market, though without a common currency. Is that fair and can you talk about both the diversity of ASEAN as well as the steps being taken to link these ten nations into a more cohesive entity? Is it possible for companies to have an “ASEAN strategy” or should they be looking at individual markets?

Given what I said about ASEAN, and how it is not yet a cohesive union, that is a very good question. The answer is yes and yes. Movement toward greater integration is very clear but we are not like China or the EU where you can put up one office and that’s it for the region. In a way, this is an economic strength as well as a political challenge.

In ASEAN you have an opportunity to link supply chains from a hub like Singapore, which offers first-class amenities, to less developed markets with eager and driven populations rising out of poverty and looking for jobs in factories and a more modern lifestyle. Myanmar for example is a sizable country with a pool of young people looking for jobs and a government seeking to develop. Myanmar also has a sizable expatriate population that has lived and worked in countries such as Singapore and Thailand, as well as Australia, Europe and the US, where they received education and training. Now their economies are opening – and they are returning with capacity, experience and ideas to implement change. So these countries are not starting from zero.

In between, you have countries such as Vietnam, Thailand, Malaysia and Indonesia. Labor there remains hungry for work, the land is relatively cheap and demand is growing. Today, a lot of attention is focused on Vietnam in particular. This is a country of almost 100 million young, dynamic, and hard-working people, which is well on its way to becoming a competitive supply base for many products.

ASEAN also benefits from not being China. Our diversity offers a decentralized model that adds diversification to global supply chains. It can be more complex to work across ASEAN — there is no one President or government to go to – but it is also less risky for those who can manage across borders – as it is not a case where if one government or economy fails, then the investor also fails. Moreover, ASEAN is not a threat to anyone politically. Vietnam for example has a trade surplus with the US whereas Singapore has a deficit.

Those who invest in ASEAN benefit from having an alternative to China, though are still located in this growing region. This allows synergies with production clusters based there. Being in ASEAN allows companies and investors to benefit and participate in this growing regional economy without putting more eggs into the China basket.

You mentioned the US has enjoyed strong ties with ASEAN since its birth in 1967. This was a time when the US sought to develop regional allies in the face of the Vietnam and Cold Wars. Today, however, despite a move to initiate an “Asian Pivot” under the Obama administration and talk of the “Indo-Pacific” under President Trump, some question US commitment to the region. How do you view the US presence and role within ASEAN? What should US companies and leaders know about ASEAN and how does their presence compare to other nations including Japan, Korea, Australia, and the EU?

The US remains an important partner and market for ASEAN and when looking at its involvement in the region, there are three strands we can talk about. The first is like an underlying current in the ocean, the second is the waves on top, and third like a bright object on the surface. If you look at the current, the destiny of the US remains very much an outward one. It is the country that created the modern world and global trading system you and I have grown up in. It was built to America’s advantage and I think this strong current of the US having shaped and benefitted from this world is ever-present despite current tensions. So we have not seen, whichever President, a lack of interest from US business, its military or security establishment. So whether you call it an Asian Pivot, Indo-Pacific region or before that the War on Terrorism, we believe this current can and should have reasons to continue.

At the same time, there are waves on the surface. These are more noticeable, as it is hard to see the underlying current unless you put your hand deep below. The waves do matter and I would say right now they are choppy and we are now going through a period where Americans are questioning globalization and retreating from multilateralism and international engagement. I was in Seattle during the 1999 WTO protests. At the time President Clinton had the political savvy to suggest we let these voices in to assuage concerns – even as he was the president who signed and implemented the NAFTA agreement. As a result, after a time, things calmed down and the situation became less tense for the moment.

Since then, however, the waves have gotten more turbulent, and it is important to recognize the tensions that brought Trump into office are not singular to him. Remember that Hillary Clinton responded to those choppy waves in her election bid. She supported the Trans-Pacific Partnership (TPP) agreement while Secretary of State, and yet as a candidate against Trump, she too expressed doubts about the TPP. So it is not just the Trump administration and we can see a wave of US constituencies questioning and expressing concerns.

The concern is rising to the point where now even the underlying current of outward movement that I mentioned is less visible. Companies are now being judged by how many jobs they are reshoring and their loyalty to America and American jobs. This is now seen as more important than an overall win-win growing the global economic pie paradigm, which has guided the thinking of policymakers and companies for decades.

And then there is the ball or float which can be seen in tweets and incendiary rhetoric. These attract a lot of attention and concern but they are not necessarily consistent. You mentioned the Indo-Pacific strategy and frankly, I haven’t really seen one. I have seen Indo-Pacific statements and senior US officials talking about issues, but I haven’t seen an overall strategy tying things together. I have to say I view this from an ASEAN perspective and generally, ASEAN is the final stop after a comprehensive strategy dealing with other parts of Asia is finalized.

There is also much less US involvement in multilateral institutions. This is important given the nature of the problems the world faces today. I also think the State Department itself has less access and the whole US establishment which has guided foreign policy and economic engagement, has been weakened.

At the same time other countries – and China in particular – have upped their game. They engage us, not only at the top level – but very thoroughly on an ongoing basis.  Ambassadors of these countries, whether you agree with them or not, are out all the time engaging people, and are much more present. The US is still here but less than in the past. Take something as simple as Ambassadors. How many ASEAN countries have sitting US Ambassadors? And if you talk with the ones that are here, how much access do they have into Washington and White House decision-making at a high level? Stove-piping is always a problem in big countries, but it is now becoming a more serious issue.

