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Hello from Washington, where we have both Margrethe Vestager, the EU’s head of competition and digital policy, and Anne-Marie Trevelyan, the new British trade minister, in town.
Vestager is here to launch the shiny new US-EU initiative to work together on technology antitrust, while Trevelyan is hoping to gain some traction from US officials on those pesky steel tariffs – one of the topics of our release today.
Mapped waters examines evidence (or lack thereof) of reshoring.
Trade links includes great reading from Nikkei that highlights how supply chain problems affect even mega-corporations like Apple.
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From Brexit to spyware, guidelines put allies under pressure
Two developments this week have shown how the US is increasingly using its trade policy as an element of a broader foreign policy.
The first is our indication that the US is hesitant because of an agreement with the UK to remove Trump-era tariffs on steel and aluminum because of Britain’s position on Northern Ireland.
This is of course a highly sensitive issue for Britain and was not a story that neither Downing Street nor the White House wanted to make public. For those who do not follow this major trade dispute between the UK and the EU, the UK has repeatedly threatened to unilaterally trigger Article 16 of its Brexit deal with the EU, a post-Brexit safeguard clause in the Northern Ireland Protocol that is part of The UK’s exit from the EU and the suspension of controls on goods traveling to Northern Ireland from the rest of the UK.
Senior US lawmakers and Joe Biden have warned the British that breaking the NI Protocol will destabilize peace in the island of Ireland. The UK has replied that it does not see the two things as linked and must do what it thinks is best on the sensitive issue of protocol.
This is a deeply unusual situation. Straightforward trade policies, nothing less than tariffs imposed on an ally by a previous government, are used to urge an ally into certain behavior on an arguably unrelated issue.
The second example is the case of the Commerce Department’s list of Israel military spyware group NSO, whose Pegasus software was used to infiltrate the phones of journalists, dissidents, human rights activists and diplomats. The listing, which took place about a month ago, means US tech companies would need US government approval to make sales to blacklisted companies. The contract also includes US technology that is not in the US, i.e. the sale of US technology by companies outside the US.
It was already pretty clear, but this week there was an indication that the listing was in direct trade retaliation for a national security risk. Reuters reported that US diplomats were targeted by the software.
The listing is often used to prohibit the sale of cutting edge military technology to foreign opponents and, as such, has been used increasingly against various Chinese companies under Trump. In these cases, however, the US is known to offer licenses that allow US companies to continue exporting US technology, as a complete blockade would cripple the US semiconductor industry. In fact, a potentially unintended consequence was that the listing of Chinese chipmaker SMIC led more orders to Taiwanese foundry TSMC, exacerbating the global chip crisis.
The case of NSO is simpler in some ways because the company has no value to the US or global supply chains, and more complicated because US relations with Israel are much better than US relations with China (to put it mildly). While the U.S. can license and carefully align its export controls, the listing also includes purchasing technology used for basic business operations, from phones and laptops for staff to renting out servers and widespread cloud computing services from US companies. A former trade official said the US could “absolutely” block all of these basic item transactions. Jim Lewis of the Center for Strategic and International Studies said that a listing really “signals to everything that the company is radioactive and should not be touched.”
About a month after listing, we start seeing the effects. It appears that NSO’s lenders are preparing to reschedule the group. Lenders said they tried to resell the loan to other investors but were struggling to find willing buyers even at a discounted rate.
So what’s next? Well, we expect spyware groups to face more punitive export controls. The US has long used US financial sanctions to cut off individuals and businesses from the dollar. Now they are stepping up their use of trading tools in an attempt to drive companies out of the global supply chain.
As for the talks with Trevelyan, we’ll watch out for progress, but it seems like they have outgrown the usual trade diplomatic channels.
There has been a lot of talk since the pandemic began to predict the regionalization of the trade in goods. The pandemic is believed to have exposed the vulnerability of countries and companies that rely on shipping essentials from Asia or other manufacturing centers. From semiconductors around the world to glass bottles in the US, there is a shortage of everything.
The idea of the reshoring trade has caught on, with proponents arguing that it is better to produce things near the place of consumption than relying on globalization to deliver the goods. The annual DHL Global Connectedness Index questions this, however. It found that trade distances continued to increase over the course of 2020.
“If a major shift towards regionalization were underway, we would expect trade to take place, on average, over shorter distances,” states the report produced by Steve Altman, director of the DHL Initiative on Globalization at NYU Stern, and colleagues . Andy Bounds
Notification must be read. Nikkei tells the story of Apple’s nightmare before Christmaswhich explains why ($) the tech giant couldn’t produce nearly as many models of its kind iPhone 13 as it would like.
Australia has joined the US in the boycott of the Winter Olympics, which will take place next year in Beijing.
the American corporate institute, a right-wing think tank, argues that China tariffs do not play a role in inflation.
the United Kingdom wants to reduce trade barriers with individual US states, according to Bloomberg ($).
coffee has reached a 10-year high due to supply chain constraints.
China is quite interested (Nikkei, $) in the result of Referendum in New Caledonia on independence from France on Sunday, with companies buying more here nickel and cobalt out of the territory in 2020 than in the past four years combined.Aime Williams, Francesca Regalado and Claire Jones
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