Top Trade Forecasts For 2022

→ Global trade will present businesses, banks, and investors with three political and legal risks..It’s that time of year again.Importers and exporters must decide what supply contracts for inputs and finished goods and services they wish to offer or accept in 2022. They will examine consumer demand and producer supply prognostications to figure how much to buy or sell, from where, and on what terms. Banks must decide whether to finance those traders in the New Year. They will look at the credit risk of traders to evaluate whether to approve loans and issue letters of credit and, if so, how much collateral to mandate. Looking ahead to the next 12 months, portfolio investors study debt and equity holdings of businesses and banks with overseas exposures to determine whether to label those securities ‘buy,’ ‘hold’, or ‘sell’..However, it’s a non-economic analysis common to importers, exporters, banks, and investors that underlies these annual end-December – early-January economic rituals: the forecasting of political and legal risk..That’s because cross-border transactions in goods and services, trade finance, and capital investments in the players presuppose an answer to this question: What is to be expected in politics and law?.That the politico-legal realm can disrupt the smartest economic plans needs no more proof, chronicled in On Point, than the case of Trump Raj trade policy, the substance (but not style) of which the Biden Administration has maintained.So, here are the three top political and legal risk expectations for 2022..Expect Greater Supply Chain Scrutiny.The Uyghur Forced Labor Sanctions Act is U.S. law, passed unanimously by the House and Senate, and signed by President Joe Biden on Dec. 23. It establishes a rebuttable presumption that all items.from Xinjiang, orfrom any entity, even if not made in Xinjiang, which the Department of Homeland Security designates as collaborating with the Chinese government in the repression of Uyghurs,.are made with forced labour and, therefore, forbidden from entry into the U.S. Only by “clear and convincing evidence” to the contrary can the presumption be rebutted. Likewise, on Dec. 27, Biden signed the National Defense Authorization Act, which bars the Pentagon from procurement of products made with forced labour.Traders thus will need to know every detail of their supply chains if they seek to bring goods into America. They must be on guard against circumvention, whereby the true Xinjiang-origin of items is falsely concealed by upstream suppliers or customs brokers..These practicalities will present Indian businesses with an opportunity to attract deals for a diverse array of items—apparel, cotton, electronic components, gloves, noodles, polysilicon, printed material, shoes, tomatoes, and toys, all of which are major exports from Xinjiang—away from China..Of course, they’ll need to stay off the U.S. Department of Homeland Security’s list of Chinese Communist Party collaborators, otherwise the access to the U.S. market for even their non-Xinjiang-origin merchandise will be imperiled..…But, Don’t Expect China To Change.The Chinese Communist Party will continue to blast criticism of its human rights record, perhaps emboldened by the tepid support Uyghurs get from most Muslims countries. Indeed, while U.S. Congress and the President worked on these Acts, the CCP engineered the election of “patriots” to Hong Kong’s once-august Legislative Council, dismantled at three Hong Kong universities statues memorialising the June 1989 Tiananmen Square massacre, and sloughed off decisions by America, Australia, Canada, and the U.K. not to send any diplomats to the Beijing Winter Olympics, and by Japan not to send senior ones.. The sole extant glimmer of hope for change – the January 2020 Phase One Agreement – died. The U.S. said China had met only 59% of its purchase agreements under this Agreement, which lapsed on Dec. 31, 2021. Neither side has a plan to extend it. It was supposed to be step one in a two-step arrangement that would resolve, first, bilateral trade imbalances and certain intellectual property issues, and thereafter systemic structural incongruities caused by Chinese industrial policy, subsidies, and state-owned enterprise behavior..Expect Details On An Indo-Pacific Economic Framework.Biden Administration officials, including the Secretaries of State and Commerce, and U.S. Trade Representative, have trumpeted a new ‘Framework’ that would address trade and national security concerns across the Indo-Pacific region. Rhetoric about “freedom and openness” abounds, but no one—not even the Congressional Research Service—quite knows how this frame will work. Expect the Biden Administration to put into this frame at least five mini-deals:.The U.S. will present the Framework as a democratic alternative for infrastructure development and trade facilitation to the debt-trap-laden China-driven Belt and Road Initiative.Building on the January 2021 Digital Economy Partnership Agreement among Chile, New Zealand, and Singapore, and December 2020 Digital Economy Agreement between Australia and Singapore, America will seek similar deals with Framework countries to address e-commerce, that is, digital trade, data flows, localisation, privacy, and security issues in ways different from the CCP’s authoritarian model.The U.S. will insert into the Framework obligatory and aspirational labour rights, consistent with the Biden Administration’s ‘worker-focused trade policy’.Following the model of the October 2021 U.S.-European Union “Green” Steel and Aluminum Deal, America will seek environmental rules granting preferences for trade in low-carbon intensive products.America will tout the Framework as a secure way to ensure supply chain resilience and robustness, with respect to critical ingredients ranging from rare earths to Covid-19-related items, among friendly countries..Each mini-deal is a chance for India to present itself as essential to the Indo-Pacific Economic Framework..