Even Suez Canal Blockage Can’t Hold Back Red-Hot Global Trade

A resurgent global economy, led by the U.S., will likely drive world trade higher this year, despite a series of acute disruptions to already strained supply chains, including last week’s blockage of the Suez Canal.

Surveys of manufacturers around the world that were released Thursday vividly depicted the current pressures on the globe-spanning supply chains that deliver to consumers everything from computers to lawn chairs.

In those surveys, factories recorded a near-universal complaint: Securing enough raw materials and other inputs to meet rising demand from customers is becoming increasingly difficult and expensive. Some manufacturers are reporting record high export orders.

But there were few signs the pickup in factory output that began in mid-2020 and has been driven by trade is coming to an end.

Pent-up demand around the world after a year of Covid-19 restrictions has been so high that shippers are running low on containers in which to ship goods by sea. But despite those shortages, the World Trade Organization expects flows of goods across borders to increase by 8% this year, more than reversing the 5.3% drop seen in 2020 as the pandemic hit factory output and shipping.

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India’s Farm Subsidies Lead to Waste but Support Millions

BHAGWANPURA, India — The farmer sat in the house his grandfather built, contemplating economic ruin.

Jaswinder Singh Gill had plowed 20 years of savings from an earlier career as a mechanical engineer into his family’s nearly 40-acre plot in the northwestern Indian state of Punjab, just a dozen miles from the border with Pakistan. He has eked rice out of the sandy, loamy soil with the help of generous government subsidies for 15 years, in hopes that his son and daughter may someday become the sixth generation to work the land.

Then India suddenly transformed the way it farms. Prime Minister Narendra Modi last year pushed through new laws that would reduce the government’s role in agriculture, aimed at fixing a system that has led to huge rice surpluses in a country that still grapples with malnutrition.

But the laws could make Mr. Gill’s farm and many others like it unsustainable. They would reduce the role of government-run markets for grain, which the farmers fear would eventually undermine the price subsidies that make their work possible. If that happens, the livelihoods of millions of people who depend on the land could be in jeopardy.

criticism online.

in a matter of days — could devastate vast swaths of the country where farming remains a way of life.

60 percent of India’s 1.3 billion people make a living from agriculture, though the sector accounts for only about 11 percent of economic output. For many, getting another job isn’t an option. The manufacturing sector has shrunk slightly since 2012, government figures show, while the work force has swelled.

“Our potential nonagricultural work force is growing very fast,” said Jayan Jose Thomas, an economist and professor at the Indian Institute of Technology in New Delhi. “They’re all looking for jobs.”

Officials in the ministry of agriculture in New Delhi did not respond to requests for comment.

Unquestionably, India’s current system is outdated. It was introduced in the 1960s to stave off a famine by encouraging farmers to grow wheat and rice. It included minimum prices set by the government, helping farmers sell what they grow for a profit.

according to the Global Hunger Index. India’s surpluses are grown in the wrong places, and the public food rations system can’t transport all of the grain to the needy before it rots. The government doesn’t buy enough nutritious crops like green leafy vegetables, lentils, chickpeas and sorghum to incentivize farmers to grow them.

leading to crushing debt and suicides.

The subsidies encourage farmers in Punjab, a relatively dry area, to grow conventional rice, which requires a lot of water. Rice and wheat irrigation is depleting the area’s water table, according to India’s Central Groundwater Board.

Mr. Gill once tried to grow basmati rice instead. More flavorful and nutritious than conventional rice, it also consumes less water, grows faster and sells at a premium on the international market. But government price rules don’t cover basmati rice. When he sold the basmati rice, Mr. Gill said, a private buyer shortchanged him.

Under Mr. Modi’s plan, corporate buyers would take a much greater role in Indian agriculture because farmers would have greater power to sell their crops to private buyers outside the mandi system, which he said would lift farmer incomes and increase exports.

it spurred growth, but some economists and farmers in Punjab consider it a failure. Some farms in Bihar ship their harvests to Punjab’s mandis for the guaranteed prices, while many of those who lost their farms became migrant laborers in Punjab.

The change in the farm laws is an example of how Mr. Modi has a penchant for quick, dramatic moves that have roiled the country. Punjab’s farmers and local officials want slower change and a shift in subsidies to support different crops. In interviews, the farmers of Bhagwanpura, population 1,620, said they feared losing their farms and having no other work.

“I’m not scared of hard work,” said Rajwinder Kaur, 28. “I will do any job, but there are none.”

average of about two and a half.

