Growing Threats to Global Trade

Protectionism could make the world less resilient, more unequal, and more conflict-prone
Finance & Development – June 2023

Four years ago, an article on the future of trade celebrated the 75th anniversary of Bretton Woods.
The message was that there was no strong evidence of a retreat from globalization, but international
trade and the multilateral system that underpinned it were under attack, and their future would depend
on policy choices. Since then, policymakers in some of the world’s largest economies have made choices
to halt further international integration and, in several instances, to embrace protectionist or nationalist
policies.
Today, there is still no conclusive evidence that international trade is deglobalizing. When mea-
sured in US dollars, global trade growth slowed after the global financial crisis in 2008–09 and de-
clined sharply at the onset of the pandemic in 2020. But since then trade has rebounded to the highest
value ever. As a share of GDP, global trade has fallen modestly, driven mostly by China—which for
years has pursued a “dual circulation” strategy of prioritizing domestic consumption while remaining
open to international trade and investment—and India. This reflects the end of an extraordinary export
boom both countries experienced in previous decades as well as fewer imports of intermediate goods
than in the past. Yet, as a share of GDP, imports of intermediates by the rest of the world are still grow -
ing. The same is true of exports.
American and Chinese tariffs introduced in 2018 did not reduce trade. They curbed trade between the
US and China. But trade in the products most affected by tariffs grew among the rest of the world. In
other words, trade was merely reallocated, not reduced. And the tariff war did not stop other countries
—such as members of the African Union, the Association of Southeast Asian Nations, and the Com-
prehensive and Progressive Agreement for Trans-Pacific Partnership—from pursuing regional or
plurilateral trade agreements.
The COVID-19 pandemic led many countries to temporarily restrict exports of medicines, and some
halted shipments of wheat and other foods as prices spiked following Russia’s invasion of Ukraine. But
many governments are still aggressively pursuing economic integration, for instance through deals that
make it easier for professionals to work in foreign countries or that facilitate the flow of consumer goods
through common safety standards.
Trade may respond with a delay to changes in the policy environment. And policy itself may lag
changes in public sentiment. Terms such as “national security” and “reshoring” have shown up more
frequently in news articles and research papers. Perhaps most telling are recent polls of economists. In
2018, 100 percent of those surveyed were against the initial US tariffs. Yet in 2022, respondents were
skeptical about global supply chains: only 2 out of 44 economists disagreed with the statement that re-
liance on foreign inputs had made American industries vulnerable to disruptions.

Hyperglobalization
The era of “hyperglobalization” that took shape from the 1990s onward was associated with great
economic achievement. Extreme poverty as defined by the World Bank was dramatically reduced and
expected to be eliminated in all but a small number of institutionally fragile countries, partly thanks to
dramatic growth in East Asian countries. Standards of living, as measured by income per capita, in-
creased across the world.
Consumers in economies open to trade gained access to an extraordinary variety of goods sourced
from all over the planet at affordable prices. Smartphones, computers, and other electronics allowed peo-
ple to be more productive and to enjoy more varied entertainment than previous generations had ever
dreamed. Declining prices of air travel allowed people to visit other countries, exposing them to new
cultures and ideas.
 While many factors contributed to this rise in living standards, openness and other market-oriented
policies played an essential role. Trade with (at the time) low-wage countries influenced goods prices
and wages in advanced economies, benefiting consumers in these countries and workers in exporting
economies. Inflation remained surprisingly low—despite quantitative easing and increasing debt in the
US.
Finally, the Western world enjoyed a historically rare long period of peace that fostered prosperity.
The tight global interconnectedness achieved by the end of the 20th century was arguably a major con-
tributing factor by giving everyone an incentive to behave. War in this hyperglobalized era meant disrup-
tion of global supply chains, with potentially dire consequences for the world economy.
Yet beneath the surface, tensions were building that led to a backlash against globalization. There are
three phases of this deglobalization movement. The first phase began around 2015 as anxiety about
globalization and competition from low-wage countries gave rise to Brexit, US tariffs, China’s retalia-
tion, and a resurgence of extremist views in Europe.

Global backlash
While the average person in the world was better off at the end of the 2010s, many workers in ad-
vanced economies were feeling left behind, doing worse than their parents. There is substantial eco-
nomic research documenting these distributional effects, which had a distinct geographic component:
communities more exposed to import competition from low-wage countries thanks to preexisting spatial
industrialization patterns did worse than communities that were sheltered from imports.
This, in turn, had important political consequences in the US and the UK. At the same time, global-
ization created big winners: multinational “superstar” firms that benefited from the hyperspecialization
of global value chains, in the form of lower costs and higher profits , as well as a class of highly com-
pensated individuals who reaped the rewards associated with expanding markets and new economic op-
portunities. Not only were some left behind; others were racing ahead.
It took time for economists to acknowledge these effects, which reflected the usual tension between
overall welfare and distributional conflict generated by trade. However, the speed and intensity of these
changes gave this tension a new dimension. Similarly, there was nothing fundamentally new about econ-
omists’ recommendations: most rejected protectionism as a solution and endorsed some form of redis -
tribution from winners to losers.
At the same time, Western governments were becoming increasingly concerned that competition
with China was “unfair,” given its use of subsidies as well as restrictions imposed on companies seeking
access to its market. This spurred demands for more confrontational policies toward China, especially
because it was no longer a poor developing economy.
There had been backlash against global trade before, notably at the 1999 Seattle protests. But these
movements did not influence policy. There was little reason to believe that the backlash against global-
ization between 2015 and 2018 would have permanent consequences for the future of globalization
either; the world was too interconnected to revert to the old regime.

