Zero-sum economics - The End of globalization

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emailuser_nanso LV1 2023年1月23日 13:15 发表

<section id="nice" style="font-size: 16px; padding-right: 10px; padding-left: 10px; word-break: break-word; overflow-wrap: break-word; line-height: 1.25; font-family: Optima-Regular, Optima, PingFangTC-Light, PingFangSC-light, PingFangTC-light; letter-spacing: 2px; background-image: linear-gradient(90deg, rgba(50, 0, 0, 0.05) 3%, rgba(0, 0, 0, 0) 3%), linear-gradient(360deg, rgba(50, 0, 0, 0.05) 3%, rgba(0, 0, 0, 0) 3%); background-size: 20px 20px; background-position: center center;"><h2 style="font-weight: bold; font-size: 22px; margin-top: 20px; margin-right: 10px; margin-bottom: 0px;">Zero-sum economics - The End of globalization</h2> When it comes to trade ministers, one does not usually come across as a spitfire. But last month, South Korea's trade minister gave a stern warning that the world would open a Pandora's box if the EU's threat to emulate America's protectionist industrial policies came to pass. "Japan, South Korea, China, everybody is going to disregard global trade rules and get into this very tough game." The international trade and investment system that has taken so much effort to build over the past few decades will collapse. William Reinsch, a former undersecretary of trade who oversaw America's export controls, puts it more bluntly. He said the United States is committed to maintaining its technological edge over other economic powers. But now the means by which the United States achieves this goal have changed: "Our policy has changed from 'outraising the others' to' outraising the others and hampering the opponents'." The world's major economic powers are beginning to view economic development, at least in a wide range of strategic industries, as a zero-sum game. Such a shift would be bad for global prosperity. The basic tenor of this beggar-thy-neighbor approach was laid out in a speech by US National Security Adviser Jack Sullivan last September. He argues that it is no longer enough to stay ahead of China and other competitors in technology. Instead, the US should seek "the largest possible lead" in chips, quantum computers, artificial intelligence, biotechnology and clean energy. To do this, the United States must not only welcome talent and promote innovation, but also thwart the scientific and technological advances of countries like China and Russia. In his speech, Mr Sullivan described two main levers of US hegemony: the use of subsidies and other industrial policies to remove supply chains from geopolitical rivals, and stricter investment approvals and export controls to keep advanced technology out of the hands of non-allies. In the past, the United States was the world's most active supporter of free trade and an open economy. So it is not surprising that when it introduced and strengthened such policies, other countries began to follow suit. As a direct result, international trade and investment, already stagnant, will suffer. One important sign of this trend is the sudden enthusiasm for industrial policy in America and elsewhere. In 2022 America's Congress passed two costly bills that sought to stimulate domestic industry on the grounds of national security, job creation and decarbonisation. The CHIPS Act pumped $52 billion into the semiconductor industry. It was intended to reverse America's decades-long decline in market share in chip manufacturing. The Inflation Reduction Act (IRA) invests nearly ￥400 billion in clean energy and reduces dependence on China for vital supply chains such as battery manufacturing for electric vehicles. <hr style="margin-top: 10px; margin-bottom: 10px; border-right-width: initial; border-bottom-width: initial; border-left-width: initial; border-style: solid none none; border-top-width: 2px; border-top-color: rgb(217, 184, 250);"> The United States is not the only country trying to boost its own industries and keep foreign rivals at bay. According to the UN, more than 100 countries and territories around the world, covering 90 % of the world's total GDP, have introduced formal industrial strategies. The proportion of GDP spent on industrial subsidies in G7 countries soared from 0.6% in 2016 to 2% in 2020. Some of this has been in response to the pandemic. For example, the European Union has implemented a series of huge recovery measures, including more than $850 billion in spending, including substantial corporate subsidies. But it's worth noting that while industry subsidies are down from their peak in 2020, they are still well above pre-pandemic levels. Some of the multinationals that are considering moving manufacturing out of China are essentially paying for them to relocate. Japan's 2020 budget includes incentives for such relocations. India is offering $26 billion in incentives over the next five years to try to lure companies from 14 different industries to build factories in India. If business begins to fragment and firms are forced to take sides, such policies will become commonplace. Another reason for the sharp rise in government subsidies is an eye for an eye. In other words, some subsidies are designed to counter other countries' incentives. America's chip bill's ￥52 billion bill sounds generous, but the seven economies with the most subsidised semiconductor industries (China, the European Union, India, Japan, South Korea and Taiwan) are expected to spend a full $371 billion over the next decade, according to UBS. Taiwan just this week announced new tax exemptions for chip manufacturing. Electric vehicle battery manufacturing, which currently has a 70 % market share in China, is another example of attracting subsidies and other government support. Indonesia banned nickel exports starting in 2020, hoping the move would encourage domestic battery manufacturing. Australia and