Trade Policy and Chip Technology 2024

The US government imposed restrictions on exporting advanced chip-making technology, software, and equipment to China to hinder its progress in AI and supercomputing.

ASML, a Dutch company, is the sole manufacturer of specific machines used to produce the most advanced chips. These machines are crucial for making powerful chips.

China has been investing heavily in chip development through state-backed funds. While they have made progress with their own lithography scanners, they are still significantly behind ASML's technology in terms of resolution.

The US needs to collaborate with other countries like Korea, the Netherlands, and Japan to effectively control the technology transfer to China.

China's economic slowdown has made it more difficult for local governments to support Beijing's ambitions in self-reliance for chip technology.

Data on countries' import and export activities, showing the flow of goods and services between nations.

The primary driver of trade is the demand for goods and services. If a country wants to import a product, it means consumers prefer foreign over domestic options.

Government actions aimed at influencing the flow of imports and exports, potentially impacting national industries and economies.

A trade policy where there are no restrictions on imports or exports, allowing businesses to operate freely across borders.

A trade policy of complete self-sufficiency, meaning a country prohibits all international trade, producing everything domestically.

Government policies designed to protect domestic industries from foreign competition using tools like tariffs, quotas, and regulations.

A tax imposed on imported goods by a country's customs authority, making imported products comparatively more expensive than domestic ones.

A trade policy that limits the quantity of specific goods that can be imported into a country, regardless of price, to control the volume of imports.

Selling a product in a foreign market at a price lower than its cost of production or below its domestic price.

A tax imposed by a country on imported goods to counteract dumping, aiming to protect domestic producers from unfair competition.

Financial assistance provided by a government to support a particular industry or activity, reducing the production cost.

A tariff imposed by a country on imported goods to offset the impact of subsidies granted by the exporting country.

The usual price of a product in its domestic market, used as a benchmark for comparing prices in other countries.

A case where the EU investigated dumping of leather shoes from China and Vietnam, leading to the imposition of anti-dumping duties.

The World Trade Organization, an international organization that regulates global trade and ensures adherence to fair trade practices.

When a free trade agreement causes a shift in imports from a more efficient producer to a less efficient one, simply because the latter is part of the FTA.

Regulations in free trade agreements that ensure goods traded meet a specific origin criteria (e.g., minimum percentage of local content). These rules prevent circumvention of tariffs by using another FTA member as a gateway.

The increase in imports from more efficient producers that happens when trade barriers are removed. This leads to lower prices, more choices, and overall welfare gains.

A group of countries with a common external tariff, meaning they apply the same tariffs on goods from outside the union. This eliminates the need for rules of origin because the tariff is the same across all members.

The UK and the EU have an agreement that includes rules of origin for goods traded between them. For example, 45% of an electric vehicle must be UK or EU-sourced to avoid tariffs.

Post-Brexit trade rules, particularly the rules of origin, have made it challenging for UK-based car manufacturers to export EVs tariff-free to the EU. This is because the EU rules require a significant portion of the car, including the battery, to be made within the EU or UK.

Stellantis, a car manufacturer, is facing challenges in exporting EVs from the UK to the EU due to post-Brexit trade rules, specifically the rules of origin. The company imports batteries from China, making it difficult to meet the criteria for tariff-free trade.

The rules of origin can have a significant impact on businesses, especially those operating in free trade areas. They add administrative burden and can create difficulties in sourcing components or manufacturing goods to meet the requirements.

The maximum tariff rate that a country agrees to apply to a specific product under the WTO.

The 'Most Favored Nation' tariff is the default tariff applied by a country to goods imported from all WTO members.

Tariffs that are lower than the MFN tariff, applied between countries that have signed free trade agreements (FTAs).

Generalized System of Preferences. This is a unilateral trade program by the EU, offering reduced tariffs to developing countries. It aims to promote their economic development.

Enhanced GSP includes deeper cuts or full removal of tariffs for certain product categories compared to the standard GSP. It’s granted to developing countries that implement international agreements on human rights, labor, environment, and governance.

A special exemption granted to Least Developed Countries (LDCs) by the EU, offering zero tariffs on all products except arms.

A classification system used by the EU to categorize imported goods. This determines the specific customs duty (tariff) that applies to each product.

An agreement between two or more countries to reduce or eliminate tariffs on goods traded between them.

Coalitions can help facilitate decision-making in trade agreements but can also create divisions between countries with different priorities. For example, developed countries might favor free trade, while developing countries might prioritize protecting their domestic industries.

A network of bilateral trade agreements, while seemingly beneficial, is not a perfect substitute for a multilateral agreement like the WTO. This is because bilateral agreements can lead to trade diversion and complex administration.

A global value chain is the complete process of bringing a product to market, from design to final use. It involves different companies across the world, each contributing to different stages of production.

The iPhone's GVC highlights how different companies located in various countries contribute to its production. Apple, while designing the product, outsources manufacturing and assembly to other companies like Foxconn in China.

Apple sets product standards, decides where to outsource manufacturing, and controls distribution and retailing. This demonstrates the power of multinational companies in global value chains.

Global value chains can create efficiency, lower costs, and bring products to market faster by utilizing specialized labor and resources from different parts of the world.

Global value chains can be complex, prone to disruptions, and raise concerns about fair labor practices, environmental impact, and potential for geopolitical tension.