Pandemic pressures
The second phase of the deglobalization movement began with calls for resilience at the onset of the
pandemic in 2020. But defining and measuring resilience depend on the nature of the shock. COVID,
for example, was both a supply shock—with key international suppliers facing lockdowns at different
times, slowing deliveries—and a demand shock, as demand for medical goods and durable goods like
cars and second homes grew rapidly.
During COVID, short-term delivery delays and shortages due to the disruption of international
trade were widely described as a crisis. But much of this was blown out of proportion, and in fact mar-
kets proved extremely resilient. The US, for instance, imports medical goods and supplies from a diverse
group of countries. The examples show that international trade increased resilience. Along the same
lines, the US actually preserved trade relationships; importers traded with foreign partners more regu-
larly and sought out new suppliers, even though overall trade volume fell. International trade makes
economies more diversified and hence more resilient. The intuition is that supply shocks are less corre-
lated across economies than within them and that access to multiple suppliers makes it easier to respond
to country-specific shocks.
Overall, arguments against trade that emphasize the fragility of supply chains are not consistent with
evidence. These arguments were used to stoke the protectionist sentiment that had originated in the first
phase, but ultimately the initial effects were not enduring. Trade grew fast in 2021 as the world turned a
corner in management of the pandemic.

Geopolitical pressures
The third phase began with Russia’s invasion of Ukraine in February 2022. This highlighted new
risks from international specialization. As Russia cut gas supplies to Europeans and energy prices sky-
rocketed, the pitfalls of reliance on a single country for imports of a critical input became clear. The con-
cerns were not intrinsically about Russia, countries began to wonder what would happen if they had to
decouple from China overnight. Policymakers concluded that it would be better to decouple immediately
on their own terms.
Around the same time, a new mindset was widely adopted—namely, that international welfare is a
zero-sum game. The United States imposed a ban on exports to China of advanced logic and memory
chips and the machinery to produce them. Semiconductor technologies certainly do have military appli-
cations, and the export bans could set back China’s military. But the technologies have many more appli-
cations in the civilian sector, and so these bans also retard civilian technological development. The world
shifted from one in which trade, competition, and innovation in all countries were encouraged to one in
which the most advanced economy sought not just to compete but to foreclose.
At this point any forecasts are highly speculative, since outcomes will be highly dependent on policy
choices. One possibility is that this is as far as the deglobalization movement goes; interventions to fore-
close technology access will be limited to products with a credible dual use, while trade in other prod-
ucts will continue to flourish. But another possibility is that the world will end up fragmented in rival
camps and that a new cold war will unfold, this time between the US and China , with severe conse-
quences.

New cold war

Many models of long-term growth emphasize the role of population size in research and develop-
ment. The world’s largest and most populous economies are expected to have new ideas and develop ab-
solute advantages, as evidenced by their leading market positions in a variety of products. If scientific
collaboration between China and the US breaks down, the world could have fewer solutions to the next
pandemic and endemic diseases.
Separating from “non-friendly” partners means removing potential low-cost suppliers. When it
comes to decarbonization, for instance, the cost of solar panels is substantially higher in the West than
in China, and tariffs have slowed installation. Yet, addressing climate change is urgent and every year
lost results in more damage and larger mitigation costs.
Restricting global trade is unlikely to lead to resilience. Resilience cannot be evaluated without ref-
erence to specific shocks. Trade exclusively with “friendly” countries may imply greater resilience to
geopolitical risks but the concept of friendship is itself subject to constant change. It may, however, lead
to less resilience to other types of shocks, such as the recent health shock.
 Within countries, inequality could increase. Greater trade barriers lead to higher prices, which
mean lower real wages. Globalization may have contributed to more spatial inequality, but protection-
ism is not the cure: it will likely make the problem worse. Across countries, there is a risk of increased
global inequality. Geoeconomic fragmentation could lead to more trade between high-income economies
that are “friends.” Increasing emphasis on environmental and labor standards in trade agreements
would raise entry barriers for very poor countries that find it difficult to meet these requirements , and
without access to lucrative foreign markets, there is no clear path for poverty reduction and develop-
ment.
But the greatest risk may be to peace. Cold wars have often led to hot wars. During the interwar pe-
riod in the 1930s there was a dramatic shift away from multilateral trade toward trade within empires
or informal spheres of influence. This shift exacerbated tensions between countries ahead of World War
II. A replay of this pre-belligerence era may be in store.


What Is NATO?
Council of Foreign Relations - July 7, 2023

Introduction
Founded in 1949 as a bulwark against Soviet aggression, the North Atlantic Treaty Organization
(NATO) remains the pillar of U.S.-Europe military cooperation. An expanding bloc of NATO allies has
taken on a broad range of missions since the close of the Cold War, many well beyond the Euro-At-
lantic region, in countries such as Afghanistan and Libya.
Russia’s unprovoked invasion of Ukraine, a nonmember, in 2022 has shaken Europe’s security archi-
tecture and prompted a major reevaluation of NATO members’ foreign policies and defense commit -
ments. The threat from Russia has generated the greatest tensions with the alliance in the post- Cold War
era. It is driving up defense spending and has pushed some longtime NATO partners, namely Finland
and Sweden, to seek full membership.

A Post–Cold War Pivot

After the demise of the Soviet Union in 1991, Western leaders intensely debated the direction of the
transatlantic alliance. Some in the Bill Clinton administration initially opposed expanding NATO, wary
it would upset relations with President Boris Yeltsin’s fragile government in Russia and complicate
other U.S. foreign policy objectives, such as nuclear arms control. Others favored expansion as a way to
extend NATO’s security umbrella to the east and consolidate democratic gains in the former Soviet bloc .
European members were also split on the issue. The United Kingdom feared NATO’s expansion would
dilute the alliance, while France believed it would give NATO (and the U.S.) too much influence . Paris
hoped to integrate former Soviet states via European institutions.
As a first step, Clinton chose to develop a new NATO initiative called the Partnership for Peace
(PfP), which would be open to all former Warsaw Pact members, as well as non-European countries .
Seeing this nonmembership framework as a means to allay some of Russia’s concerns about alliance
expansion, NATO launched PfP at its annual summit in 1994. More than two dozen countries, including
Georgia, Russia, and Ukraine, joined in the following months. However, Clinton soon began speaking
about expanding NATO’s membership, saying that “the question is no longer whether NATO will take
on new members but when and how.”