Since the early days of ASEAN, China has developed rapidly and has now become the world’s second-largest economy. It is also a major driver of economic growth and seeks greater regional and global influence through vehicles such as the Belt and Road Initiative (BRI) and Asian Infrastructure Investment Bank (AIIB), at a time when the US is backing away from multilateral institutions and its traditional role as a global leader on a range of important issues. As tensions rise between China and the US, both in terms of trade as well as influence and security, how is the region affected, and what are the challenges ASEAN countries face in navigating this changing environment?

The pandemic makes a vast difference. We are trying to figure out in a post-pandemic world whether China or the US will recover faster and at the moment the answer seems to be China. It is still early, however, and of course, there is now an outbreak in Beijing so we will have to see. At the same time within China, there seems to be a growing understanding they need to remain engaged with the outside world. They also did not have this pre-pandemic spirit of isolationism and questioning of whether it is good for China to export and invest abroad. So unlike the US, they did not come into this with a globalization backlash, strengthened further by the pandemic.

Singapore recently entered into a “green lane” agreement with China for business travel and Singapore-based businesses of all nationalities can now travel to six cities and regions of China with minimal testing as a first step toward reopening our borders. This is not political but an effort to restore supply chain links and our ability to operate as a hub while maintaining decent safety levels. We are also trying to open Australia and New Zealand, and other countries in ASEAN, but those discussions are not yet concluded.

Also, if you look back to the global financial crisis of 2008, it is notable that Asia and China kept growing. While the US did not shrink, in relative terms its global market share declined. That caused an adjustment similar to when an elevator goes up and suddenly stops. I feel if the US does not respond correctly to the current situation, we may experience another of those adjustments; it doesn’t mean the US will fade and fall down the elevator shaft, but there will be another jerky moment and perceptions in this part of the world will shift further as they did after the onset of the global financial crisis.

That said, people in ASEAN want more US involvement and encourage US investment and more participation by US firms. We think of the market and technology as rational and neutral, but it is beginning to get colored. Meaning if people think the winner will be China there is a tendency to go more in that direction – even though we are still fighting to keep things as neutral, rational, and as inclusive as possible. You can see that in the struggle over the decision this week to award Singapore’s 5G network to Ericsson and Nokia, though it still maintained a smaller role for Huawei.

In the past, there was a belief in the west that China’s development would lead it toward a more democratic form of government and integration within the global trading system that arose following the Second World War. In recent years it has become apparent this is not the case and China is embarking on its own path. This has led to growing concerns about China’s aspirations and efforts to exert global leadership and establish standards in new technologies as seen its “Made in China 2025 initiative”, its policy toward Hong Kong and Taiwan, cybersecurity and privacy, social credit scoring and other policies, practices, and beliefs. Do you share these concerns? How does China’s model translate to ASEAN and do you see a new “Cold War” developing in which countries will be asked to choose sides?

I have studied, lived in, and like the US, but never assumed China would become more democratic. I believe the Party will have to evolve and change in response to China’s development but never assumed this would necessarily be in a democratic direction. When I look at the region beyond China, I would also say most in Asia are not a democracy in the US-style. Even look at Japan, which you Keith know well. It is not a one-party system like China but it is not a US-style democracy. Neither is Singapore. We will have an election here in less than two weeks, yet there is almost no doubt which party will win. So I am not sure you as an American would describe such systems as democracy.

So I do not look at China through an ideological lens of democracy and have always thought China would do what made sense for China. As neighbors, we do have to figure out whether what is good for China will be a threat to us, rather than win-win. This applies when we look at Chinese investment; we tend to look at it through pragmatic calculations. I do not begin with the assumption that it is an attempt to politically suborn every place where they invest. There are of course risks that remain but they can be managed. For example, with BRI we have talked to Myanmar and others about the risks of unproven projects that burden them with high debt. That is Singapore’s style. We initiate projects incrementally. We start with one terminal and gradually expand to five, or one chemical factory into a large complex as demand is proven. We have an idea of where we want to go – but build incrementally rather than start with grand projects.

That is why you now see a number of Singapore industrial parks in Vietnam. These parks are not just physical spaces. Some provide training, education, and skills development for local workers so they can better serve companies based there. This helps our neighbors while developing our role as a hub. Singapore companies are also involved in BRI. For example, Surbana Jurong provides consultancy services to some Chinese investors in ASEAN countries, as well as acting for the hosts on other occasions. The Port of Singapore Authority (PSA) is also pushing out into the region and beyond; recently opening a joint port in Greece with Cosco, a Chinese shipping line. So Singaporean efforts are to seek cooperation and commercial deals that look non-ideologically to support globalization and free trade around the world.

The bigger question is the “new Cold War” between the USA and China. We do feel it. We try to make rational decisions based on market principles but increasingly everything is reduced to whether “you are for or against China or the US.” For the AIIB, Singapore participated from the start because infrastructure is a big issue in the region. We are in the Asian Development Bank (ADB) too and the World Bank. We think there is no reason we can’t be in more than one, and I do not see why the US objected to the AIIB or what was the alternative they were offering. On the other hand, when American’s spoke about the Indo-Pacific we were happy to work with our ASEAN colleagues to develop an ASEAN understanding and response.

The view of the Indo-Pacific that ASEAN has developed is slightly different than the US, as our goal was to make it more inclusive and not just for democracies. But we do agree a larger framework for the region is necessary. For Singapore, as close friends with India, we have no problems working with them as well and continue to hope they will become more and more integrated with the region.

