Welcome to the first trade secret of 2023. I’ve been making New Year’s predictions for the next twelve months, Sometimes they are moderately accurate. But that was in the days when trade policy included separate initiatives whose outcome you could judge — investment agreements, appointments of World Trade Organization director-generals, retaliation against digital services taxes, futile attempts to get China to buy American soybeans. . . This kind of thing. These days, globalization has bounced back through a whole host of interrelated macroeconomic and geopolitical issues: global growth, inflation, the US-China tech conflict, global energy shocks, COVID-19 and the Ukraine war. My only prediction is that we will see a lot of traders having to learn new things very quickly, including here at Trade Secrets.

Today’s lead article looks at how these cross-cutting issues affect one of the biggest running stories: the aggressive moves of the United States in industrial policy. suspended water It revolves around the problem of food price inflation in the United Kingdom. As always, if you have opinions you’d like to unpack, email me at alan.beattie@ft.com.

Diverse motives and contradictory goals. . .

Joe Biden has left no doubt about his intentions for 2023. He has been, as he tweeted to the world on Jan. 5, “The Year of Buying American Products”. It became apparent to US trading partners that the President was really serious about using spending and regulations and export controls to establish and maintain leads across a range of tech products. It is also clear that the United States will not let international trade rules, such as the USTR rules, stand in the way Rejection of contempt for the decision of the World Trade Organization Against national security definitions shown. How will the rest of the world react?

It is difficult, because the United States has mixed motives and Multiple goals. This comes as no surprise: Biden is, for once, an anti-China Cold War neo-warrior with coalition-building instincts who believes in boosting American manufacturing and fighting climate change. It is big and crowded.

From the perspective of the domestic/industrial economy, it is trying to promote all of the following:

• Products that have real implications for national security (semiconductors for military use)

• High added value products where the United States wants global leadership (electric cars)

• Products whose workers, especially unionists, may swing elections (steel)

• Low income inequality in the United States

In terms of geopolitics/geoeconomics, he simultaneously wants to do the following:

• combating climate change

• Make the US self-sufficient/secure in important commodities

• Building regional and global alliances

• American Interests Abroad Project

Obviously, these disputes were established immediately. We see This book review is for my Financial Times colleague Rana Forouhar Showing that some anti-globalization masses finally got the economic localism they wanted, but in the wrong way and for the wrong reason, i.e. bashing China. (The greatest betrayal, and so forth.)

For example: notorious electric car balances In the Reducing Inflation Act, the high value-added product target—having now added Canada and Mexico as beneficiaries—addressed the regional alliance objective. But they undermine the goal of climate change by restricting competition that might provide Americans with the cheapest electric vehicles, as well as the goal of a global alliance by annoying Europeans, Japanese and Koreans.

National Security Tariffs on steel and their descendants from quotasaddressing the swing voter’s goal and the goal of self-sufficiency—though it seems unlikely Significantly reduce inequality, like all trade policies. But it annoys global allies once again and means ignoring the World Trade Organization, thus missing the United States from a leading role in the global economy.

. . . Make commercial diplomacy mind-boggling

When it comes to execution, the administration has to choose its path carefully and try to hit as many targets as possible, which becomes even more difficult when you add in people on Capitol Hill with different preferences. The US Treasury adjusts EV credits to allow for European, Japanese and Korean cars, but that’s the way it is Annoying Buy America (or Buy USMCA) Senator Joe Manchin of West Virginiawho wants to stay of execution. Manchin’s running mate is Democratic Senator Raphael Warnock of Georgia It is also trying to delay support distributions But for a discordant reason, namely, wanting time for the Hyundai plant in his home state to get up and running first.

This means that US trading partners and putative allies are forced to make difficult calculations of optimal policy responses. Do they rely on quiet diplomacy to negotiate holes in the IRA, rely on Biden’s coalition-building instincts, or raise the WTO case to ramp up international pressure?

Is the European Union compatible with US plans for the Green Steel Club? This would promote transatlantic harmony and boost steel production, but undermine Europe’s plans for a mechanism to adjust carbon limits and make Brussels vulnerable to a WTO challenge from China and others.

Are the EU, Japan and Korea trying to integrate their semiconductor supply networks with the US, or are they striving for self-sufficiency? And if this is the latter, where does the money come from?

This is even before we factor in other strategic considerations – the EU’s desire to keep Americans engaged in Ukraine, the US’s attempt to lock Europe into a general anti-Chinese stance on everything, emerging Non-Aligned Movement Middle-income countries that do not want to side with the pillars of a superpower.

These are difficult satanic judgments to make, and I can’t predict how they will end. As the old saying goes: I don’t have a solution, but I admire the problem.

In addition to this newsletter, I write the “Trade Secrets” column for the Financial Times web site every Thursday. click here To read the latest and visit ft.com/trade-secrets To see all my previous columns and newsletters too.

suspended water

Sometimes the British gloomy reputation sound justification. General inflation is bad in the UK, but soaring food prices for the nation are even worse.

But wait. Is there The silver lining to this cloud? It seems that consumers – or at least supermarket shoppers – are not bearing the brunt of this component of the cost-of-living crisis. Farmers and traders themselves suffer from this headache. Well, the news is still not good for the country as a whole. (Jonathan Moles)

business links

the New York Fed measure of supply chain stressAfter falling sharply between May and September, it has stabilized above the historical average between October and December. Renewed problems with Chinese supplies thanks to Covid-19 lockdowns prevented further declines.

China’s electric car makers are worried about the end of government subsidies and a shortage of semiconductors.

In a stark indication of the complexities of the relationship between commercial diplomacy and geopolitics, Taiwan asked to join the proceedings to dispute the Chinese appeal to US semiconductor export controls at the World Trade Organization, though it’s not clear which side he’ll take, or indeed if he’ll move aside at all.

My distinguished colleague at the Financial Times, Helen Thomas It addresses completely politically motivated problems of industrial policyhere in connection with the UK’s repeated bailouts of the steel industry.

Rishi Sunak, Prime Minister of the United Kingdom du dayIt said It is one of the usual British concessions now To Brussels on post-Brexit arrangements, in this case by modestly postponing until after the country’s next general election to rescind EU law in place in the UK.

Trade secrets from the editor Jonathan Moles