Beyond Collective Defense

Many U.S. officials felt that a post–Cold War vision for NATO needed to look beyond its core de-
fense commitments—Article V of the North Atlantic Treaty states that “an armed attack against one or
more [member states] in Europe or North America shall be considered an attack against them all”—and
focus on confronting challenges outside its membership, since the common denominator of all the secu-
rity problems in Europe were that they all lied beyond NATO’s borders.
The breakup of Yugoslavia in the early 1990s and the onset of ethnic conflict tested the alliance on
this point. What began as a mission to impose a UN-sanctioned no-fly zone over Bosnia and Herzegov-
ina evolved into a bombing campaign on Bosnian Serb forces that many say was essential to ending the
conflict. In April 1994, during Operation Deny Flight, NATO conducted its first combat operations in
its forty-year history.

NATO's Structure
Headquartered in Brussels, NATO is a consensus-based alliance in which decisions must be unani-
mous. However, individual states or subgroups of allies can initiate action outside NATO’s auspices. For
instance, the United States, France, and the United Kingdom began policing a UN-sanctioned no-fly
zone in Libya in 2011 and, within days, transferred command of the operation to NATO once Turkey’s
concerns had been allayed. Member states are not required to participate in every NATO operation; Ger-
many and Poland declined to contribute directly to the campaign in Libya. The alliance’s principal politi-
cal body is the North Atlantic Council, which is composed of high-level delegates from each member
state.

Sharing the Burden

Member states’ primary financial contribution is the cost of deploying their respective armed forces
for NATO-led operations. These expenses are not part of the formal NATO budget, which funds alliance
infrastructure, including civilian and military headquarters. NATO members were estimated to have col-
lectively spent more than $1 trillion on defense in 2022. The United States accounted for roughly 70
percent of this, up from about half during the Cold War.
NATO members have committed to spending 2 percent of their annual GDP on defense by 2024, and
just nine of the thirty members were expected to have met this threshold in 2022. While U.S. officials
have regularly criticized European members for failing to meet their budget commitments to NATO, the
administration of President Donald Trump took a more assertive approach, suggesting it would reexam -
ine U.S. treaty obligations if the status quo persisted. The number of members meeting their spending
pledges increased slightly during Trump’s tenure, although some subsequently slipped below the 2 per-
cent threshold.
Russia’s full-scale military assault on Ukraine in 2022, the largest land war in Europe since World
War II has led many alliance members, most notably Germany, to significantly increase military spend-
ing. In the weeks after Russia’s invasion, German Chancellor Olaf Scholz pledged to boost weapons
investments and exceed NATO’s 2 percent defense budget threshold by 2024.

Afghanistan
NATO invoked its collective defense provision, Article V, for the first time following the September
11, 2001, attacks on the United States. Shortly after U.S.-led forces toppled the Taliban regime in
Kabul, the UN Security Council authorized an International Security Assistance Force (ISAF) to
support the new Afghan government. NATO formally assumed command of ISAF in 2003, marking its
first operational commitment beyond Europe. The mission in Afghanistan marked a turning point for the
alliance by signaling that NATO was adapting to the post–Cold War security environment. After thir-
teen years of war, ISAF completed its mission in 2014. In 2015, NATO began a noncombat support mis-
sion to provide training, funding, and other assistance to the Afghan government.
The United States and NATO allies withdrew their remaining forces from Afghanistan in 2021,
bringing the alliance’s twenty-year military operation to a close. Some criticized the Joe Biden adminis-
tration’s handling of the withdrawal and its refusal to keep any residual force in the country. The Taliban
regained control of the country following NATO’s exit.

Tensions With Russia

Moscow has viewed NATO’s post–Cold War expansion into Central and Eastern Europe with great
concern. Many current and former Russian leaders believe the alliance’s inroads into the former Soviet
sphere are a betrayal of alleged U.S. guarantees to not expand eastward after Germany’s reunification in
1990.

Nato’s Expanding Membership

 Founding members
1949 Belgium, Canada, Denmark, France, Iceland, Italy, Luxembourg, Netherlands, Norway, Portugal, United Kingdom,
United States
  Cold War expansion
1952 Greece, Turkey
1955 West Germany
1982 Spain
 Post–Cold War expansion
1990 Germany (German reunification in 1990 resulted in what was formerly East Germany becoming part of NATO)
1999 Czech Republic, Hungary, Poland
2004 Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia, Slovenia
2009 Albania, Croatia
2017 Montenegro
2020 North Macedonia
2023 Finland

