Supply Lines: Another U.S.-China showdown

Supply Lines

The World Trade Organization's next director general will have to walk a fine line between the U.S. and China at a moment when each are angling for greater control over the world's multilateral institutions.

So it's worth asking, what are the U.S. and China looking for in a WTO leader?

In June U.S. Trade Representative Robert Lighthizer established a three-part test for his ideal candidate: The person should understand the need for "fundamental" reform, recognize China has run afoul of the WTO and possess not a "whiff" of anti-Americanism in their background.

As for China, it's much less clear what kind of a candidate Beijing prefers, and that's by design.

China's ambassador to the WTO, Xiangchen Zhang, said this month that a key criteria for the next director general will be his or her "firm belief in the multilateral trading system with strong determination and adequate ability to bring WTO members together."

"We need someone who can shoulder pressure from the non-believers and march on," Zhang said during a webcast discussion hosted by the Washington-based Peterson Institute for International Economics.

So there are eight candidates gunning for the job and it's too soon to predict who will come out on top. But it is possible to game out a few scenarios where the contest becomes another diplomatic staredown between the U.S. and China as they decide who runs the world economy's tariff sheriff in Geneva.

Insider vs Outsider

For the U.S., one candidate who might pass the Lighthizer litmus test is Nigeria's nominee Ngozi Okonjo-Iweala. The former finance minister has ironclad reform credentials and authored a pair of books about her sometimes harrowing experience revamping Nigeria's oil-dependent economy.

She supports negotiations aimed at establishing new WTO rules on industrial subsidies, which is a key target in Lighthizer's effort to curb China's massive outlays. She has lived in America — well, in Washington anyway  during her tenure at the World Bank. If she's viewed as a proxy for the U.S., Beijing might stonewall her candidacy.

China, meanwhile, is holding its cards close to avoid instant American opposition to its preferred candidate. But it's not a stretch to match Zhang's diss of WTO non-believers with the qualifications of Kenya's Amina Mohamed.

Mohamed is a card-carrying WTO insider, having served as a trade delegate in the 2000s. She has chaired the WTO general council, dispute settlement body and trade policy review body. She has headed up a WTO ministerial conference, a summit held every two years.

But her WTO credentials could be a negative for the Trump administration because it symbolizes the perpetuation of a system that the U.S. argues is broken. Furthermore, Mohamed has equivocated on the issue of China's development status and the U.S.-China trade conflict in general.

Of course, this is just the first lap of the race and speculation remains rife about who will support whom. There's always another possibility that the Mohamed/Okonjo-Iweala rivalry could torpedo both their candidacies and open a path for another nominee who can somehow thread the U.S.-China needle. At this stage, anything could happen.

Bryce Baschuk in Geneva

Charted Territory

An Africa-wide free-trade pact could bolster the region's income by $450 billion and lift 30 million people out of extreme poverty by 2035, if accompanied by significant policy reforms and trade-facilitation measures, according to a new World Bank report. 

Today's Must Reads

  • Missing target | China continues to lag behind the pace of imports from the U.S. needed to meet the terms of the two nations' trade deal, amid a rapidly worsening diplomatic standoff that's sparking global fears of a new cold war.
  • Surprise number | Mexico unexpectedly posted its biggest trade surplus on record in June as its economic crisis caused imports to slump, while food exports surged.
  • Cut emissions | BMW will make electric versions of its popular 5 Series mid-sized sedan and X1 compact SUV, and will also bolster its recycling efforts and source minerals like cobalt and lithium directly to make its supply chain more ethical.
  • Moving online | The coronavirus outbreak is accelerating a push to digitize India's food-rationing system, allowing citizens to receive entitlements anywhere in the country — boosting labor mobility and the country's economic recovery.
  • Looming risk | Water demand exceeding supply in parts of the world is becoming a larger risk to investors, a headwind to supply chains and a cause of geopolitical tension, according to the BlackRock Investment Institute.

On the Bloomberg Terminal

  • Won big problem | Korea's won, which has been used as a proxy trade for the yuan since U.S.-China trade tension escalated in May 2019, may suffer if tensions between the world's two biggest economies worsen, Bloomberg Intelligence says.
  • Bitter pill | Drugmakers and their supply chain may be affected by President Donald Trump's disruptive July 24 proposals including a threatened favored-nation policy for Part B-covered medicines hated by pharma, Bloomberg Intelligence says.
  • Use the AHOY function to track global commodities trade flows.
  • Click HERE for automated stories about supply chains.
  • See BNEF for BloombergNEF's analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
  • Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.

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