2022 - STRATEGIC TRADE CHALLENGES: SECURING ESSENTIAL INDUSTRIES AND SUPPLY CHAINS

Faik OZTRAK (Turkey) - PRELIMINARY DRAFT REPORT

27 April 2022

The emergence of new trading powers and particularly China has fomented new tensions in the international trading system. These tensions are largely driven by disagreements over which norms, practices and rules ought to shape this system. Indeed, mounting challenges to old liberal order have begun to alter old paradigms about economic development, the free flow of goods and capital and notions of how best to administer the international trading and financial order and to prosper in it. New struggles have emerged regarding who writes international trade and investment rules and who ultimately benefits from them. Although rising powers like China clearly profited from the liberal trading system once they had decided to participate in it, their demands to rewrite these rules and operate under different norms have mounted over time as their relative weight and power in that system increased.

Concerns about these kinds of trends both domestically and internationally lie behind mounting calls in some democratic societies for injecting broader governance and even security considerations into the global trade architecture, in trade policy and in national industrial policies. This is animated by a growing recognition that states need to do more on the economic front to safeguard embattled democratic societies increasingly compelled to fight off authoritarianism both internationally and domestically and to protect their own access to inputs needed by their own industries and consumers. These concerns were already on the rise prior to the COVID-19 pandemic. But that pandemic and now, Russia’s horrific war on Ukraine, have exposed new vulnerabilities to the trading order and to the web of global supply chains that is among its most salient features. 

The pandemic has exposed a range of vulnerabilities linked, in part, to over-dependence on strategic rivals for a range of essential finished goods − including pharmaceuticals and personal protective equipment, critical manufacturing inputs and raw materials. Recent disruptions to supply chains and shipping and transport networks have fostered collective economic uncertainties that only complicate efforts to address supply shortages. Such disturbances can be economically devastating and can impact economic growth through many channels, including rising prices, delayed production, backed up ports, breakdowns in transportation systems, investor uncertainty and wildly swinging demand conditions. 

All of this raises questions about current offshoring strategies and has precipitated a re-evaluation of systemic risk and how best to mitigate it. New regulations and restrictions are now needed to address these vulnerabilities. Decades of offshoring production and overly relying on strategic rivals for strategic goods have essentially stripped North America and Europe of a degree of economic agency and weakened their capacity to respond to a global crisis like a pandemic and now Russia’s war on Ukraine. Corrective measures are now essential, and this is changing perspectives on supply chain management, global trading relations, industrial policy, international financial flows and how best to manage trade of essential commodities and goods with rivals.
 


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