Swift expansion of NATO eastward could make a neo-imperialist Russia a self-fulfilling prophecy .
Over the years, NATO and Russia took significant steps toward reconciliation, particularly with the
signing of the 1997 Founding Act, which established an official forum for bilateral discussions; how -
ever, a persistent lack of trust has plagued relations.
NATO’s Bucharest summit in 2008 deepened suspicions. While the alliance delayed membership
action plans for Georgia and Ukraine, it vowed to support their membership down the road, despite Rus -
sia’s repeated warnings of political and military consequences. Russia’s invasion of Georgia was a clear
signal of Moscow’s intentions to protect what it sees as its sphere of influence. Russia’s annexation of
Crimea in 2014 and its continued destabilization of eastern Ukraine further spoiled relations with
NATO. After the intervention, NATO suspended all civilian and military cooperation with Moscow.
President Trump came into power in 2017 aiming to ease tensions with Russian President Vladimir
Putin. However some members of his administration, as well as many in the U.S. Congress and military,
resisted this effort given what they saw as Russia’s ongoing transgressions, most notably its attempts to
meddle in foreign elections and develop new nuclear weapons. Trump planned to restructure the U.S.
military posture in Europe, which would have seen a reduction of its overall footprint there, but this did
not materialize.
Russia-NATO tensions came to a head in late 2021 and early 2022 when Putin ordered an extraordi-
nary military buildup on the border with Ukraine and threatened a wider invasion unless the alliance
pledged to permanently stop expanding its membership, seek Russian consent for certain NATO military
deployments, and remove U.S. nuclear weapons from Europe, among other guarantees. Alliance leaders
dismissed these requests while seeking other diplomatic avenues, and Russia launched its invasion.

A Renewed Alliance
Years of Russian aggression in Ukraine have pushed the alliance to reinforce defenses on NATO’s
eastern flank. Since its 2014 summit in Wales, NATO has ramped up military exercises and opened new
command centers in Bulgaria, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, and Slovakia. The
modestly staffed outposts are intended to support a new rapid reaction force.
In 2017, NATO began rotating multinational battle groups through the Baltic states and Poland. The
alliance has also bolstered defenses in the Black Sea region, creating a new multinational force in Roma-
nia. In addition, NATO has increased air patrols over its eastern borders. Meanwhile, the U.S. Army
added another rotational armored brigade to the region.
NATO members have increasingly collaborated with Ukraine, although as a nonmember, Ukraine
remains outside of NATO’s defense perimeter. In 2018, the United States started providing Ukraine with
advanced defensive weapons to help counter Russia-backed insurgents in the Donbas region. In the years
leading up to Russia’s invasion, Ukraine held annual military exercises with the alliance and became one
of just six enhanced opportunity partners, a special status given to the bloc’s closest nonmember al -
lies. Moreover, Kyiv affirmed its goal to eventually gain full NATO membership.
Since the invasion, many NATO member countries have provided Ukraine with military support,
including sophisticated weaponry such as tanks, heavy artillery, armed drones, and antiaircraft systems.
This aid is not committed under alliance auspices, and NATO leaders have been keen to avoid taking
actions, such as implementing a no-fly zone, that could draw it into direct conflict with Russia or other-
wise escalate the hostilities. Still, Russia has warned that in providing this assistance, NATO allies are
risking the outbreak of a nuclear war.
Russia’s provocations also prompted another major NATO expansion. Finland and Sweden, two
countries with a history of avoiding formal military alignment, applied to join the alliance in 2022. Fin-
land acceded in April 2023, expanding NATO’s Nordic footprint and doubling the length of its border
with Russia. Sweden’s bid has been delayed by political disputes with Turkey and Hungary, the final
holdouts to its membership.


Israel’s Judicial Reforms: What to Know
Council on Foreign Relations - July 26, 2023

The Israeli parliament’s new legislation limiting Supreme Court oversight of government policies has
raised alarm over deepening societal divisions and potential democratic backsliding.
Israel’s parliament, the Knesset, passed legislation that abolishes the “reasonableness doctrine,”
which the Supreme Court of Israel has employed to evaluate government policies. It is a practice used by
high courts in Australia, Canada, and the United Kingdom, among other countries. By this doctrine, the
court determines whether a given government policy is sensible and sound. For example, when Prime
Minister Benjamin Netanyahu appointed Shas party leader Aryeh Deri as minister of finance, the
Supreme Court determined that he was not eligible to serve in the position due to previous convictions
of bribery, fraud, breach of trust, money laundering, and various tax offenses. Now, it is conceivable that
Deri could become a minister. It is also possible that the annexation of parts of the West Bank will pro-
ceed given that by dint of the legislation, the Supreme Court is limited in its ability to be a check on the
government’s power.
Critics of the package fear that it will weaken the judicial system in favor of the government and the
Knesset. Because Israel has a parliamentary system, proposed reforms such as undermining judicial
oversight and changing the way judges are appointed will undermine the balance of power between Is -
rael’s branches of government. As a result, opponents argue, the changes underway will destabilize Is-
raeli democracy. Proponents of the reforms argue the opposite, making the case that the judiciary has
become an unaccountable branch of government that has usurped the power of the Knesset and the gov-
ernment in setting policy.
The divisiveness of the debate over judicial reforms reflects the fact that Israelis have moved beyond
debating the relative merits of technical changes to the judiciary and are now arguing over a range of
difficult issues, including the role of religion in Israeli society, national identity, and the defining quali-
ties of Israel’s polity. All of these are intertwined with debates about Israel’s Jewish and democratic
character. In this way, the judicial reform package has spurred a high-stakes national conversation about
what it means to be Israeli. The resulting divisions have raised concerns about Israeli security as military
reservists have vowed not to show up for duty as a result of the changes, how the current instability will
affect the Israeli economy, and the possibility of violence among Israelis.
In addition to Prime Minister Netanyahu, the Israeli officials most closely associated with the judi-
cial reform project are Minister of Justice Yariv Levin, who is a member of the Likud Party, and Sim-
cha Rotman, who is a member of the Religious Zionist Party and chair of the Knesset’s Constitution,
Law, and Justice Committee. Levin and Rotman are just the most high-profile of a group of right-wing
and right-of-center politicians who have sought to overhaul the judiciary. They have been aided in this
effort by an organization called the Kohelet Policy Forum, which is backed financially by American and
Israeli citizens and states that it aims to “secure Israel’s future as the nation-state of the Jewish people, to
strengthen representative democracy, and to broaden individual liberty and free-market principles in
Israel.”
Given that Netanyahu and his coalition government hold a 64-seat majority in the 120-seat Knesset,
it is unlikely that opposition parties can do anything within the legislature to stop judicial reform . The
abolition of the reasonableness doctrine prevailed in a 64-0 vote because the legislation’s opponents
staged a walkout. This type of action is important symbolically, but meaningless at a practical level. The
composition of the Knesset and the incentives for parties in Netanyahu’s coalition to remain in the gov-
ernment mean that the challenges to the judicial reform have moved to the streets. The images of hun-
dreds of thousands of Israelis protesting over many months have been arresting, but despite this pres-
sure, popular demonstrations have done nothing to prevent judicial reform from proceeding.