Canada are both investing billions of dollars in mining and ore-processing industries. One of the most controversial provisions of America's inflation-reduction law is a ￥7,500 tax credit for buyers of electric cars. Half of the rebate applies to cars whose battery parts are made and assembled in the United States, while the other half depends on the country of origin of the mineral material in the battery. And final assembly must be done in the United States. Foreign electric vehicles that do not meet these conditions will therefore be at a huge disadvantage in the market. For example, the second largest supplier of electric cars in the United States after Tesla is currently Hyundai of South Korea. Its cars are assembled in foreign countries, so they are not eligible for rebates. Hyundai is currently building a $5.5 billion plant in the United States, but production won't begin until 2025. Even so, because American authorities have yet to release details of the part of the rebate that depends on the source of the minerals in the batteries, it is unclear whether locally made Hyundai cars will be able to meet the full ￥7,500 rebate. Other governments are likely to respond to this American policy with an eye for an eye. In December the finance ministers of France and Germany, as well as the president of the European Commission, Ursula von der Leyen, called for an EU law similar to America's inflation-cutting act. Margrethe Vestager, the EU's competition chief, has long monitored government subsidies in the EU, but she has no problem extending the period of deregulation caused by the pandemic, giving EU members greater freedom to adopt policies to counter the US inflation-cutting act. Add it all up and the total expenditure is quite staggering. If the seven non-US market economies (Australia, the UK, Canada, the EU, Japan, India and South Korea) were to follow the US in introducing subsidies equivalent to % of GDP, the total subsidies of these eight countries would reach $1.1 trillion. The effect will be more pronounced in the industries that receive the most subsidies, with the semiconductor industry receiving a total subsidy value of more than 60 % of its annual turnover. Western taxpayers are shelling out vast sums of money to reduce the efficiency of vital parts of the world economy. <hr style="margin-top: 10px; margin-bottom: 10px; border-right-width: initial; border-bottom-width: initial; border-left-width: initial; border-style: solid none none; border-top-width: 2px; border-top-color: rgb(217, 184, 250);"> Investment reviews are another way Sullivan proposes to keep America ahead in technology. The high bidder is no longer as straightforward as it used to be, especially if the bidder is from China. According to UNCTAD, the UN Conference on Trade and Development (UNCTAD), which keeps records of the world's investment policies, the number of new regulations restricting foreign investment reached an all-time high in 2020. They calculate that 63 % of global investment last year was subject to some degree of scrutiny, up from 52 % in 2020. The Committee on Foreign Investment in the United States (CFIUS) reviews and bans business contracts that could affect US national security. Its model is currently used by many countries' investment audit institutions for reference. In 2018, new legislation gave CFIUS greater authority over business transactions related to "critical" technology infrastructure and sensitive personal data. An executive order issued by Mr Biden in September directed the committee to focus on supply chain security and technology leadership. The commission has certainly had a heavy workload in recent years. Between 2017 and 2021, CFIUS investigated 661 deals, more than double the number it investigated in the previous five years. Although the number of deals it has ended up blocking is relatively small, many companies have halted business negotiations before its final decision to avoid repercussions. Two years ago, Trump issued an executive order requiring Tiktok to sell its U.S. operations. Although the order was later rescinded, Tiktok's Chinese parent company, ByteDance, has until now been in talks with CFIUS. In 2020, the EU called on member States to establish or strengthen investment review mechanisms. Today almost all EU countries have such institutions. In 2021 alone, three member States have introduced new review mechanisms and six have strengthened existing laws. Many of these institutions are beginners when it comes to investment reviews. German censors were particularly busy last year when they blocked a takeover of Herr Medical, a medical-technology firm, and then the sale of a factory by Elmos, a car-chip maker. France's long-delayed review guidelines, also published in September, do nothing to curb regulators' huge discretionary powers in reviewing deals. Britain's vetting regime, which formally began reviewing deals a year ago, has blocked four deals (three of which involved Chinese buyers trying to acquire semiconductor companies or technology). More restrictions will follow. In December, Canada announced legislation to strengthen its investment review process, just weeks after three Chinese investors were ordered to sell their stakes in Canadian lithium mines. The Netherlands is expected to introduce a new overseas investment review system this year. While the number of deals actually halted by these investment review mechanisms is small, the scope of their oversight and the impact they have on corporate decisions is significant. These regulations usually apply only to "strategic" industries, but that term is defined very broadly. Based on deals submitted to CFIUS for review in 2021, 60 percent of the value of the U.S. stock market falls under its watch. The 17 industries covered by the UK regulatory regime account for 35% of the total market capitalisation of the