China’s tightrope – and other business developments that will define 2022
Second year of Biden’s presidency opens with growing awareness that a Democrat-led White House is keeping Donald trumpDonald Trump Jan. The 6 brings together the Democrats and Cheneys – the GOP being absent most of the time. ProPublica reporter says movement to target government political opponents increased before Jan 6 attack Briahna Joy Gray: Biden to ‘pay the piper’ for his mid-term inaction MOREprotectionist trade policies of: tariffs on steel, aluminum and Chinese imports; national content requirements; and gloomy prospects for trade negotiations.
Three trends are emerging for the new year. First, countries are increasingly flouting the long-standing international trade regime. Second, business professional services are sparked by the pandemic remote working revolution. Third, multinational corporations are walking an increasingly unstable tightrope with China.
First of all, watch out for other countries going rogue in the trade. The recent US tariffs, the Indian sugar program and the European Union (EU) carbon border adjustment mechanism are good candidates for a World Trade Organization (WTO) challenge. But with this threat defied by a crippled WTO appeals body, governments are pursuing national agendas without worrying about enforcement.
A working WTO dispute settlement mechanism is synonymous with deterrence. WTO members agree to pursue domestic policy objectives in the least trade restrictive manner. With a few exceptions, this means treating domestic products as you treat imported products, and that the market access that you grant to a country must extend to all members of the WTO. For example, do you want to make your cars more energy efficient? Of course, as long as this applies to domestic and imported automobiles. The mere threat of litigation before the WTO has forced countries to think carefully about designing policies to meet these requirements.
Second, cross-border trade in professional services may soon be booming in the wake of the pandemic’s remote working breakthrough. With technology and a growing share of the workforce forced to innovate and adapt, we have pushed the boundaries of what can be done remotely. Today, workers can do more at home and some even do it better than before.
In a recent Interviewing on his research, Stanford economist Nicholas Bloom said hybrid work is here to stay, and companies are seeing some jobs that can be done completely outside of the office. Bloom characterizes them as non-managerial and mid-skilled jobs like graphic design, payroll, human resources, IT support, and publishing. If a job doesn’t involve managing a team or immersing yourself in a collaborative process, some companies wonder if the employee needs to come back to the office, or even be in the countryside.
This is not the same as moving a factory to Mexico or China, however, where wages are only a fraction of what they are here. This type of commerce can only happen at the margins, in countries with reliable internet connectivity and the right workforce. The cost savings will be modest. Still, given the tight job market and 10.6 million job openings, it could help US businesses that desperately need to hire to compete and grow. The good news is that this type of trade is resistant to government protectionism.
Policy makers seem to be aware of the potential. On her recent visit to the United States to boost cross-border trade, UK Minister of State for Trade Penny Mordaunt Underline “talent, creativity and an entrepreneurial spirit” and a shared ambition to upgrade.
Third, multinationals will continue to walk a tightrope with China. Corporate social responsibility is no longer just about saving the planet. It also includes the culture wars between the United States and China over free speech and forced labor. Social media today puts every CEO in the spotlight on these issues, with corporate sponsors from nthe Beijing Olympics the following month as a final example. A press release from a company meant to appease worried American citizens and politicians can end up igniting China (or vice versa).
Some organizations, like the Women’s Tennis Association, have decided to defend freedom of expression. Others, like the NBA, have tried to back down for fear of Chinese retaliation.
Multinationals must thread the needle. Nike recently arrived under fire for using a factory that forced hundreds of young Chinese Uyghur women to produce sneakers. Nike conducted an audit through a third party and decided it was acceptable to continue with the supplier. But Amelia Pang, investigative journalist and author of “Made in China,” questions the authenticity of this audit, describing the ease with which Chinese auditors can create fake accounting books and irregular attendance records.
These reports suggest that it may be impossible to conduct a meaningful audit in China. If this is the case, then all imports from China arrive at our ports with a big question mark. This should make every CEO tremble as the new year approaches.
The international economy continues to change rapidly. There will be a lot to unbox in 2022.
Christine Mcdaniel is a Principal Investigator at the Mercatus Center at George Mason University.