World Trade Can Still Drive Prosperity
But the international architecture must adapt to a fast-changing world
Finance & Development – June 2023

Rising from the ashes of three disastrous decades of deglobalization, extremism, and world war, the
IMF and the WTO were built on the idea that thriving international trade goes hand in hand with global
prosperity and stability. On balance, the post–World War II record has been impressive. Today fewer
than 1 in 10 of the world’s people are poor as low- and middle-income countries have doubled their
share of global trade. Pivotal to this leap in global income is a twentyfold increase in international trade
since 1960.
Yet the tide is turning against economic interdependence and international trade. Trade restrictions
and subsidies increased after the global financial crisis, and tensions escalated further as governments
responded to the pandemic and Russia’s war in Ukraine by scrambling to secure strategic supply chains
and rushing into trade-distorting policies. Taken too far, these measures may open the door to alliance-
oriented policies that reduce economic efficiency and fragment the global trading system. They could
backfire if short supply chains end up more vulnerable to localized shocks. Foreign direct investment is
already increasingly concentrated among geopolitically aligned countries.
Despite all the talk, trade has continued to deliver even during recent crises. It has great potential to
keep contributing to higher living standards and greater economic opportunities for decades to come.
There are at least three reasons international trade is crucial for global prosperity. First, it increases pro-
ductivity by expanding the international division of labor. Second, it enables export-led economic
growth by providing access to foreign markets. And third, it bolsters economic security by giving firms
and households valuable outside options when negative shocks hit.
During the pandemic, trade and supply chains became vital to ramping up production and distribu-
tion of medical supplies, including vaccines. The power of international trade as a source of resilience
has become evident again during the war in Ukraine. Deep and diversified international markets for
grain enabled economies traditionally reliant on imports from Ukraine and Russia to make up shortfalls.
Ethiopia, for example, lost all its wheat imports from Ukraine but now sources 20 percent of its wheat
shipments from Argentina—a country from which it had not imported any wheat before.

Fragmentation’s costs
In this context, fragmentation could be costly for the global economy. A scenario in which the world
divides into two separate trading blocs could lead to a 5 percent drop in global GDP. Global losses from
trade fragmentation could range from 0.2 to 7 percent of GDP. The costs may be higher when accounting
for technological decoupling. Emerging market economies and low-income countries would be most at
risk due to the loss of knowledge transfer.
Reinforcing the trading system to safeguard the benefits and prevent losses is important. But there is
also an exciting forward-looking trade policy agenda that responds to the future of international trade,
which can be inclusive, green, and increasingly digitally and services driven. Trade has done a lot to
reduce poverty and inequality between countries. Yet it has left too many people behind—people in rich
countries have been hurt by import competition, and people in poor countries have been unable to tap
into global value chains and are often on the front line of environmental degradation and conflict over
resources. It need not be this way. With the right domestic policies, countries can benefit from free
trade’s great opportunities and lift those that have been left behind.
Addressing these underlying causes of discontent would solve people’s problems more effectively
than the trade interventions seen today. Well-designed social safety nets, greater investment in training,
and policies in areas like credit, housing, and infrastructure that help, not hinder, workers to move across
industries, occupations, and companies could all play a part.
 The current push toward more diversified supply chains presents great opportunities for countries
and communities that have struggled to integrate into global value chains: bringing more of them into
production networks, called “re-globalization,” would be good for supply resilience, growth, and devel -
opment.
Many of today’s most pressing global problems will not be solved without international trade. Cli-
mate crisis and get to net zero greenhouse gas emissions cannot be overcome without trade. Trade is
needed to get low-carbon technology and services to everywhere they are needed. Open and predictable
trade lowers the cost of decarbonization by expanding market size, enabling scale economies, and
learning by doing.

Cooperation’s possibilities
By updating global trade rules, governments can help trade thrive in new areas that would expand
opportunities, for emerging market economies especially. Even as goods trade stalls, trade in services
continues to expand rapidly. Global exports of digital services reached 54 percent of total services ex-
ports.
Some efforts are already underway. A group of nearly 90 WTO members, including China, the EU,
and the US, are currently negotiating basic rules on digital trade. Shared rules would make trade more
predictable, reduce duplication, and cut the compliance costs that typically weigh heaviest on the small -
est businesses.
Similarly, multilateral cooperation and common standards could speed the green transition while
preventing market fragmentation and minimizing negative policy spillovers to other countries. Bringing
more small- and women-owned businesses into global production networks—digital and otherwise—
would spread the gains from trade more broadly across societies.
Despite geopolitical tensions, meaningful cooperation on trade remains possible. Last June all WTO
members got together to deliver agreements on curbing harmful fisheries subsidies, removing barriers to
food aid, and enhancing access to the intellectual property behind COVID vaccines. Navigating trade
policies through the current turbulent period is challenging. But keeping trade open and looking for new
opportunities for closer cooperation will be essential to build on existing gains and to help deliver solu-
tions to climate change and other global challenges.