Even before the coronavirus and heightened US-China trade tensions, corporations were beginning to reevaluate global supply chains to lessen their reliance on Chinese production. Many view ASEAN as a natural beneficiary, offering cost and diversification benefits. As a result, we see many clients giving the region more consideration given its strategic location, strong infrastructure and its ability to bridge operations that had been based in China and still rely on inputs from there. How do you view ASEAN’s potential as the region rises in importance as a hub within the global supply chain? What are the prospects for developing and more developed countries in ASEAN– as well as integration between the two, for example, the relationship between Singapore and Batam/Bintan and the Riau Islands, where we have been active for many years, located in Indonesia only 12 miles away?

Our greatest fear is not a splintering of global supply chains but rather the idea of bringing everything back home in response to growing nationalism. Big countries sometimes think they can do that – whether it is the US, China, India, or even Indonesia. They believe they can produce everything for themselves and capture their own market. We used to see this in the “import substitution” and “beggar thy neighbor” days. That is something we need to work together to avoid. Post-pandemic there will be exceptions and a degree of self-supply is important, for example with masks and ventilators, to prevent a cut-off of supply. Similarly, markets such as Singapore which imports almost 100% of its food supply, need to rethink being completely reliant on offshore sourcing. But we need to make sure that tilt does not go too far.

But I would emphasize we are not going to exclude China either. The interesting question is whether we still believe in global supply chains. I think the answer is that we do, provided that security and other key concerns can still be addressed. If that is the case, countries that can provide that, who can reliably manage increasing supply chain complexity with good governance and rule of law, with an ability to deliver will be rewarded. ASEAN and Singapore are well-positioned in that regard.

The larger danger is that countries retreat back completely to a reliance on national production and protectionism. It is a lesser danger for supply chains to split into two, one being the US and the other a Chinese supply chain. Sometimes it is important for other countries to have guts and stand up against that and bullying from either side. This is especially important during the pandemic when some powerful countries were trying to grab masks and other medical supplies for themselves when these had been contracted to others. For Singapore, and for me as an attorney and international lawyer, I emphasize the importance of fulfilling contracts. This does not always work to our advantage in Singapore. Sometimes in the pandemic, neighbors cut off supply but we still try our best to observe our commitments. The rule of law is important. The bottom line is – trust is something you can’t ditch in a crisis.

You ask about Batam and Bintan as part of our strategy to expand across the region. These islands are part of Indonesia but stand just a small distance from Singapore. Back in the early 1990s, there was a lot of excitement in Singapore about their development as an early step in regionalization and cross border cooperation. They are still significant; proximity still matters, but not quite as much as before. Other opportunities arise, and regionalization has deepened. One newer aspect is whether that proximity is connected to another market.

For example, a major Singaporean company now has an industrial park operating in central Java that caters to Indonesia, rather than offshore markets like Batam and Bintan. Singapore also has more than seven industrial parks in Vietnam – and we do more there than in these Indonesian islands nearest us. Why? It is not because we do not like Batam and Bintan; they also have a role to play. But they do not enjoy any special preferences or contiguous market, have no natural workforce so workers there are imported from other parts of Indonesia. In the end, they remain useful, allow easy commuting, but do not provide a definitive advantage in an environment characterized by deeper and more complex regional integration.

ASEAN has been severely affected by the coronavirus – and by most measures handled the pandemic relatively well. Can you talk about how the virus has been handled in Singapore and other countries in ASEAN, the nature of regional cooperation, and how the pandemic is likely to affect economic and other aspects of integration moving forward? What lessons should the US take from the ASEAN experience dealing with the virus?

There are differences in how ASEAN countries have handled this and from what we can see, Vietnam has come out on top in terms of controlling the pandemic. In Singapore, the overall national numbers may look scary, but it is under control for most of the community though the problem is acute within the foreign work dormitories which account for the bulk of numbers.

Singapore has a strong health system and has ramped up testing and treatment facilities; our medical system has coped and there has been a very low mortality rate. Malaysia and Thailand are also doing relatively well. For Laos, Cambodia, and Myanmar the numbers seem ok but it is really hard to know for sure, given low levels of testing. In Southeast Asia, I think the biggest worry is Indonesia where numbers are beginning to rise while the country faces strong economic pressure to reopen.

A key question is transparency. The more you test the more you find cases. So we look at testing rates as an indicator. In Singapore, we have good testing for a small population. As testing increased in dorms for migrant workers, this caused our numbers to really jump. It was just last week that Indonesia overtook us as having the most cases – and we have to ask why did it take that long? Basically, many countries are not testing enough. When they do test, it is for confirmed cases and not more generally – and the number of tests per million is very low. So from the reported numbers, the situation may look acceptable, but no one can be quite sure.

The current question is how to ease up the restrictions to restart the economy and allow travel across borders. There are worries about importing cases and all countries have at least temporarily closed off tourism, which are important parts of their economies. In the pipeline, I think green lanes for business are possible. But there will continue to be concerns about large numbers of tourists unless easy and reliable testing and (ideally) vaccines are ready. So we will have to figure out how to manage borders – allowing transport of workers as well as goods and services – to restart our economies and manage our integration and supply chains in an increasingly interdependent region.

One of the things we have learned is we have to be open to help from outside and cooperation is critical. In early February we first had a China-ASEAN meeting on how to deal with the virus and it was just China, but then we had an ASEAN Summit and this was notable in bringing in Japan and Korea – two countries that have the industry and technology needed to help. Now some of us are advocating Australia and New Zealand also need to be added as well. If we address the pandemic together – we have a much better chance of containing and dealing with it. Harmonizing our approaches to treatment and travel is important. Multilateral dialogue and cooperation are essential and world leaders should encourage talk rather than just closing borders.

