Trade bans for you, exports for us

Welcome to the last Trade Secrets of 2022. It’s a slightly shorter one than usual to allow you all to skip off and celebrate another turn round the sun in which the world trading system hasn’t actually imploded, though give it time. Today’s main piece looks at recent events in one of the big themes of the year, the allegedly friendshoring Biden administration not making many friends with its ideas about trade and national security. Charted Waters is on the good news about supply chains. I’m back on January 9. In the meantime, let me wish you all a strategically autonomous Christmas and a worker-centred new year.

When European chips are down

Launching a massive subsidy programme with (probably unlawful) local content provisions, ignoring a World Trade Organization ruling against its national security protectionism, micromanaging Europe’s and Japan’s semiconductor trade with China: you can’t argue the Biden administration has spent 2022 making easy bids for popularity in the trade ministries of the world.

The round of US export controls announced in October 7 was followed by diplomatic pressure to deter allies (especially Japan and the Netherlands, the latter home to the world-leading company ASML) from selling lithography kit to China for use in semiconductor manufacturing.

Dutch ministers struck a defiant tone of resistance. But Hosuk Lee-Makiyama of the think-tank ECIPE and Robin Baker of the London School of Economics argue, in a post that’s really worth reading, that in effect The Hague already allows Washington to manage its export controls via treaties and close co-operation with the US.

The drive won’t actually achieve its long-term aim, they reckon, because China will be able to manufacture its own chips and circumvent export controls. Meanwhile, Chinese chipmakers have replaced the Dutch lithographic technology with “dep and etch” (deposition and etching) processes, using kit made by — guess who? — American companies. And even after the post-October 7 restrictions came in, US companies have still been exporting advanced chips themselves to China.

We’ve been somewhere like here before. The Trump and Biden administrations have spent a long time trying to bully European governments not to use Huawei kit in their 5G networks, which in some cases (the UK) has been successful. There’s a big difference in semiconductors, though. In 5G the US doesn’t yet have a competitive alternative supplier of its own. The other big players are European (Ericsson and Nokia) and South Korean (Samsung), and the US attempt to build a rival (Open RAN) hasn’t effectively challenged them so far.

In semiconductors, by contrast, Lee-Makiyama and Baker point out, American companies have benefited from the US government’s security-related trade diplomacy. It might be called national security: it looks quite a lot like export promotion. It’s not just think-tankers and academics who suspect this, either. Last week Peter Wennink, chief executive of ASML, had some blunt things to say on the matter to the Dutch newspaper NRC (original interview in Dutch here, with a Reuters write-up of the interview in English here), observing that “American chip manufacturers have no problem with China as a customer”.

For an administration that’s keen on friendshoring, Biden’s White House is pretty careless about alienating its pals. Domestic protectionism of steel or electric cars unconvincingly badged as furthering national security goals is controversial enough. Blocking allies’ sales to a supposed foreign policy foe while American companies keep exporting there is a new level of provocation.

As well as this newsletter, I write a Trade Secrets column for FT.com every Thursday. Click here to read the latest, and visit ft.com/trade-secrets to see all my columns and previous newsletters too.

Charted waters

Is there reason to be cheerful about 2023? Well, here is one. As Alan has so expertly noted in previous editions of Trade Secrets, the supply chain crisis is in retreat. And here is the chart that illustrates it.

As Alan has also noted, it was always an error to talk about supply chains as if there are binary links holding international trade together. There is a web of interlinked connections ensuring the supply of raw materials and goods between countries around the world. Just like the worldwide web, this supply network is strong because it can handle breakages in individual links — unlike a chain. That is another thing to be cheerful, or perhaps thankful, about. (Jonathan Moules)

Trade links

Speaking of bans on trading with China, the US has put another 36 Chinese companies on the “entity list”, meaning American companies will need hard-to-obtain licences to sell to them.

Speaking of semiconductors and great power rivalry, Nikkei Asia reports that the chief executive of the giant Taiwan-headquartered TSMC said on Saturday that geopolitics was distorting the entire world semiconductor industry and erasing the benefits of globalisation. TSMC founder Morris Chang said recently that globalisation was “almost dead”.

Two items about US voices pushing back against the near-uniform anti-China sentiment in Washington — this New Yorker profile on academic Jessica Chen Weiss and this column in Politico by think-tanker Jon Bateman.

Despite a hawkish-sounding European Central Bank and the likelihood of a eurozone recession, the closely watched purchasing managers’ index suggests quite a mild downturn in the EU.

Reports in the UK media that the government will allow the bill that dismantles the Northern Ireland Protocol to moulder in parliament suggests Britain is heading for another post-Brexit capitulation to Brussels. Meanwhile, Sir Robert Chote, the head of the UK statistics authority, described as “misleading” the Conservative party’s pitiful and embarrassing (my description, not Chote’s) attempt to spin its post-Brexit trade deals as creating £800bn of trade that in fact already existed.

Trade Secrets is edited by Jonathan Moules