UK's listed large companies. In 2021, 29% of foreign transactions reviewed by the EU underwent extremely detailed scrutiny. That's not enough, and Sullivan wants the trend to go even further. "We are drafting a regulatory approach for foreign investment in sensitive technology industries," he said in his speech. It is now widely accepted in Washington that American capital cannot be used to "enhance the technological capabilities of competitors" (for example, since 2000, American venture capitalists have invested more than 50￥ billion in China). Some restrictions are already in place: The Chip Act, for example, bars subsidized companies from making large investments that benefit China's semiconductor industry. Even so, a complete regulatory regime would have a big impact on where the $171bn of American investment currently takes place each year. The European Commission has also said it will consider reviewing foreign investment from 2023. Export controls that restrict the supply of goods and services to certain countries, businesses, or individuals are Sullivan's third policy. Western governments used it vigorously after Russia's invasion of Ukraine, restricting exports of goods ranging from chips to chemicals. The aim is not just to hamper Russia's war machinery, but also to disrupt key industries such as oil refining. Sullivan boasted that it was these export controls that eventually forced Russia to remove chips from dishwashers and use them in military equipment. The United States maintains a blacklist of companies that must seek approval to buy goods with potential military applications. The number of Chinese companies on the "entity list" increased from 130 in 2018 to 532 in 2022. Last year the Carnegie Endowment for International Peace calculated that more than a quarter of the companies currently on the blacklist were from China. In December alone, 36 companies were added to the blacklist, including Yangtze Storage, which had been negotiating a supply contract with Apple. Another American FDI rule seeks to limit the sale of products based on American technology by fining companies, even if the product is designed and manufactured abroad. The far-reaching regulation has dealt a huge blow to Huawei's smartphone manufacturing. In October, the Commerce Department announced export controls on advanced chips used in supercomputers and artificial intelligence algorithms. The new rules essentially ban the sale of high-performance chips to Chinese companies, as well as the software and hardware needed to produce them. The United States is expected to impose similar restrictions on other high-tech sectors this year. The restrictions announced in October expand the interpretation of the foreign direct product rule to an unprecedented extent. No distinction is made between private and state-owned enterprises. Because advanced chip manufacturing requires continuous technical support, such as software upgrades, spare parts and engineering support, which are also covered by the rules, Gregory Allen, a fellow at the Center for Strategic and International Studies, an American think-tank, said that "in the short term, these restrictions could set back China's ability to produce the most sophisticated chips". Barclays reckons the controls will shave 0.6 percentage points off China's annual GDP growth. The scale of these controls is so great that America may find it hard to persuade its Allies to impose similar controls. If there is no way to do this, then such regulation will be less effective. Other countries with advanced semiconductor industries, such as the Netherlands and Japan, are likely to continue sending technology to China that could be used as an alternative to the United States. The government's biggest fear is a repeat of what happened to the satellite industry before it. In 1999, the United States introduced wide-ranging export controls on satellite technology to China, but European companies began designing satellites without American parts, bypassing the regulatory regime. In the end, American companies lost turnover, while China's access to sophisticated satellite technology remained intact. China is the world's largest semiconductor market, and foreign chipmakers naturally resent losing a big chunk of their revenue. The United States is pressing Japan and the Netherlands to adopt similar policies, with unclear results. Large semiconductor companies have complained that the regulation will reduce the industry's productivity and efficiency. Taiwan Semiconductor Manufacturing Co., the world's largest chipmaker, said the regulation will reduce the industry's productivity and efficiency. The same argument applies to all new barriers to international trade and investment. As the logic of efficiency and competitive advantage shifts to security and economic nationalism, the problem of overlapping investments will arise around the world and costs will rise. The net result is that taxpayers and consumers will have to stump up more money, and the overall prosperity of the world economy will be lower. Total foreign direct investment, which peaked at 5.3% of world GDP in 2007, has fallen to 2.3% by 2021. Commercial contracts that remain in the pipeline are also under increasing regulatory pressure. In 2022, the German government approved a Chinese company's purchase of 25% ownership of a port in Hamburg, down from 35% previously planned. In 2021, half of all foreign investments approved by France will have to be subject to additional conditions. Subsidies are also influencing the direction of capital spending. The semiconductor industry, which itself is particularly affected by the economic cycle, is oversupplying due to artificial subsidies</section>

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Zero-sum economics - The End of globalization

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