Geopolitics and trade

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More turmoil ahead for global supply chains | EU competitive position and trade | European elections | More research from Hinrich Foundation

More turmoil ahead for global supply chains 

Global supply chains are facing a new threat: congestion at Singapore’s container port. June Yoon reports that the world’s largest transshipment hub is facing the worst congestion since the pandemic, and that it has started to spill over into neighboring ports, posing a major risk for global supply chains.

Andrea Dugo points to China’s President Xi’s May visit to Europe and the new European Union tariffs on EVs as indication that EU-China relations are worsening. Since President Xi’s visit, the Commission announced its EV tariffs and Beijing has continued to threaten extensive retaliation. On a practical note, Chinese companies have been seeking to invest in manufacturing sites in Europe, notably Hungary, to circumvent the new tariffs. This week, BYD announced it will invest in Turkey for this purpose, reports the Financial Times.

Amidst ongoing geopolitical tension related to the Ukraine war, Narendra Modi visited Moscow this week. Foreign Policy reported that, during the visit, Modi and Putin pledged to increase annual bilateral trade to $100 billion by 2030, up from $65 billion at present.

And, finally, accelerated by the Ukraine conflict, the EU Commission may be poised to take on more responsibility for defense during a second von der Leyen term, writes Bruegel. As per Politico, a potential defense commissioner would likely be tasked with overseeing industrial coordination in relation to defense innovation, manufacturing, and procurement, and possibly the joint European space program.

In the "Trade-offs", a series by the Council on Foreign Relations, James Wallar explores the choices faced by economic policymakers, offering a broad analysis of US trade policy and highlighting areas that are not working effectively.

Mentioned publications 

1. Singapore port congestion threatens to gum up global trade – June Yoon, Financial Times, July 9, 2024
   US tariffs on Chinese products may have contributed to the congestion, causing companies to rush to secure needed inputs and products before those tariffs fully take effect.

2. EU-China relations – a health report after Xi’s visit and new EV tariffs – Andrea Dugo, European Center for International Political Economy (ECIPE), July 2024.
   The change of pace most likely stems from the consideration that the EU cannot afford to engage in a full-fledged trade war with China.

3. BYD agrees $1bn deal to build electric vehicle plant in Turkey – Adam Samson and Arjun Neil Alim, Financial Times, July 8, 2024
   Analysts point to the investment as evidence that Chinese automakers are looking to adapt their strategies to avoid protectionist measures.

4. Russia Is a Strategic Spoiler in the Indo-Pacific – Derek Grossman, Foreign Policy, July 9, 2024
   Other than being a major arms and oil supplier, Moscow has little of concrete substance to offer Indo-Pacific nations. 

5. What role do imports play in European defence? – Juan Mejino Lopez and Guntram B. Wolff, Bruegel, July 4, 2024
   The EU wants to reduce reliance on imported defense equipment, but the reliance seems to be overstated.

6. EU defense commissioner: The prestigious-sounding job you really don’t want – Jacopo Barigazzi, Joshua Posaner, and Laura Kayali, Politico, June 4, 2024
   This newly proposed role in the next Commission sounds like it should be one of the highest-profile gigs in Brussels.

7. The Unbearable Lightness of US Trade Policy – James Wallar, Council on Foreign Relations, July 2, 2024
   The administration might look tough domestically—protection and tariffs are politically popular among voters—but it has diminished US global leadership on trade policy and its effectiveness in promoting permanent change—the unbearable lightness of US trade policy.

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EU competitive position and trade 

Andrea Dugo and Fredrik Erixon of ECIPE argue that the EU is at a critical economic juncture, with many of Europe’s mature economies showing stagnation due to challenges such as public debt, aging populations, conflict, and the energy transition.

European Federation of Pharmaceutical Industries and Associations (EFPIA), the biopharma industry group in Europe, has published its own recommendations for building the competitive position of the EU in the health innovation and manufacturing space.

Brugel published two important articles on European energy sector: Europe is considered by many to be a high-cost region for manufacturing; one factor identified by Conall Heussaff and Georg Zachmann is the relatively high cost of energy. Meanwhile, Agata Loskot-Strachota, Ugne Keliauskaite, and Georg Zachmann present the state of play in relation to European electricity markets, supply-demand, and energy trade.

Mentioned publications 

1. A Strategy for a Competitive Europe: Boosting R&D, Unleashing Investment, and Reducing Regulatory Burdens – Andrea Dugo and Fredrik Erixon, ECIPE, July 2024
   To reverse growth decline, they call for adoption of a new strategy to improve EU competitiveness, focused on creating a more favorable environment for business growth, innovation, and overall long-term economic stability.

2. A Competitiveness Strategy for European Life Sciences – EFPIA, June 2024
   Europe’s life science eco-system is facing intense pressure from the US and China where more ambitious, dedicated strategies are driving growth.

3. The changing dynamics of European electricity markets and the supply-demand mismatch risk – Conall Heussaff and Georg Zachmann, Bruegel, July 5, 2024
   If electricity demand does not grow as anticipated, de-risking the huge clean electricity supply capacity needed for the energy transition could lead to annual costs of tens of billions of euros being channeled through the state rather than the market.

4. Future European Union gas imports: balancing different objectives – Agata Loskot-Strachota, Ugne Keliauskaite, and Georg Zachmann, Bruegel, July 3, 2024
   Criteria including derisking, climate considerations, methane intensities and transportation security should inform decisions on the EU’s gas imports.

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European elections 

Coming off a week of election shakeups, France’s second round of elections left the country with no majority bloc – and concerns that France could face a financial crisis and economic decline, reports Darren Dodd. Many expect political uncertainty for the coming months and possibly longer, given the hung parliament and political paralysis, as highlighted Le Monde.

Meanwhile President von der Leyen will be in Strasbourg next week courting MEPs in advance of the Parliamentary vote on her second term. Barbara Moens, Eddy Wax, and Sarah Wheaton of Politico provide insights into that process, including the tradition of secret voting.

As expected, the UK elections resulted in a landslide victory for the Labor Party, with Sir Keir Starmer as the new prime minister. The New York Times’ Mark Landler flags the need for the new UK government (Iike many others) to strategize around engagement with another Trump administration.

Mentioned publications 

1. Markets shake off French political turmoil – Darren Dodd, Financial Times, July 8, 2024
   The results leave European leaders and investors scratching their heads at what it means for the bloc’s second-largest economy and EU decision making.

2. Who will govern France? Four questions to understand what happens after the election – Romain Geoffrey, Adrien Senecat, and Maxime Vaudano, Le Monde, July 8, 2024
   In the absence of a clear absolute majority in the Assemblée Nationale, there is a risk of deadlock.

3. Inside von der Leyen’s charm offensive ahead of knife-edge vote on her future – Barbara Moens, Eddy Wax, and Sarah Wheaton, Politico, July 10, 2024
   The EU institution that is the most vocal about democracy and accountability is next week set to make one of its most important decisions — in secret.

4. With Keir Starmer, Britain and the U.S. Are Back in Sync, but for How Long? – Mark Landler, The New York Times, July 8, 2024
   There is a need to align notes with the current UK and US administrations and consider possible joint action over the next six months, given the UK's delicate position as it navigates its relations with China and the EU.

More related analysis from HF:

• EU tariffs on Chinese EVs: A climate conundrum
• Wind and wires: Can Europe stay ahead in green and 5G technologies?
• Trump tariffs risk global trade war

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