Mineral Monopoly
China’s Control over Gallium Is a National Security Threat
Center for Strategic & International Studies – July 18, 2023

Decades of sweeping industrial policies have afforded China a near-total monopoly over gallium, a
critical mineral used to produce high-performance microchips that power some of the United States’
most advanced military technologies. Recent moves by Beijing to restrict the export of gallium have laid
bare the need for Washington and its allies to de-risk their critical mineral supply chains. Failing to ad-
dress vulnerabilities in the gallium supply chain could pose serious national security and economic
challenges for the United States and its allies.

→ China produces 98 percent of the world’s supply of raw gallium.

→ Gallium is primarily extracted from smelting bauxite into aluminum, through which trace amounts
of gallium can be recovered.
→ While bauxite is abundant, its mining is heavily concentrated in a handful of countries, and Chinese
companies are responsible for nearly all gallium extracted from bauxite.

The United States and other advanced economies purchase gallium from China and refine it further
for use in commercial and military applications. Gallium-based semiconductors are vital to the U.S.
defense industry, particularly in next-generation missile defense and radar systems, as well as electronic
warfare and communications equipment.

Gallium’s Revolutionary Properties

The unique chemical and physical properties of gallium make it well suited for use in high-perfor-
mance applications, such as advanced military equipment. When combined with other materials, gal-
lium is used to produce a special class of chips, known as “wide bandgap” semiconductors. These chips
can handle higher temperatures, voltages, and frequencies than conventional silicon chips, enabling them
to be faster and more efficient.
The development of a advanced compound called gallium nitride (GaN) is powering new techno-
logical breakthroughs. GaN is revolutionizing modern radar , allowing new radar modules to track
smaller, faster, and more numerous threats from nearly double the distance. Many of these cutting-edge
radar systems are powered by several thousand gallium-enabled chips. U.S. and allied armed forces are
incorporating GaN-enhanced radars into critical platforms. These upgrades are poised to bring about a
change in the ability of U.S. and allied forces to defend against emerging threats like hypersonic missiles
and next-generation stealth aircraft.
Gallium-based chips are also increasingly vital to the commercial sector. Their efficiency and dura-
bility make them well suited for the harsh conditions of 5G base towers, as well as key green technolo-
gies like solar cells and electric vehicles. Other applications of gallium are in radio frequency, optoelec-
tronics, power electronics, and clean energy.
The importance of gallium is expected to grow. Gallium-based chips is a potential way to move be-
yond silicon. These trends are expected to drive 25 percent annual growth in the global market for GaN
chips through 2030. Defense applications are expected to account for roughly half of this increase, un-
derscoring gallium’s strategic value to U.S. and allied military modernization efforts.
The increasing demand for gallium in critical industries has raised the stakes for securing a steady
supply of the mineral. A sudden gallium supply shock would have consequences for defense manufac -
turers and economic security. Although defense manufacturers account for only a small portion of the
global end use of gallium, shortages and disruptions in the supply of semiconductors and other key elec-
tronics can pose long-term challenges for defense firms. Many of the U.S. military’s major suppliers of
GaN chips also rely on revenue from substantial sales to civilian customers. Interruptions to their com-
mercial operations may complicate their ability to meet the growing needs of the defense industry for
gallium-based systems.
Heightened U.S.-China tensions have further upped the ante. In 2020, the Trump administration
declared U.S. critical mineral dependencies a national emergency, and the Biden administration’s 2021
100-day supply chain review warned that U.S. reliance on China for gallium risks disruptions that would
have “far-reaching impacts on semiconductor production.” Yet government policies on critical minerals
have been heavily biased toward securing access to a select group of inputs needed for emerging green
technologies, such as lithium and cobalt. The lack of similar attention paid to lesser-known minerals like
gallium has left government and industry leaders unprepared for the consequences of possible disrup-
tions.
The Chinese government put this vulnerability on display in July 2023 when it announced a slate of
export restrictions on gallium metal and key gallium compounds in response to recently implemented
export controls on advanced chips and chipmaking equipment put in place by the U.S., Japan, and the
Netherlands. Within the first week of the announcement, gallium prices jumped 27 percent as global
traders rushed to secure their supply. The move demonstrates Beijing’s willingness to leverage its control
over critical minerals as a tool in its intensifying technological competition with the United States.

China's Path to Gallium Dominance

Gallium is largely derived as a byproduct of processing bauxite, the primary ore for aluminum. Its
production is therefore closely tied to the dynamics of global aluminum markets.China’s emergence as
an industrial powerhouse has driven explosive growth in its aluminum industry. Assisted by extensive
government subsidies and tax incentives, China supplies approximately 59 percent of the world’s alu-
minum and established for itself a dominant share of global gallium production. Deliberate government
policies also played a role, with Beijing requiring its aluminum producers to install the capacity to ex -
tract gallium. China’s rapid rise in the industry created oversupply in the global market, triggering se-
vere fluctuations in gallium prices throughout much of the 2010s. Leading suppliers in the United King-
dom, Germany, Hungary, and Kazakhstan suffered as a result and were forced to shutter their produc-
tion, leaving China as virtually the only supplier in the world.

Climbing the Value Chain

While holding sway over raw gallium production affords China leverage over its competitors, the
country understands that long-term advantage is won at the cutting edge of innovation. To achieve this,
Beijing is actively supporting its firms in overtaking the U.S. and its allies to become global leaders in
gallium-based semiconductor production. The 14th Five Year Plan, China’s top national economic
blueprint released in 2021, identifies wide bandgap semiconductors as a key focus area.
Making headway in the development of gallium-based semiconductors could offer China unique
opportunities to advance its drive for technological self-sufficiency. Compared to silicon-based chips,
GaN semiconductors are still maturing, and new markets are emerging. If China can make break-
throughs in the initial phases of GaN semiconductor development, it can potentially lock in early-mover
advantages. Beijing’s efforts to develop gallium chips are aimed at technologically leapfrogging the
United States, Europe, and Japan.
The scale of Chinese efforts to acquire foreign gallium-based semiconductor technology lays bare its
ambitions. Over the past decade, Chinese individuals, firms, and entities have been engaged in a system-
atic campaign of corporate espionage and strategic acquisitions to target chip technologies from compa-
nies in the U.S. and other advanced economies. These efforts have paid dividends for China’s military
modernization and exemplify Beijing’s military-civil fusion strategy, a sweeping push to fuse together
the country’s security and development goals.
Growing momentum in commercial applications of GaN, including 5G, is reshaping market dynam-
ics. While many American, European, and Japanese firms maintain a technological edge, several Chi-
nese companies, empowered by financial and political support from Beijing, have emerged as key play-
ers in the production of gallium-based chips.

