FT premium subscribers can click here to receive Trade Secrets by email.
Hello from Washington, where we expect to see President Joe Biden’s top trade person, Katherine Tai, appear before Congress later this week.
The hearing, which trade watchers in DC hope will be followed by a swift confirmation, means the new administration can get started on its trade policy in earnest.
Our main piece looks at whether the global shortage of car chips — which has idled several car plants here and elsewhere — will help the US focus more on bringing Taipei into the trading fold.
Our person in the news is Wally Adeyemo, Biden’s pick to be number two in the Treasury after Janet Yellen. Charted waters looks at the collapse in overseas lending by Beijing.
Don’t forget to click here if you’d like to receive Trade Secrets every Monday to Thursday. And we want to hear from you. Send any thoughts to email@example.com or email me at firstname.lastname@example.org
Why the US will build closer ties with Taiwan
Taipei has found itself in the spotlight in Washington in recent weeks, with Taiwanese ministers receiving overtures from top White House officials seeking help over the idling of car plants across the US.
Car plants are idling because manufacturers are facing a drought of a key component: semiconductor chips, 70 per cent of which are — according to IHS Markit — made by Taiwan’s TSMC, the world’s largest foundry. When the pandemic hit, the carmakers cut orders of these small chips, used in everything from the anti-lock brakes to the seats. But between then and now, demand for consumer electronics boomed — and companies making goods from computer tablets to webcams and smartphones started ordering more chips and building inventory (the cyclical nature of the chip industry is set out by my colleague Kathrin Hille here). When carmakers suddenly needed chips again, the chip manufacturers had shifted production lines and were busy fulfilling orders elsewhere. Carmakers now reckon their shortage will last months.
It’s unclear what Taiwan can really do. TSMC is already operating at capacity, and besides, it’s a private company. But that hasn’t stopped the White House making a big play of responding and trying to help.
In a letter, seen by Trade Secrets, to Taiwan’s economy minister Weng Mei-hua from Brian Deese, Biden’s top economic official, the US administration thanks the minister for her “clear commitment to work with manufacturers in Taiwan”, and indicates that he looks forward to “facilitating trade between us”. It goes on to outline the bright future for US-Taiwanese economic co-operation. Trade in goods between the two countries has increased threefold since 2000, Deese wrote, and is now valued at close to $150bn.
This is all music to Taipei’s ears. Taiwan has been pursuing a trade deal with the US for at least 15 years. Proponents of such a deal in Washington point towards Taiwan’s recent effort to open up its beef and pork markets, removing a big sticking point between the two countries.
But a deal with Taiwan has long been a contentious issue in Washington — not least because it would anger China. Will the US now, under Biden, be more focused on boosting trade with the fast-growing island nation?
A full free trade agreement between the US and Taiwan could be unlikely in the near future for reasons closer to home. The Biden administration has made it clear it has little interest in pursuing new trade deals ahead of passing large domestic spending bills. But it is likely that Taiwan will now be brought into the fold a lot more as the US goes about trying to review the security of its supply chains, as per a recently trailed upcoming executive order. Nikkei reports that the order will aim to cut China from critical supply chains.
There’s a small irony in this. Trying to cut China out of supply chains has exacerbated the current auto chip problem. Consumers of chips, anxious about US export controls, have begun ordering more chips to boost their inventories, unsure as to where export controls might go next. And those sanctions on China’s largest chipmaker, SMIC, and on China’s telecoms company Huawei, have both hurt too. Huawei began building protective inventory after being cut off from chips containing US technology, while SMIC was no longer seen as a viable source of chips by many customers.
Then, as we’ve covered before, the US chip industry — which is largely in the business of designing the chips, but not manufacturing them — could lose revenue through not being able to sell to Chinese companies.
Still, the US is now almost certain to include Taiwan — which has become increasingly isolated from Asia-Pacific supply chains by being left out of the CPTPP and RCEP — in a broader agreement aimed at securing supply chains.
There are also advocates in Washington for tightening the trading relationship through smaller piecemeal agreements. As we’ve mentioned in a previous note, Wendy Cutler, a former US trade negotiator now at the Asia Society Policy Institute, suggests smaller sectoral deals on the likes of digital trade, climate and medical supply chains could be the way forward when it comes to engaging in the Asia-Pacific region.
Clete Willems, a former Trump official and lawyer at Akin Gump, suggested to us that a limited deal agreeing security standards for electronics, 5G and artificial intelligence could be another way to strengthen supply chains and the trading relationship.
Whatever happens, the auto crunch is here to stay for a little while. But while that’s bad news for cars, it’s demonstrated clearly to anyone who wasn’t paying attention what a critical part of global manufacturing Taiwan is.
Thomas Hale and James Kynge have an interesting piece looking at how
Chinese overseas energy finance last year collapsed to its lowest level since 2008, with its struggling Belt and Road ambitions in the sector relying more heavily on projects in African countries.
The piece is based on data from China’s Global Energy Finance database at Boston University. It brought to mind the following chart which showed that there has been a broader collapse in overseas lending by Beijing in recent years.
Person in the news
Wally Adeyemo, Joe Biden’s nominee for deputy Treasury secretary, told lawmakers in his Senate confirmation hearing that inequality would be a top challenge for the US economy as it recovered from the pandemic. Both his likely boss Janet Yellen and Fed chair Jay Powell have warned on the same issue, with Powell saying that the US central bank viewed full and inclusive employment as an economic policy goal.
The former BlackRock executive, who would be the first black person to hold the post, also told lawmakers in his prepared testimony that Yellen had asked him to take on a number of national security priorities within the department. These, he said, would include helping make “smart, targeted” investments into key US industries, and combating unfair economic practices in China.
European manufacturers are passing higher input costs on to their customers, sending eurozone inflation to its highest level for almost a year as shortages of materials and soaring shipping costs disrupt supply chains.
Turkey’s Uighurs fear betrayal over Chinese vaccines and trade, as Recep Tayyip Erdogan seeks alternative global partners at a time when relations with the west are deeply strained.
India is heading for a showdown with Biden’s administration after announcing one of the world’s toughest taxes on foreign technology companies.
The best trade stories from Nikkei Asia
Biden will order a national strategy to develop supply chains less vulnerable to natural disasters and sanctions, in partnership with the likes of Taiwan, Japan and South Korea.
How Honda stole the lead in autonomous car technology, the culmination of a six-year effort to modify Japan’s road legal code, regulatory framework and insurance industry.