India also represents a major economy that borders ASEAN and has traditionally had a major impact though often gets overlooked given the attention paid to China. What is your view on India as a regional and global player and how important is its economy to the development of ASEAN and how should companies be approaching this important market? Additionally, any thoughts on current tensions between India and China?

Last year before the pandemic we had the Regional Comprehensive Economic Partnership (RCEP) discussions which could potentially not only open up India but bring India more into the region as a major global manufacturer and supplier – much as China embarked on that path decades ago. RCEP’s importance rose after the US withdrew from TPP negotiations, and aimed to bring together all ASEAN members and our key trading partners — including India, Australia, China, Japan, New Zealand, and South Korea. But it seems the Indians didn’t like that vision or thought the costs of opening up their market were too high and walked away.

They thought they could scupper the whole initiative, but ASEAN has decided to go ahead without them. That was not our hope and it would have been much better to include them, but we were not going to let India veto RCEP, and it will now proceed, aiming to conclude by the end of 2020. I always tell my Indian friends we have to move – particularly now with the pandemic – and they would be advised to jump on board.

India has tremendous potential and their size and promise will always be there – but it is a bit like a giant universe operating by itself – cut off from the outside. That is sad as there are some really top-class Indian companies that can more than compete in the region. But India as a whole has not really been fully engaged. The politics are complicated – and while Singapore remains great friends of India – it remains to be seen if a path forward can be found. If Prime Minister Modi with all the support he enjoys is not willing to open up, how and when will it happen? Compound that with the pandemic and a lack of desire to integrate, and my fear is India will miss the boat.

For Indonesia, the largest country in ASEAN, it’s different. They know investors are questioning reliance on China because of costs and Sino-American conflict and are working to catch the attention to join global chains and attract more investment to create more and better paying industrial jobs. They are trying but it won’t be easy. China has retained many supply chains, and many that moved decided to go to Vietnam.  One Indonesian minister I know quite well is working hard to attract jobs and promote innovation and some companies are moving to base there. The minister told me his scorecard is based on an ability to attract foreign investors and industry. It will be difficult, but it is good they are trying. India, however, has mostly been sitting on the sidelines and it may only get harder over time.

Singapore is one of the world’s great success stories and has become a preferred destination to establish businesses and operate for companies in a wide range of sectors, including as a world financial center. For many years we operated our own company there as a base for activities in Myanmar, Indonesia and other ASEAN markets which lacked the same level of infrastructure, governance and services. Does the Singapore model hold, and what changes need to be made, as neighboring countries develop? Can you tell us about current Singapore initiatives, the upcoming election and the “bubbles” that are being created for business, travel and trade?

Singapore understands we serve as a hub for the region and if we cut ourselves off due to the pandemic and health reasons, we will find ourselves in a bubble that does not have enough air for all of us. You can live your life that way if you need to, but resources become scarce and it will not be much of a life. So we have to reopen, and all small economies face similar issues. New Zealand for example is further away but faces similar decisions.

That is why we talk about green lanes and bubbles. We need to start but in a controlled way with trusted partners. In the past, we were wide open. When you entered Changi Airport, even before you got to the doors, they opened wide. There was seldom a line and often no one even checked your luggage. Now, while I have not been there in five months, I imagine the scanners are working overtime. You need to show a health certificate and the process is much more cautious and guarded.

My analogy is that we have gone from an automatic door and seamless travel to a situation that requires a special pass and perhaps a key before you will be able to pass. Safety concerns are a priority. But for Singapore, the important thing is the doors need to remain open even if there are more checks and verifications to ensure adequate safety and easy passage. Singapore is committed to that. The government just formed a new public-private partnership called the “Emerging Stronger Task Force”. This will gather ideas on how to develop new processes and procedures to get better ideas on Singapore’s economic strengths, and how to move forward into the “new normal” in the wake of the pandemic.

It won’t be easy. But when I look back, there is reason to believe we can rise to the challenges. Singapore came out stronger from the Asian financial crisis and we are determined to do that again. That was true after the global financial crisis as well. If we get it right, Singapore can come out stronger this time as well. Of course, we could get it wrong and have made mistakes along the way;  two recoveries do not automatically translate into a third so we have to be careful not to have hubris and to work hard and innovate to succeed.

As you know we have been active and involved with Myanmar’s development for many decades, and one of the more interesting developments – at least in terms of Singapore – are long term plans to develop deep seaports in Kyauphyu, which would provide a land route into China. This initiative would allow shippers to bypass the Straits of Malacca and the Port of Singapore which has long dominated trade in the region. How do you view Myanmar’s prospects and the potential of these projects?

Do we see other ports in the region as a direct threat to Singapore? The answer is no. We think win-win. Our ports are busy and before the pandemic operated almost at full capacity. If Asia continues to grow, the volume of traffic will grow even more. The PSA has been expanding internationally to places in the region and beyond. Moreover, within Singapore land is very valuable and there is a plan to create a new mega port named Tuas in the north of the island. The current site of one port is very close to the city and is such valuable land that, rather than stacking containers, far more value can be realized if it is used for real estate and infrastructure development. So while we do want Singapore to continue as a major port, this means that we welcome and want to participate in growth across the region.

As for Myanmar more generally, we are very encouraged and remain positive. We would love to see them come up like Vietnam. As mentioned, there are several Singaporean industrial parks there and while there are none are as yet in Myanmar – we have very good relationships there and see lots of potential. Many people from Myanmar received their education and training in Singapore and many Myanmar companies rely on Singapore for banking, legal and financial services. So there are extensive people-people relationships and we want to help and be part of their development. Also, two of the most active banks in Myanmar, UOB and OCBC are from Singapore and as Myanmar opens up and liberalizes they are seeking to increase their presence.

