Beijing and Brussels are both waiting for Trump


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Welcome to the penultimate Trade Secrets newsletter of 2023. Next week I’ll do a review of the year, immediately creating a hostage to fortune that something will pop up in the remaining two weeks of December to change the narrative. (It’s happened before, in fact twice in the same year.) Speaking of struggling negotiations, today I’m having a look at the politics surrounding the EU-China summit, and also dip my toe into the turbid waters at the WTO and ask where those talks on controlling fisheries subsidies have got to. Charted Waters shows how Russia has bypassed G7 controls on its oil exports.

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Europe has trade and trust deficits with China

It’s been a while now since anything like a solid outcome (the ghastly term “deliverable” is banned round here, sorry) has been teed up at an EU-China summit. Last week’s low-key meeting in Beijing didn’t produce any. Over the past five or six years, the relationship has followed an arc from hope towards disappointment and mutual suspicion.

Noah Barkin at the German Marshall Fund nicely frames the EU’s failing hopes of a mutually constructive trade partnership since 2017 through the classic five stages of grief — denial, anger, bargaining, depression and acceptance — though that cycle is taking longer to complete for some (Emmanuel Macron) than others (Ursula von der Leyen).

China continues to shed allies in the EU thanks to its perceived pursuit of unfair trade, whose latest manifestation is the coming wave of electric vehicles to the European market. Giorgia Meloni, proving that not all flavours of Italian right-wing populism are the same, last week ended the country’s membership of China’s Belt and Road Initiative, which was agreed in 2019 by Italy’s then coalition government of the Five Star Movement and the League. Affection for Moscow among EU politicians has often been accompanied by softness on Beijing, but Geert Wilders, whose hard-right PVV party came top in the recent Dutch election, manages to combine his notorious record as a Vladimir Putin fan-boy with antagonism to China.

Von der Leyen’s moderate framing of “de-risking” from China is intellectually neat but won’t necessarily prevent heavy-handed confrontation. It’s not good that Brussels has picked up the economically illiterate US talking point of focusing on China’s bilateral surplus with the EU in the context of trade policy (current account imbalances are mainly about policy on macro, not trade, and anyway the EU as a whole is heading back into trade surplus). The anti-subsidy investigation into EVs, which initially looked set to produce only modest tariffs of around 10 per cent, could be calibrated upwards by finding a higher degree of injury to EU producers or adding an anti-dumping action.

The most important factor for EU-China wasn’t openly discussed at the summit and isn’t even currently in power: Donald Trump. A second Trump term will no doubt be incredibly aggressive on trade in wildly unpredictable ways. Unlike Joe Biden, Trump has a serious animus against the EU as well as China. Brussels doesn’t want to ally itself so strongly with the US that it follows Trump into some crazed trade war against Beijing, but Trump might also flip and try to do one of the deals he seems to enjoy with fellow strongmen, in this case Xi Jinping. The EU and China could end up implicit allies against Trump, or rivals for his favour, or both. No wonder the Brussels-Beijing relationship’s in a holding pattern for the moment.

A WTO fisheries deal is starting to flounder

Last week was “Fish Week at the WTO”, and that should be a phrase to gladden anyone’s sole (sorry). In reality — and bearing in mind this was the eighth Fish Week of 2023 — it wasn’t a jolly affair.

WTO members have been searching with increasing desperation for something that can be presented as a success at February’s big meeting of ministers in Abu Dhabi. Fleshing out the interim deal from the previous ministerial in 2022 to reduce damaging fisheries subsidies was a possible. 

But this reckoned without the dysfunctionalities of the WTO negotiating process. Last week the talks made little progress. Former WTO staffer Peter Ungphakorn, who has followed this issue closely, has all the detail here. Typically for the WTO, India is one of the biggest obstacles. In 2022 it sought to weaken the agreement by punching huge loopholes for developing countries like itself and for supposedly small-scale “artisanal fishing”, its definition of which is exceedingly elastic. More recently it has published proposals seemingly seeking to reopen some issues supposedly already settled.

It is now seriously unlikely there will be a more complete subsidies deal for ministers to sign off in February. In fact even the interim deal isn’t in effect yet, 18 months after signing. Only about half the number of WTO members needing to ratify it before it starts to apply have done so. Even a soi-disant WTO enthusiast like the UK is only just getting round to it. India hasn’t either, though landlocked Switzerland and Botswana have, so that’s good.

The fishing subsidies agreement hitting a stalemate would be a real shame. Overfishing is one of the canonical global market failure problems of negative externalities (carbon emissions being another obvious one) which we should have international rules to fix. The WTO isn’t the only or even the obvious place to create them, since this is about environmental stewardship rather than international commerce as such. But it would be an excellent way of repurposing the organisation to fix global issues where it does have rules and expertise, namely trade-distorting subsidies. Fingers and fins crossed for progress soon, but this isn’t going well.

Charted waters

Further to the issues of Russian oil exports evading the G7 price cap that I wrote about in last week’s Trade Secrets column, my FT colleagues have done a terrific piece on just how those controls have been bypassed. This chart shows how Russia constructed a “shadow fleet” of oil tankers outside the G7’s control.

Column chart of Origin of shipper/service provider (%) showing Composition of Russian crude oil exports

Trade links

In an interview with the FT, EU trade commissioner Valdis Dombrovskis sounds bullish and determined about getting the Mercosur deal done despite France’s objections.

Bloomberg reports the EU is considering restarting its suspended WTO case against the US over steel tariffs, now that negotiations permanently to drop them are going to drag on for years. This sounds aggressive but might be compatible with the Trade Secrets house view (held also by other wise folk) that Brussels should avoid bringing the issue to a head before next year’s presidential election. The US can simply put any adverse WTO ruling into limbo by appealing to a non-existent appellate body, and get to look defiant standing up for American interests against overbearing foreign judges.

Speaking of that dispute, if you want to read more folks from the Washington DC Democratic establishment quixotically trying to convince the EU that Biden’s green steel club is good for the environment and for the WTO, you can do so here. (Another attempt is here.)

Alicia García-Herrero, chief economist for the Asia-Pacific at the investment bank Natixis and senior research fellow at the Bruegel Institute, argues in the FT that creeping renminbisation of the global financial system is progressing faster than you think.

A great and disturbing long read from the FT’s Yuan Yang about the price paid by a labour standards whistleblower in China.

Rick Scott, a Republican senator from Florida, has caused much innocent merriment among trade folk with his contention that imported Chinese garlic is a threat to US national security. This is, of course, where excessive use of the national security loophole to bypass trade commitments ends up.

Trade Secrets is edited by Jonathan Moules

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