Looking Ahead
Losing ground to Chinese firms in the race for more capable and powerful compound semiconduc-
tors will put the United States on the back foot in developing next-generation technologies that will be
crucial to military power and economic competitiveness. Beijing’s active role in creating a flourishing
domestic ecosystem for gallium-based chips has already benefited China’s military development. More-
over, if China continues to dominate the raw supply of gallium while also achieving the leading edge of
gallium-based chip production, the country can largely insulate itself from global supply chain shocks
in the field.
When the United States met with the other leading G7 economies in May 2023, the leaders jointly
called for “de-risking” from economic competitors like China. De-risking gallium supply chains offers
low-hanging fruit as they reassess their economic relationships with Beijing.
The United States can reduce its reliance on China and de-risk critical supply chains from disrup-
tions by investing in gallium extraction and refinement capabilities at home; collaborating with allies
and partners to scale up overseas gallium extraction and refinement capacity; promoting gallium recy-
cling; maintaining a minimum stockpile of gallium for the defense industry; and enhancing data collec-
tion and transparency in its gallium production and consumption.


BRICS Faces a Reckoning
Enlargement would be a sign not of the group’s strength, but of China’s growing influence.
Foreign Policy – June 22, 2023

In 2001, Goldman Sachs banker Jim O’Neill created the acronym “BRIC” to refer to Brazil, Russia,
India, and China—countries he predicted would soon have a significant impact on the global economy.
In 2006, Goldman Sachs opened a BRIC investment fund pegged to growth in these four nations. The
moniker captured the global excitement about emerging powers at the time and transformed into a politi-
cal grouping in 2009, when leaders of the four countries held their first summit. South Africa joined a
year later.
BRICS as a political body has faced countless critics and doubters from the start. Analysts in the
Western press largely described the outfit as nonsensical and predicted its imminent demise. BRICS has
also been described as a “motley crew,” “odd grouping,” “random bunch,” and “disparate quartet.” In
2015, Goldman Sachs decided to close the BRIC fund (which never grew to include South Africa) due
to its low returns.
BRICS member countries have numerous differences and disagreements. While Brazil and Russia
are commodity exporters, China is a commodity importer. Brazil, India, and South Africa are democratic
countries with vibrant civil societies, but China and Russia are autocratic regimes. Brazil and South
Africa are nonnuclear powers, in contrast to China, India, and Russia, which boast nuclear arsenals. Per-
haps most seriously, China and India face an ongoing border conflict.
And yet, despite their differences, not one BRICS leader has ever missed the group’s annual sum-
mits. Instead of unraveling, diplomatic and economic ties have strengthened, and BRICS membership
has become a central element to each member’s foreign-policy identity. Even significant ideological
shifts—including the election of right-wing populist leaders such as India’s Narendra Modi in 2014 and
Brazil’s Jair Bolsonaro in 2018—have not significantly altered countries’ commitment to the club.
Yet as BRICS approaches its 15th summit in Johannesburg this August, the grouping is experiencing
an unprecedented disagreement over enlargement. The outcome will be a test of BRICS identity in the
face of rising Chinese influence.
Despite the many disagreements and tensions among them, BRICS members have more in common
than Western analysts often appreciate. The strategic benefits the outfit produces for its participants still
far exceed its costs. Four aspects stand out.
First, all BRICS members see the emergence of multipolarity as both inevitable and generally desir-
able—and identify the bloc as a means to play a more active role in shaping the post-Western global
order. Member states share a deep-seated skepticism of U.S.-led unipolarity and believe that the BRICS
nations increase their strategic autonomy and bargaining power when negotiating with Washington. As
Indian Foreign Minister Subrahmanyam Jaishankar said, the concentration of economic power
“leaves too many nations at the mercy of too few.”
Second, the BRICS grouping also provides privileged access to China, a country that has become
enormously relevant for all other members. Brazil and South Africa in particular, which had only limited
ties to Beijing prior to the group’s founding, have benefited from BRICS as they adapt to a more China-
centric world. It’s not just the summits attended by heads of state: Ministers and other officials fre-
quently gather to discuss issues such as climate, defense, education, energy, and health. And, largely
under the radar, the grouping has organized countless annual meetings involving government officials,
think tanks, universities, cultural entities, and legislators. BRICS membership also granted countries a
founding stake in the Shanghai-based New Development Bank (NDB), created during the fifth BRICS
summit in 2013.
Third, BRICS members have generally treated each other as all-weather friends. The group has cre-
ated a powerful diplomatic life raft for member countries that temporarily face difficulties on the global
stage: Fellow BRICS states protected Russian President Vladimir Putin from diplomatic isolation after
Russia annexed Crimea in 2014 and stood by Bolsonaro when he found himself globally isolated after
his close ally Donald Trump’s failed reelection bid for the U.S. presidency. After Russia’s full-scale
invasion of Ukraine in 2022, Putin could again rely on the other BRICS countries to provide him ex-
plicit diplomatic and economic support (China), help circumvent sanctions (India), participate in military
exercises (South Africa), or embrace his narratives about the war (Brazil). Without BRICS support, Rus-
sia would find itself in a far more difficult situation today.
Finally, being a member of the BRICS creates considerable prestige, status, and legitimacy for
Brazil, Russia, and South Africa, which for years have stagnated economically and are now anything but
emerging powers. Even as Brazil has fallen behind in its share of global GDP, analysts continue to de-