Thank you Simon for your time and attention. Look forward to speaking again soon!

_______________________________________________________________

Keith Rabin serves as President at KWR International, Inc., a global consulting firm specializing in international market entry; trade, business, investment and economic development; site location, as well as research and public relations/ public affairs services for a wide range of corporate and government clients.

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Archives, Global Trade Daily, International Trade

BRINGING HOME THE BACON: U.S. PORK TRADE

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The Year That Wasn’t

This year was supposed to mark a comeback for U.S. pork producers. Instead, the industry faces volatile markets and unprecedented supply chain disruptions. COVID-19’s domino effect on farmers, processors, retailers and consumers underscores the complexities of our modern food system.

In late April, meat industry executives warned the United States could soon face a meat shortage after processing facilities closed temporarily due to the spread of COVID-19 among employees. Total meat supplies in cold storage facilities across the United States totaled roughly two weeks’ worth of production. With processing at a standstill, meat supplies for retail grocery stores were expected to shrink by nearly 30 percent by Memorial Day, leading to increases in pork and beef price prices of as much as 20 percent, according to analysis by CoBank.

Shuttered plants also meant that farmers had nowhere to send their mature pigs, creating a massive livestock backlog. While many meat processors have re-opened as of May 2020, hog farmers may yet be forced to euthanize as many as seven million pigs in the second quarter of 2020, a loss valued at nearly $700 million. The Food and Agricultural Policy Research Institute forecasted a total loss of $2.2 billion for the U.S. pork industry in 2020 due to the pandemic.

US 3rd largest pork producer

Going Whole Hog on Exports

According to the United States Department of Agriculture, the United States is the world’s third-largest producer and consumer of pork, shipping on average more than 5 billion pounds of fresh and frozen pork internationally each year since 2010.

But this dominant role in world pork trade is a fairly recent phenomenon. The United States became a net exporter of pork in 1995. Exports jumped from two percent of total production in 1990 to 21 percent in 2016. What made this spike possible?

The U.S. pork industry has gone through a major restructuring since the mid-1980s, shifting from small, independently owned operations to larger, vertically-integrated companies that contract with growers to raise pigs. This structure increased the industry’s productivity and year-round slaughter capacity. Between 1991 and 2009, the number of hog farms in the United States dropped by 70 percent but the number of hogs remained stable.

The National Pork Producers Council calculates that exports account for nearly 36 percent of the total $149 average value of a hog. While American pork is shipped to more than 100 countries, just four countries account for 75 percent of U.S. pork exports: Mexico, Japan, China, and Canada. It’s easy to see why implementation of the U.S.-Mexico-Canada Agreement is important to U.S. pork producers: Mexico alone accounts for about one-third of all exports by volume. U.S. exports of pork increased 1,550 percent in value since 1989, when the United States first implemented a free trade agreement with Canada.

U.S. pork producers mainly compete with pork producers in the European Union, Canada, and Brazil for sales in overseas markets. American farmers were concerned they could lose market share in Japan after the United States did not join the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) and Japan made a trade deal with the European Union. Japan is the largest value market for U.S. pork and the second largest market by volume. However, pork exports there have been trending higher in 2020 following the U.S.-Japan Trade Agreement.

Where US pork exports go

Higher on the Hog in China?

For the last two years, American pork producers have found themselves in the crosshairs of a trade war between the United States and China, a key export market. In April 2018, China levied a 25 percent retaliatory tariff on many U.S. pork imports in response to Section 232 tariffs put in place by the United States. In 2019, China again retaliated against American pork, this time in response to Section 301 tariffs.

Before the trade war, China was the second-largest market for U.S. farm exports (after Canada). In 2016, China purchased nearly $20 billion in American farm products but sales dropped sharply in 2018 to $7.9 billion.

The “Phase One” U.S.-China trade agreement went into effect on February 14, 2020. It includes a commitment from China to import an additional $12.5 billion in U.S. agricultural products during 2020 on top of a 2017 baseline of about $24 billion. The agreement also provides access for a larger variety of U.S. pork products and restores access for processed pork products, which had been blocked by China.

As part of this deal, on February 17 China announced tariff exclusions for 696 products, including pork. In the first quarter of 2020, China bought $5.05 billion in U.S. farm goods, up 110 percent from last year. China’s pork imports almost tripled from March 2019, reflecting a major domestic supply gap caused by African Swine Fever (ASF).

However, concerns remain if it is feasible for China to meet the purchase targets set in the agreement. Through March 2020, U.S. Census Bureau data show that U.S. agricultural exports to China were only at 37 percent of year-to-date targets. The American Farm Bureau Federation found that U.S. agricultural exports to China need to accelerate by 114 percent each month from May through the rest of the fiscal year to meet the “Phase One” target.

China ag purchases fall in trade war

Not Exactly “Year of the Pig” for Pork Industry

The possibility of U.S. sales to China going unfulfilled seems surprising. Another virus – ASF – has been ravaging China’s pork output since August 2018. ASF is a highly contagious, deadly pig disease with no known treatment or vaccine. It does not affect humans or food safety but it has had a devastating impact on China’s pork industry, the world’s largest, leaving a shortage in domestic supply.

Despite low officially reported cases of ASF, as many as 350 million pigs died from the disease in China during 2019. (And because the disease continues to spread across borders, one quarter of all the world’s pigs may die from ASF.) After more than a year of declining pork output, China’s total pork supply gap is estimated at 18 million tons – a figure much larger than total global supplies. Chinese consumers have faced record high prices for pork, traditionally their protein of choice. Some parts of the country also faced meat shortages due to disrupted supply chains during the COVID-19 quarantine.