… But Don’t Expect A Comprehensive Free Trade Agreement.Though it should, America won’t, yet, re-enter the Comprehensive and Progressive Agreement for Trans-Pacific Partnership – because it can’t. The U.S. President’s Trade Promotion Authority expired on July 1, 2021. Biden dare not try to renew it before the November 2022 mid-term elections as trade liberalisation lacks bipartisan support. To seek negotiating power to re-join CPTPP would impede the Democratic Party’s hopes of holding power in Congress. Yet without TPA, no Framework can be as free or open as the CPTPP, so don’t expect the mini-deals to sum to a mega-deal.For example, don’t expect a major U.S. initiative on special and differential treatment for developing and least-developed countries at the World Trade Organization. Neither the concept nor the institution is popular in Congress. Likewise, don’t expect clear rules on pricing carbon and establishing a border carbon adjustment tax, unless West Virginia Democratic Senator Joe Manchin and his Republican colleagues have an epiphany..Ditto for Indo-American links: no TPA means no bilateral free trade agreement..Would America ghosting the CPTPP render China’s entry less haunting? No. Most of the TPP-11 don’t think China could hold to the requirements of the deal without changes that would distort its core principles. They do welcome expansion to include the U.K., South Korea (Japan’s feelings aside), and (China’s feelings aside) Taiwan. Expect U.K. entry..And, watch Ecuador, which is reversing course on left-leaning protectionism and also applied for CPTPP membership to help it diversify its exports away from oil (it quit OPEC in 2020), bananas, and shrimp..Expect More Trade Remedies, Export Controls, and Sanctions.There will be no shortage of defensive and offensive trade remedies in 2022.Defensively, expect no end to the U.S. tariffs on Chinese-origin merchandise under Section 301 of the Trade Act of 1974; rather, expect from U.S. Trade Representative a process for product exclusions from these duties. Expect a four-year extension of President Donald Trump’s Solar Panel safeguards under Section 201 of that Act, which in November the International Trade Commission recommended to President Biden. Expect President Biden to look favorably upon action his Commerce Department may recommend to adjust imports of rare earth magnets using another Trump favourite, Section 232 of the Trade Expansion Act of 1962.Offensively, expect the Treasury Department to nail yet more Chinese Military Industrial Complex companies, investments by “U.S. persons” in the “publicly traded securities” (including derivatives and global depositary receipts) of which are barred. Especially as to Burma, China, Iran, Russia, and Venezuela, expect the Commerce Department to add firms to its Entity List, to which export transactions by (again) “U.S. persons” are subject to enhanced licencing requirements. Also expect the Commerce Department to identify more Specially Designated Nationals, transactions with whom by persons and businesses in the U.S. are barred..… But, Don’t Expect Multilateral Solutions Or U.S. Reforms.The risk of protectionist abuse in trade remedies was identified by this columnist when Uruguay Round negotiators approved new texts on safeguard, anti-dumping, and countervailing duty measures. All efforts by the WTO at minimising chances a member invokes a remedy merely to protect a favored domestic constituency have failed. Don’t expect the postponed Twelfth Ministerial Conference to succeed.Likewise, reforming America’s export control regime (e.g., the expired 1979 Export Administration Act), to balance legitimate governmental national security concerns against understandable exporter proclivities to sell abroad, ain’t happened. Don’t expect reform in 2022..Inertia governs sanctions policy: the first, second, … and, short of war, last resort to deal with international outlaws is to target them..Sanctions will remain de rigueur, hence secondary boycotts will oblige Indian and other non-U.S. persons to obey. Indeed, if China presses its June 2021 Anti-Foreign Sanctions Law, then expect those entities to face a genuine ‘choice of laws’ problem..Conclusion.Continuity in disruption. That’s what these forecasts intimate. Businesses, banks, and investors can expect more U.S.-China Trade War, a mini-deal medley, and a bunch of trade controls.Pray tell, is there a compelling common theory?Yes: ethics in international business matter. That’s exactly what the International Trade Club of Chicago indicated recently with its eponymous panel, on which this columnist was honored to serve. The New Year will remind the world trade community what the Ancient Greeks and Romans, and Early Christian Fathers, knew: trade never was about only equilibrating demand-supply imbalances or managing credit risk..Raj Bhala is the inaugural Brenneisen Distinguished Professor, The University of Kansas, School of Law, Senior Advisor to Dentons U.S. LLP, and Member of the U.S. Department of State Speaker Program. The views expressed here are his and do not necessarily represent the views of the State of Kansas or University, Dentons or any of its clients, or the U.S. government, and do not constitute legal advice..The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.

Top Trade Forecasts For 2022

Global trade will present businesses, banks, and investors with three political and legal risks in 2022, writes Raj Bhala.

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Top Trade Forecasts For 2022

Global trade will present businesses, banks, and investors with three political and legal risks in 2022, writes Raj Bhala.

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