Biden attempts White House reset on climate and trade

Good morning. It’s me back after Aime Williams’ superb performance last week. His take on the World Bank ahead of its spring meetings is here if you missed it. This week’s newsletter looks at some signs of what could happen after the two elections scheduled for this year: in the United States, a plan for a more coherent plan on trade and climate; in the United Kingdom, trade realignment with the EU. Charted waters is on the yen, worryingly weak.

White House Green Speech

There was a speech last week that perhaps didn’t get the attention it deserved. John Podesta, a veteran of the Bill Clinton and Barack Obama administrations who succeeded John Kerry in January as President Joe Biden’s chief climate diplomacy, outlined the administration’s plans to decarbonize trade. There was nothing very new in substance, but the tone and framework, including the launch of a White House task force on climate and trade (initial caps to show that they are seriously) were remarkable.

So far, the need to push the Biden administration’s green policies through Congress has been shaped by the need to get everything past West Virginia’s Joe Manchin, the fossil fuel-loving Senate swing vote. But Manchin (and usual obstructionist Kyrsten Sinema) are retiring after the November election. With adult conversations taking place at the Capitol and even a reasonable chance that Democrats retain the Senate and take the House, there could suddenly be an environmentally conscious Congress with which the administration could conduct more constructive business.

There is certainly value in moving the issue of the unfortunately largely ineffective leadership from the office of the U.S. Trade Representative to a White House heavyweight.

So is the commitment to working with business partners to create standard methodologies for measuring carbon emissions. It’s not before time. Rupert Schlegelmilch, until recently director of the European Commission for American trade issues, tweeted rather dryly after Podesta’s speech, “this is indeed progress”, in the sense that the EU had repeatedly and in vain asked the United States for this type of discussions.

You can see Schlegelmilch’s point of view. It was last summer when the administration asked the independent U.S. International Trade Commission to study how to measure greenhouse gas emissions from steel and oil manufacturing. aluminum (aluminum, whatever). Ten months later, the ITC is still holding seminars for businesses on how to fill out the forms. (There’s one tomorrow on Webex if you’re interested.)

Regardless, the overall tone of international collaboration seems good, especially compared to the US’s clumsy and unsuccessful attempts so far to intimidate and pressure the EU into supporting its steel and steel club. green aluminum.

But here’s the big problem. The discourse on aligning emissions standards and carbon taxes seems very multilateralist. But the various proposals for these taxes that are floating around Capitol Hill, certainly on the Republican side, are generally heavy in terms of border taxes but light, if any, in terms of domestic prices.

This simply will not allow the EU to be involved. It’s basically the old green steel club in a new package. Any arrangement without an internal tax does little to promote decarbonization at home, is most likely illegal under the WTO, and, to much of the rest of the world, will look different than the U.S. have found to protect their steel industry. It is hard to imagine the United States getting many other countries to sign on to this project. At the same time, the EU CBAM is not exactly universally popular, but it is stimulating conversations and starting alignment on carbon pricing around the world.

It is good that the administration communicates on this; it’s good that Podesta is in charge; It’s good that he’s thinking about the next Congress. But sooner or later there will be accountability. A climate and trade policy that imposes a carbon tax at borders without national compensation is not the solution the planet needs.

The EU’s gravitational pull on UK goods trade

So, last week we learned how toxic mention of freedom of movement (FOM) with the EU is for the UK Labor opposition. The party rejected out of hand and rather absurdly a committee suggestion for a Europe-wide youth mobility deal that Rishi Sunak’s government wanted to conclude with a group of EU member states. EU.

Clearly, Labor will make no sense about this before the election: let’s hope it’s the 2024 election, not the 2029 election. But in the meantime, there are some interesting dynamics on the goods side rather than the services/FOM. . Labor has also ruled out a customs union deal with the EU, but somehow economic gravity will push the UK closer to EU rules on goods, unless they are incredibly self-defeating.

Our old friend CBAM is one of them. (I might just rename this bulletin CBAM Secrets and be done with it.) Sunak’s government may bleat about designing a CBAM for the UK’s specific needs, but the differences with the EU version won’t survive threats such as high-emission steel from India. which was excluded from the European market, ran aground in the UK and destroyed steel production at Port Talbot. As my colleagues at the FT have described, there is also a serious problem with carbon border taxes on electricity generation. In reality, the only choice Labor will have to make is whether it actually joins the EU Emissions Trading System (ETS) and CBAM like Norway or concocts a shadow version like Switzerland, which still leaves British companies with a ton of paperwork to submit.

Likewise, the UK will likely have to match EU anti-subsidy duties on Chinese electric vehicles, unless it wants to be flooded with cars that cannot enter the European market. Generous rules of origin on electric vehicles in the EU-UK trade deal may have been extended until the end of 2026, but as that date approaches, the costs of diverging from to the EU customs regime will also begin to take shape. And if UK companies want to export to the EU anything that uses the products covered by EU deforestation regulations, the UK will probably just copy and paste those regulations themselves rather than the current light-touch version.

Labor obviously won’t say it now, but in many areas the costs of differences over trade in goods are becoming clear and will push the UK into greater alignment with the EU. A customs union is a more immediate and politically acceptable way than the single market and the FOM to allow the UK to return to the rules set in Brussels.

Charted waters

Interest rate differentials have put upward pressure on the dollar, which is widely seen in the United States and abroad as a bad thing. The United States, Japan and South Korea issued an unusual joint statement last week as Tokyo and Seoul indicated they were concerned about the weakness of the yen and won.

Commercial links

European companies face fierce competition from Chinese companies in the Chinese market. . .

. . . while the Chinese car manufacturer Chery launches its production in Europe, in a former Nissan factory in Spain. . .

. . . and China is responding to suggestions that it is dumping goods on the global market due to building excess capacity.

A truly intriguing story as the US union UAW files suit against Mercedes-Benz for its opposition to an organizing drive at its plant in Alabama. The case relies on Germany’s new supply chain law, which aims to protect labor standards in the operations of German companies and at their suppliers abroad.

U.S. and European pharmaceutical manufacturers worry about supply shortages as a Chinese anti-espionage law discourages them from sending inspectors to certify Chinese production facilities.

Development guru Charles Kenny writes for the Cato Institute about how globalization can help combat climate change.

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Trade Secrets is published by Jonathan Moules