To address persistent high prices, the Chinese government auctioned off a small amount of frozen pork from publicly held pork reserves, but the move was largely symbolic and had a limited short-term impact on prices. The government’s total pork reserve volumes are a national secret and not publicly available.

Enter: Coronavirus

As American hog farmers were positioning to fill China’s need to import more pork, enter the coronavirus in early 2020, which threw the U.S. pork market into extreme volatility.

After COVID-19 forced processing plants to temporarily close, U.S. pig prices dropped 27 percent in about a week, reducing profits for pig producers while consumers paid more for pork at the grocery store. The demand for meat often takes a hit during economic recessions as consumers keep a close eye on their grocery bill. At the same time, the industry lost major food service markets such as restaurants, universities, and elementary schools that were also shut down.

To help pork producers and other farmers, USDA on April 17 announced the Coronavirus Food Assistance Program (CFAP) to provide $19 billion in emergency aid to farmers and ranchers hit by market disruptions. CFAP includes $16 billion in direct payments to producers and $3 billion in purchases of fresh produce, meat, and dairy products for distribution through food banks. USDA will purchase an estimated $100 million per month in pork and chicken, along with other food products, beginning in May. Nonetheless, an industry-funded analysis by Iowa State University found that American hog farmers will lose $5 billion (or $37 per pig) due to reduced prices for pork and shuttered processing plants.

US pork shipments to China

Saving Our Bacon

America’s pork industry has been beset with uncertainty in recent years. The latest Purdue University-CME Group Ag Economy Barometer found that the unknowns surrounding the pandemic have further decreased farmer optimism to a four-year low, with 67 percent of farmers saying they are worried about the impact of the coronavirus on their business.

Prior to COVID-19, U.S. farmers were already reeling from lost sales due to China’s tariffs. The saving grace for U.S. pork producers now is that pork exports are actually ramping up.

During March and April, the number of pigs slaughtered per day decreased by 40 percent, but shipments of U.S. pork to China more than quadrupled, including whole carcasses as well as products that Americans generally don’t eat, like feet and organs. The U.S. Meat Export Federation estimated that so far in 2020, about 31 percent of U.S. pork has been exported with one-third of that volume going to China.

That means that in the near term, increasing exports will remain vital for the U.S. pork industry to weather the coronavirus storm as processing capacity gets back online and domestic sales begin to rebound.

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Sarah Hubbart provides communications strategy, content creation, and social media management for TradeVistas. A native of rural Northern California, Sarah has melded communications and policy throughout her career in Washington, D.C., serving in government affairs, issues management, and coalition building roles in the agricultural sector. She is an alum of California State University, Chico and George Washington University.

This article originally appeared on TradeVistas.org. Republished with permission.
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Archives, Global Trade Daily, Ocean Ports, Stories, U.S. Ports

U.S.-China Trade War of 2019 Spills into 2020 for Ports, Shippers and Manufacturers

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The Jan. 15 signing of a U.S.-China Phase One agreement did spawn a sigh of relief among those troubled by the trade tensions between the two nations. But six days later, a warning came from a couple experts closely watching the unfolding events on behalf of ports, shipping lines and manufacturers. The crux of that warning? Stay tuned.

“This is a truce,” said Phil Levy, chief economist at Flexport, a San Francisco-based freight forwarding and custom brokerage company. “This is not the end of the trade war.”

Levy shared that opinion as he joined his company’s CEO Ryan Peterson in leading a webinar on Jan. 21 that was listened in on electronically by some of their 10,000 clients in more than 200 countries. Those who rely on the company’s expertise in ocean, air, truck and rail freight, drayage & cartage, warehousing, customs brokerage, financing and insurance–all informed and powered by Flexport’s unique software platform—heard Levy say of the U.S.-China trade war: “We haven’t seen a retaliatory escalation of this magnitude in the post-World War II era. … This really was a 2019 story that worsened throughout the year.”

He pointed to a graphic that showed trade between the world’s two biggest economies fell markedly last year, and that no one overseeing trans-Pacific supply chains were immune from economic harm. Many webinar participants could relate as 64 percent of Flexport’s customers rely on the trans-Pacific trade routes, according to Peterson.

Yes, the Phase One deal was a positive first step, but Levy pointed to some examples of lasting victims from the trade war. It exposed the continued “decay,” as the economist put it, of the World Trade Organization (WTO), which is supposed to prevent the escalation of trade disputes. The “keeper of peace” amid trade tensions was largely frozen out of U.S.-China talks and, therefore, silent as events transpired.

A second heavy blow came in December 2019, when the WTO’s appellate body ceased to function, according to Levy, who noted that the formation of the “WTO system was one of core achievements since World War II.”

Peterson found equally worrisome the first-ever disappearance of peak season when it comes to shipping. As many known, imports grow during the fall and really heat up by November’s holiday shopping season. That not happening in 2019, couple with a steady decline is U.S. imports from China after years of solid growth, is a reason for concern, according to the CEO, who maintained, “global trade is down due to tariffs.”

For one thing, not having a peak season to rely on, coupled with steadily declining trade, “from our perspective makes life very hard to plan for,” Peterson said.

He did see on the horizon what many may view as a green lining: lower freight fees and consumer prices. “Lower prices do sound good,” Peterson conceded, “until someone goes bankrupt. We want stability, predictability. Things getting too cheap is unpredictable. You are playing with fire.”

