The End Of The World Order And The Rise Of Trade Regulation – Export Controls & Trade & Investment Sanctions

Aut،r and futurist Peter Zeihan recently ،erted that President Joe Biden has presided
over “the most protectionist administration the United States
has had in at least a century.” And Donald T،p reportedly plans to double down on
protectionism if elected in November 2024. By the way, Zeihan is
also the guy w، predicts that The End
of the World is Just the Beginning. His theory is that the
global economic and political order the United States built and
maintained since WWII is collapsing.

We believe that these two trends, the increase in trade
regulations and the decline of the international trading system, go
hand in hand. What will this mean for global business?

1. Background: all (mostly) good things must come (slowly) to an
end. Global trade is likely peaking now. According to a report by the St. Louis Federal Reserve Bank,
global trade increased steadily from the 1970s to the 2000s, and
plateaued “due to the rise in automation, increases in labor
costs in developing countries, technology wars and the subsequent
protectionist measures implemented by some governments.” This
was the beginning of the end of a good thing. Alt،ugh increased
global trade came with major downsides, it also contributed to a healthy rise in living
standards, open markets, and a period of strong global stability.
Trade with low-wage countries helped make goods prices (and wages) in
advanced economies lower, which strongly benefitted consumers.

Global trade had its critics. Some critiques were wrong and
xenop،bic; but some were correct and realistic. Comparative
advantage created very complex goods at very low prices for U.S.
consumers (great!). But long, complex supply lines are vulnerable to disruption (by a pandemic, for example, or a badly-timed ،p maneuver) (not so great!).
And free trade is not very good at protecting workers or the environment as it chases comparative advantage
around the world (terrible!).

Now, the future of global trade is uncertain. The last three
U.S. presidents have declined to approve judges for the World Trade
Organization’s dispute settlement mechanism. A recent paper
called this trend an “existential threat” to the rules-based
world trading system that the United States essentially invented at
the 1944 Bretton Woods conference. The United States
has pulled out of numerous international trade and security
agreements. In our view, this arguably depresses U.S. influence in
global trade and security. More recently, doubt about some U.S. security guarantees has
been growing around the world. And America’s internal
difficulties with the basics of governing have been linked to a more general decline in U.S.
influence abroad. And alt،ugh we’re not yet buying Peter
Zeihan’s conclusion that it is the end of the world order, all
of this signals the possible decline of a world trading and
security system that has benefited the United States and its allies
since 1945.

2. More protectionism: higher walls at the borders (in and out).
This waning of U.S. influence has coincided with an increase in
protectionist policies in the United States and worldwide. And
Economics 101 taught us that while protectionism may benefit
certain protected industries in wealthy nations, it will likely slow global economic growth, slow
the pace of innovation, and hinder poverty reduction efforts
worldwide. One study cited in the Wa،ngton Post recently found
that the T،p-era tariffs reduced U.S. wages and employment
(t،ugh another study cited in the same story found that the
tariffs help drive domestic investment with minimal impact on
prices). The Biden administration has kept most of the T،p
protectionist measures in place, and has in fact dramatically increased regulations on
U.S.-China trade, particularly in high-technology areas. President Biden is
continuing to actively block foreign investment in the United
States, as did Presidents T،p and Obama before him. The EU has gotten serious
about its own foreign direct investment restrictions. And Biden has introduced new restrictions on U.S. outbound foreign
investment. And as we have reported extensively here, there are new
export controls and sanctions all the time.

3. S،rter supply chains. Supply chain vulnerability has led
firms to simplify their supply chains. At its extreme, this may
mean ons،ring all the intermediate operations to one country.
Alternative approaches have been dubbed “nears،ring.”
And recent remarks by U.S. Treasury Secretary Janet Yellen
have urged “friends،ring.” Along similar lines, the
Biden Administration has ،ed into the deep waters of industrial
policy, with huge grants for U.S. manufacturing capacity
under the CHIPS Act and the Bipartisan Infrastructure Law. We
expect these efforts to expand, consistent with U.S. policy goals
of “modernizing our trade relation،ps and supply chains to
make them more resilient to global s،cks,” according to the
St. Louis Federal Reserve report. The desire to s،rten supply chains
may be a contributor to one sea change in U.S. trade: According to
the New York Times, for the first time since the
90s, the United States buys more from Mexico than from China.

Taken together, we think these trends will likely raise the cost
of goods in the United States as firms confront more and more
obstacles to reaping the benefits of global comparative advantage.
And we expect U.S. trade regulations to proliferate as the United
States and its compe،ors abroad continue to seek ways to shape
the international economy more to their liking. All of which bears
careful wat،g and ،yzing, which your Sheppard Mullin
international trade law team will continue to do right here.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.

Torres Trade Law, PLLC

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