Concerned about critical mineral supply chains and its own strategic vulnerabilities, the European Union is advancing a buyers club to procure minerals critical to the clean energy transition, such as bauxite, cobalt, lithium, and nickel. The European Union is deeply dependent on imports of both raw and processed critical minerals and materials and thus highly exposed to global price volatility. The door appears to be open for the United States or other EU trading partners and like-minded countries to join this club. Decarbonization is not the only impetus behind the proposed Brussels buyers club. Both the European Union and United States view China’s dominance of critical mineral supply chains as a national security issue, because these minerals are key inputs to modern military technology. Hendrix agrees that supply chains for critical minerals desperately need widening to meet projected global demand and tackle climate change mitigation, but he warns that a purchasers club would not be a step in the right direction. A buyers club would be prone to free riding, set up distributive conflicts within the European Union, and reduce the share of climate mitigation benefits accruing to critical mineral–producing countries, many of which are developing and middle-income economies.
Topic:
Economics, National Security, European Union, Supply Chains, and Minerals
Heads of state, trade ministers, and academics have repeatedly called for reforming the World Trade Organization (WTO), the institution charged with the stewardship of the global trading system. The durability and worth of the WTO are being increasingly questioned despite the fact that by almost all objective measures, it has been a great success, with world trade growing much faster than global GDP over the last 75 years. However, past success does not guarantee future performance. This Policy Brief examines the institution’s most serious defects and the multitude of challenges it faces. It suggests the institution needs to evolve to reach broad-based international trade agreements, adding much needed new rules to the world trade rulebook and developing effective means to settle disputes that would render the rules of the system enforceable once again.
Topic:
Economics, International Trade and Finance, Treaties and Agreements, and World Trade Organization
In 2021, more than 135 jurisdictions agreed on transformative new international tax rules that would establish a minimum tax rate of 15 percent on multinational corporate income regardless of where it was reported. In December 2022, the European Union unanimously moved forward to implement this minimum tax, and other countries, including South Korea, Japan, Australia, Canada, and the United Kingdom, are also either implementing the tax or taking substantial steps toward implementation. In tandem, the United States should also reform its international tax system and adopt a stronger minimum tax. While the future of the international agreement is uncertain, it has important implications for the ability of governments worldwide to create tax systems that are administrable, fair, and efficient. The agreement also demonstrates important guiding principles for the future of multilateral cooperation on global collective action problems, including efforts to protect public health from future pandemics, address nuclear proliferation, and resolve territorial conflicts. US progress on international tax reform would enhance much needed international cooperation on these issues.
Topic:
Economics, Treaties and Agreements, Reform, European Union, and Tax Systems
Economic sanctions by Western democracies against Russia have not stopped the war and attacks on Ukrainian civilians. Together with continued economic and military support for Ukraine, however, sanctions are blocking Russian president Vladimir Putin from achieving his territorial objectives. Sanctions have contributed to a sharp compression of Russian imports; forced Russia’s military and industry to source from more costly and inefficient suppliers at home and abroad; and slowly begun to squeeze Russian government finances. The G7 countries must sustain and augment their efforts, including by confiscating frozen reserves of the Central Bank of Russia to help fund Ukraine’s reconstruction. G7 policymakers need to derive lessons from the current crisis about the utility of sanctions in conflicts between major powers. Maintaining coherent and coordinated sanctions against large and powerful target countries is critical for the effectiveness and durability of the policy. Deploying sanctions against such rivals also requires a long-term commitment to the implementation and enforcement of the trade and finance restrictions. Sanctions impose costs on both the target country and those imposing the sanctions, so Western policymakers need to offset those costs via domestic support or tax relief to sustain political support over time for sanctions in big power conflicts.
Topic:
Sanctions, Economy, Conflict, and Russia-Ukraine War
Political Geography:
Russia, Europe, Ukraine, and United States of America
Over the next three decades, emerging markets and developing economies (EMDEs), and especially middle-income countries, are projected to account for much of the growth in global economic activity and energy use. While a decisive move to low-carbon technologies and energy efficiency would advance both their development goals and a stable climate, the countries have yet to fully tap this opportunity. The multilateral development banks (MDBs) are in a unique position to help lower barriers to low-carbon investments in EMDEs and unlock these sustainable development opportunities. Their differentiating governance, financial and technical capabilities, and financing instruments would enable MDBs to support the necessary business environment and energy reforms and to cofinance low-carbon and energy efficiency investments alongside other investors to reduce and manage risks.
Topic:
Development, Economy, Multilateralism, Investment, and Carbon Emissions
China's reshuffle of its financial supervisory architecture announced in March, like previous changes, appears incremental rather than radical. It will not, however, resolve the main challenge hobbling China’s financial system, which is not linked to specific choices of supervisory architecture but rather to the unfinished transition from a state-directed to a market-based financial system and the way the Chinese Communist Party's pervasive role creates obstacles to good corporate governance of individual financial firms and to the independence of supervisory authorities. Too often, political authorities and sometimes the supervisors themselves intervene directly in financial firms’ decisions to allocate capital and credit, occasionally resulting in failures of risk control and risk management. The authors argue that Chinese reformers should aim at a clearer and more rigorous division of responsibilities, in which financial firms manage financial opportunities and risks, and supervisors are exclusively focused on their respective public policy mandates.
Topic:
Economics, Regulation, Finance, and Corporate Governance