Feel the burn? Peterson called our current “degree of uncertainty relatively unprecedented. We learn about things in a tweet. Was that really implemented or not?” As an example, he cited France proposing a digital tax and President Donald Trump striking back with threats of tariffs on cheese and wine. “Is that policy or not?” Peterson asked rhetorically. “Right now it’s a tweet. It makes it very hard to plan for.”

Levy warned “there is no safe play.” You can withstand the brunt of the tariffs and see what that does to your bottom line, or you can figure out a way to work around them and then have a trade deal come along with no way to return to normal operations quickly enough.

As Peterson pointed out, it’s not just the sting of the tariffs but the amount of paperwork and other adjustments one must handle while trying to remain agile. That time takes away from other things you need to be doing with your business.

Speaking of time away, Levy believes there will be no further movement in deescalating trade tensions between the U.S. and China until after America’s November presidential election. He suspects that China agreed to the Phase One conditions, which were much more weighted against that country than the U.S., “to buy a year of peace.” He added that China could be playing it coy in the weeks ahead as Beijing awaits the outcome that determines whether they will continue to deal with Trump or a new White House occupant. “If Trump loses, it’s likely the trade agreement will change anyway,” Levy said.

In the meantime … uncertainty. Peterson noted that one Flexport client had to close a manufacturing plant due to the tariffs. Levy held onto the hope that an eventual U.S.-China trade deal will be beneficial economically, pointing to markets that opened up with the U.S.-Mexico-Canada Agreement replacing the North American Free Trade Agreement. But you never know, as evidenced by USMCA having also resulted in some restricted trade, particularly in the automobile sector. “That was disappointing,” he admitted.

Don’t be surprised if the pain ultimately spreads, as Levy predicted what will happen after the U.S.-China trade war comes to a head. “There are a lot of signs the president will turn his trade policy focus away from China and toward Europe,” said Levy, who later noted Trump has also begun accusing Vietnam of cheating when it comes to trade.

So what to do about all this?

“My stance is there is nothing more important than agility, the ability to adapt,” Peterson said of dealing with tariffs, real or threatened. “It can mean restructuring a supply chain or seeking exemptions.” Companies that foster a culture with an ability to adapt can look at these challenges, Peterson says, and respond: “Bring it on, bring on the change.”

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Archives, Commentary, Global Trade Daily

Amid US-China Trade Battle, Here is how America can Remain the World’s Strongest Economy

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The Communist Party of China has laid plans for a century of unlimited Chinese power and, with it, the end of the American era. However, we still can — and must — bet big on the future of American economic power. The best antidote to China’s ambitions is to ensure America’s continued economic and technological preeminence.

Far too many strategists, investors, and policymakers accept China’s economic preeminence as an inevitable outcome, given the country’s enormous population and potential for growth.

As the business community looks toward a “partial trade deal” to unwind tariffs and reduce trade hostility between the world’s two largest economies, we must understand that non-negotiable problems in U.S.-China relations will accelerate if China closes the gap with the United States in terms of economic and technological power. With the right strategic mindset and a focus on domestic productivity, America can not only win the economic and technological contest but also turn the tide in the U.S.-China competition for global power.

China’s bid for global power is built on its economic ascendency, which is based on engagement with the United States and our allies. Chinese companies are capturing global markets and climbing the ranks of the Fortune Global 500 by taking advantage of stolen or coerced foreign intellectual property and state-orchestrated market distortions. The Communist Party is converting China’s technological power into a dystopian surveillance state and a military that is focusing its capabilities on the United States and our partners.

Chairman Xi Jinping calls regularly for Chinese forces to “prepare to fight and win wars,” while converting civilian industrial technology into military power through “civil-military fusion.” Meanwhile, China’s current account surplus is employed for global influence, buying “strategic partners” with intercontinental projects like the “Belt and Road Initiative” and state-backed acquisitions of foreign firms.

U.S.-China competition is likely to be the hardest geopolitical contest in generations — but it is a contest that the United States can win if we focus on the right objectives.

The People’s Republic of China is a challenge to America’s values and concept of world order. U.S.-China competition is likely to be the hardest geopolitical contest in generations — but it is a contest that the United States can win if we focus on the right objectives. So, where do we go from here?

Focus on GDP

The first step must be a focus on accelerating U.S. productivity growth. U.S. productivity growth need only increase from 1.3 percent a year to 2.5 percent for U.S. GDP to remain ahead of China’s for the entirety of the 2020s, the decade in which many expect China’s economy to surpass America’s.

By 2030, economic leadership will be easier to maintain as China’s demographic problems set in. Such a productivity increase is realistic, given that productivity growth from 1995 to 2008 was higher than 2.5 percent.

Protect America’s edge

The second step is to preserve our edge in advanced and emerging technologies. America must remain ahead of Communist China, not only in hard sciences, but also in the actual production of advanced goods and services.

If America competes against China only through soybean and oil production, we will fail to counter China in advanced industries such as robotics, semiconductors, aerospace and biopharmaceuticals. China is gaining in these and other technologies and industries and could eventually have a decisive advantage over the United States.

As Alexander Hamilton warned 200 years ago, America can’t be great if it is a “hewer of wood and drawer of water.” We must out-invent and outproduce China in advanced technology and industrial goods.

Maintaining U.S. advantage will require collaboration between government and corporations towards national goals in science, engineering and industry. This approach has long served our nation in times of international struggle and led to lasting commercial and national security breakthroughs.

New and Big

In order to attain these goals, Washington must think new and big. New in the sense of a bipartisan consensus that productivity growth and technological competitiveness must be national priorities.

