U.S. trade strategy is shifting away from free trade agreements and toward economic frameworks and industrial policy, a trade expert said recently. While this emerging environment may have some long-term benefits, it also poses a challenge for companies looking for more immediate ways to lower the costs of international trade.
Stephen Olson, a senior research fellow at the Hinrich Foundation, wrote in a recent blog post that over the last few decades countries have sought to deepen economic integration with their trading partners by establishing FTAs that reduce or eliminate tariff and non-tariff barriers, ease investment restrictions, and grant market access commitments that go beyond those required by the World Trade Organization. However, Olson said, “the allure of traditional trade and investment liberalization is rapidly waning, especially in the United States, where free trade agreements are now considered politically toxic.”
Instead, the U.S. is turning to “broader, more amorphous economic framework agreements or cooperative councils” such as the Indo-Pacific Economic Framework, the U.S.-European Union Trade and Technology Council, and the U.S.-Japan Competitiveness and Resilience Partnership. These initiatives lack market access commitments and have few if any binding commitments or enforcement mechanisms, Olson noted, instead focusing on facilitating cooperation, coordination, and perhaps even commonality on issues such as technical standards, export controls, transparency requirements, investment reviews, and labor and environmental standards. Proponents believe these issues “can exert a less obvious but sometimes more important influence on how and where trade flows” than traditional issues such as tariffs and non-tariff barriers.
While the success of this “ecosystem” approach remains to be seen, Olson said, its emergence “provides a striking commentary on how much the trade landscape has shifted.” Rising geopolitical tensions, a highly disruptive pandemic, and the first major European war in 75 years have all provided a timely reminder that trade has the potential to bring not only economic benefit but also risk and vulnerability. As a result, trade relationships are now being shaped by a different set of assumptions, considerations, and concerns than has been the case in recent decades. “While it is still too early to be sure,” Olson said, “we might be on the verge of a post-FTA world – for better or for worse.”
How can companies respond to this new environment? Certainly IPEF, the TTC, and similar initiatives present opportunities for streamlining commerce with important trade partners, and ST&R’s decades of experience in trade agreement negotiations can help those interested in ensuring that their priorities are addressed as these efforts take shape. In the meantime, ST&R has a proven track record of helping companies take advantage of a number of strategies for lowering costs by eliminating or mitigating the impact of import tariffs. For more information on any of these measures, please contact your ST&R professional.
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