scribe it as an emerging power—which facilitates investment and allows the government to punch above
its weight diplomatically. That some 20 countries are now seeking membership only confirms the notion
that the BRICS seal remains powerful.
It is precisely on this last issue that the grouping is facing its biggest disagreement since its inception
14 years ago. Beijing, which does not need to preserve the grouping’s exclusivity to retain its global sta-
tus, has for years aimed to integrate new members and slowly transform the bloc into a China-led al-
liance. Since 2017, when it presented the “BRICS Plus” concept—a mechanism to bring countries
closer to the outfit before eventually granting them full membership—Beijing has sought to put expan-
sion on the agenda. Following Russia’s invasion of Ukraine, expansion has also been of interest to Mos -
cow, as it could help create a Russia-sympathetic bloc to counter Western attempts to isolate the country.
Brazil and India, on the other hand, have long been wary of adding new members to BRICS, as they
have less to gain from a diluted club that includes smaller powers. Both Brasília and New Delhi fear that
expansion would entail a loss of Brazilian and Indian influence within the group. In their eyes, new
members would join largely to gain easier access to Beijing, making BRICS positions more China-cen-
tric and potentially less moderate. This explains why Jaishankar recently cautioned that deliberations
on expansion were still a “work in progress,” and Brazilian Foreign Minister Mauro Vieira said that
“BRICS is a brand and an asset, so we have to take care of it, because it means and represents a lot.”
South Africa, which traditionally has the least influence within BRICS, has sought to hedge its bets.
There is no formal application process—or specific criteria—to become a BRICS member. Some
countries have simply been added to the list of potential future members after an informal expression of
interest. But in last year’s BRICS summit declaration, member countries vowed to promote discussions
on BRICS expansion process and stressed the need to clarify the guiding principles, the standards, crite-
ria, and procedures. The debate about BRICS expansion is not directly related to the NDB, which in
2021 added Bangladesh, Egypt, the United Arab Emirates, and Uruguay as new members and announced
that at least 30 percent of loans would be provided in the currencies of member states rather than the
U.S. dollar.
In theory, each BRICS member has a veto over the group’s decisions, which explains why yearly
summit declarations have often been vague. In practice, the grouping’s profound asymmetries creates
informal hierarchies. South Africa’s 2010 accession was led by China to bolster Beijing’s engagement on
the African continent. It also made the IBSA grouping (of India, Brazil, and South Africa) superfluous.
If killing IBSA was a desired side effect of South Africa’s BRICS membership—to show that three
large democracies in the developing world discussing can’t discuss the future of the global south without
China—Beijing succeeded: The 10th IBSA leaders’ summit, scheduled to take place in 2013, has been
postponed indefinitely.
China and Russia may therefore succeed, despite Brazilian opposition and Indian skepticism, in
adding new members to the club, particularly since Brazilian President Luiz Inácio Lula da Silva re-
cently expressed support for inviting Venezuela to BRICS during improvised remarks.
 Disagreements over whether to expand BRICS are about more than exclusivity and status. Several
potential accession candidates—such as Iran, Syria, and Venezuela—have largely pursued an anti-West-
ern foreign policy. Their integration could complicate Brazil’s and India’s efforts to preserve a non-
aligned strategy amid growing tensions between the West and the Beijing-Moscow axis.
The key to BRICS’ success since 2009 has been its capacity to circumvent internal disagreements
and focus on unifying themes, such as the desire to build a more multipolar world and strengthen south-
south relations. India-China ties are notoriously fraught and, despite New Delhi’s decision to help Mos-
cow export its oil, India has systematically sought to reduce its dependence on Russian weapons and
increased its arms purchases from Europe. The status quo may be the best BRICS can achieve without
exposing its rifts. While Russia has long attempted to position the BRICS grouping as an anti-Western
bloc, Brazil and India have steadily sought to prevent Moscow from doing so.
The uncertainty about how the South African government should handle hosting the upcoming
BRICS summit in Johannesburg reflects the dilemmas it and Brasília currently face in the context of
growing tensions between Moscow and the West. Since South Africa is a party to the Rome Statute, the
founding charter of the International Criminal Court (ICC), it would be obligated to arrest Putin—
whom the ICC has indicted—if he attends. While hosting Putin without arresting him would strain
South Africa’s ties to the West, not hosting him would dilute BRICS’ commitment to being all-weather
friends. The most likely scenario is that South Africa finds a legal loophole to host Putin without detain-
ing him.
Still, it is largely a lose-lose dilemma for South Africa, and means that being part of BRICS has
started to have a tangible cost for the country by negatively affecting its ties to the United States and
Europe. Pretoria has already had a taste of this: After South Africa drew closer to Russia after its inva-
sion of Ukraine the G-7 decided not to invite it as a guest to a recent summit, for the first time since
South African President Cyril Ramaphosa took office in 2018. Unless the Russia-Ukraine war ends
soon, Brazil—which has also signed the Rome Statute and is slated to host the G-20 summit in 2024
and the BRICS summit in 2025 —will soon face the same problem.
For all its ongoing challenges, BRICS generates many benefits for its members and is here to stay.
Yet if the group announces the inclusion of new members during the upcoming summit in Johannesburg,
it would be simplistic to interpret it as a sign of strength. Rather, expansion should be read as a sign of
China’s growing capacity to determine the bloc’s overall strategy—and may reflect the emergence not of
a multipolar order, but of a bipolar one.