Big in the sense of big and bold proposals. Here are three: First, implement a robust research, development and investment tax credit that will stimulate innovation and investment on American soil. Second, establish a series of well-funded “moonshot” goals to ensure American leadership in emerging industries such as advanced robotics and quantum computing. Third, develop a national productivity strategy that will take the best ideas of government and industry and focus on building the next $10 trillion in annual U.S. GDP by 2030.

Half a century ago, under the leadership of President John F. Kennedy, America faced a Communist superpower that believed that it would “bury” the United States, much as Chinese Communist leaders today believe that the 21st century belongs to China. Kennedy reminded us then that America would “bear any burden” and “meet any hardship” to prevail in that consequential time.

In the end, it was the power of the American economy, the power of American technology, and the power of American industry that brought victory over our ambitious foe. We must unleash these forces once again, wrestle them into national service, and build on toward the greater good — an American era that can and must prevail.

__________________________________________________________________

Dr. Jonathan D.T. Ward is the author of “China’s Vision of Victory” and founder of Atlas Organization, a strategy consultancy on US-China global competition. Follow him on Twitter @jonathandtward. 

Dr. Robert D. Atkinson is the president of the Information Technology and Innovation Foundation and the author of “Big is Beautiful: Debunking the Mythology of Small Business.” Follow him on Twitter @robatkinsonITIF..

This article originally appeared on FoxBusiness.com. Republished with permission. 

Archives, Global Trade Daily, News

As sales of U.S. soybeans to China plunge amid trade dispute, exporters need a new strategy to access international markets

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Trade tensions between the United States and China are being felt across America’s heartland.

Prices for soybeans have tumbled and stockpiles are growing with the harvest nearly complete because exports to China, the largest foreign destination for U.S. soybeans, have plummeted. The latest federal data, through Oct. 25, shows American soybean sales to China have declined by 97 percent from last year’s harvest.

In response to U.S. tariffs placed on billions of dollars of Chinese goods, China imposed a 25 percent tariff on U.S. soybeans and shifted to buying soybeans from Brazil and other countries. Since tariffs were announced in June, the going rate of U.S. soybeans has fallen from roughly $10.50 a bushel to $8.34, as of Oct. 30, according to Markets Insider.

The timing of the trade dispute couldn’t be worse for American farmers. The USDA has forecasted that U.S. soybean production in 2018 harvest would rise to an all-time high of 4.6 billion bushels, up from 4.4 billion bushels a year earlier. The federal estimate for Illinois, the top-producing state, shows an increase of 12.4 percent to 688 million bushels.

While farmers hope for a new trade deal, there is urgency to find alternative markets for the oilseed. One of the keys to diversifying the U.S. export market lies in a 20-foot-long steel box.

Shipping containers dominate international trade. Yet, they are not widely used in U.S. agricultural exports. The movement of soybeans in 20-foot or 40-foot-long containers has represented 5 to 7 percent of total U.S. soybean exports in recent years. Bulk ocean vessels and rail to markets in Canada and Mexico are the current primary transportation methods.

But to enter new markets, smaller shipments will be needed, and container shipping is the solution. It offers several advantages over bulk vessels, including:

-Soybeans shipped in containers are generally higher in quality because they are handled less, reducing the amount of split and broken soybeans and foreign materials.

-Smaller importers can buy the measured quantities they demand, ordering soybeans only when they need them, as opposed to taking positions for large deliveries on bulk shipping vessels. “Just-in-time” inventory management, popularized by the Japanese and now prevalent throughout manufacturing, cuts costs and reduces waste.

-In the event there are logistical problems, the demurrage for containers is much lower than that of entire vessels, thereby minimizing the overall financial risk.

-Buyers seeking high-value or specialty soybean products can buy direct from smaller exporters. Importers in Japan use containers, for instance, to preserve food-grade soybeans.

-Customers can have their orders fulfilled much quicker. Three to four weeks is the typical turnaround time for the container shipping to Asia, compared with three to four months via the bulk vessel channel.

U.S. soybean exporters have been able to nurture markets in Taiwan and Indonesia by shipping in containers. Indonesia is now one of the largest importers of soybeans. In addition to producing animal feed, Indonesia uses soybeans to make foods such as tofu and tempeh.

Thailand, Vietnam and other countries in Southeast Asia are also using more soybeans as household incomes grow. Income growth leads more meat consumption, which in turn fuels demand for soybean-based animal feed.

Smaller international markets in Asia, Europe and Africa are perfect for container shipping because they haven’t achieved the economies of scale required to use the bulk transportation system.

Shipping by container also will help solve a major problem in the logistics industry. More than 11 million maritime containers arrive at U.S. ports each year. Most of those are coming from Asia, containing televisions, furniture, sneakers and other manufactured goods. But the imbalance of trade between Asia and the U.S. means about half of those are returning empty.

All this empty space on ships is a multi-billion-dollar loss for shipping companies, exporters and importers. Soybeans and other grains can take advantage of backhauling opportunities for ocean carriers repositioning empty containers.

Momentum to ship soybeans by container is growing. Soybeans loaded into containers in Illinois reached a new high of 66 million bushels in the 2017-18 marketing year ended Aug. 30, according to Informa Economics IEG.

But that represents about 10 percent of soybean production in Illinois, so there is a lot of room for growth. Illinois is the nation’s top producer of soybeans, is close to a sizeable supply of available containers and has several major railroads converging in the Chicago area.

The American economy depends on the exporting of soybeans and other crops. Even if China lifts the tariffs on soybeans, the trade standoff has sharply illustrated the need to cultivate new markets. Shipping by container can help lead the way.

Eric Woodie is a trade analyst with the Illinois Soybean Association’s Checkoff Program, and has over a decade of experience in export trade, foreign markets, and inland logistics.