With revenue from her grain sales, Ms. Kaur said, she and her two children can barely eat. A relative pays one child’s tuition at a local Catholic school. She is negotiating with the school to waive fees for the other.

joined the protests have left family members to tend the land. Others pool their money to support the protests.

“We feel that the struggle of Punjab is everyone’s struggle,” said Gurjant Singh, the village head, “and unless everyone contributes to that cause, the protest will not be successful.”

Mr. Gill lent his 17-foot tractor-trailer and donated money and grain to those taking turns. For him, defending the farm is a family matter.

His grandfather built the farmhouse after the bloody partition of Pakistan from India in 1947 forced him to flee Pakistan. The subsidies of the 1960s brought the farm prosperity, making it the largest landholding in this corner of Punjab.

Since he took over the farm in 2005, Mr. Gill has plowed his savings into a smart irrigation system, built a machine to clear crop residue and invested in a pair of John Deere tractors.

As he spoke, prayers from a Sikh gurdwara, or temple, bellowed through a loudspeaker across Mr. Gill’s wheat fields.

“Work hard, worship the Almighty, and share the benefits with all mankind,” Mr. Gill said. “That is what is taught to us at the gurdwara every day.”

His fears for the future, he said, should not hinder his work.

“What’s going on here is within me,” he added, touching his heart. “I should keep it in myself.”

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Rich Countries Signed Away a Chance to Vaccinate the World

In the coming days, a patent will finally be issued on a five-year-old invention, a feat of molecular engineering that is at the heart of at least five major Covid-19 vaccines. And the United States government will control that patent.

The new patent presents an opportunity — and some argue the last best chance — to exact leverage over the drug companies producing the vaccines and pressure them to expand access to less affluent countries.

The question is whether the government will do anything at all.

The rapid development of Covid-19 vaccines, achieved at record speed and financed by massive public funding in the United States, the European Union and Britain, represents a great triumph of the pandemic. Governments partnered with drugmakers, pouring in billions of dollars to procure raw materials, finance clinical trials and retrofit factories. Billions more were committed to buy the finished product.

But this Western success has created stark inequity. Residents of wealthy and middle-income countries have received about 90 percent of the nearly 400 million vaccines delivered so far. Under current projections, many of the rest will have to wait years.

to help an Indian company produce about 1 billion doses by the end of 2022 and his administration has donated doses to Mexico and Canada. But he has made it clear that his focus is at home.

“We’re going to start off making sure Americans are taken care of first,” Mr. Biden said recently. “But we’re then going to try and help the rest of the world.”

Pressuring companies to share patents could be seen as undermining innovation, sabotaging drugmakers or picking drawn-out and expensive fights with the very companies digging a way out of the pandemic.

As rich countries fight to keep things as they are, others like South Africa and India have taken the battle to the World Trade Organization, seeking a waiver on patent restrictions for Covid-19 vaccines.

as part of their vaccine diplomacy. The Gamaleya Institute in Moscow, for example, has entered into partnerships with producers from Kazakhstan to South Korea, according to data from Airfinity, a science analytics company, and UNICEF. Chinese vaccine makers have reached similar deals in the United Arab Emirates, Brazil and Indonesia.

Canada to Bangladesh say they can make vaccines — they just lack patent licensing deals. When the price is right, companies have shared secrets with new manufacturers in just months, ramping up production and retrofitting factories.

pressured Johnson & Johnson to accept the help and is using wartime procurement powers to secure supplies for the company. It will also pay to retrofit Merck’s production line, with an eye toward making vaccines available to every adult in the United States by May.

Despite the hefty government funding, drug companies control nearly all of the intellectual property and stand to make fortunes off the vaccines. A critical exception is the patent expected to be approved soon — a government-led discovery for manipulating a key coronavirus protein.

This breakthrough, at the center of the 2020 race for a vaccine, actually came years earlier in a National Institutes of Health lab, where an American scientist named Dr. Barney Graham was in pursuit of a medical moonshot.

For years, Dr. Graham specialized in the kind of long, expensive research that only governments bankroll. He searched for a key to unlock universal vaccines — genetic blueprints to be used against any of the roughly two dozen viral families that infect humans. When a new virus emerged, scientists could simply tweak the code and quickly make a vaccine.

In 2016, while working on Middle East Respiratory Syndrome, another coronavirus known as MERS, he and his colleagues developed a way to swap a pair of amino acids in the coronavirus spike protein. That bit of molecular engineering, they realized, could be used to develop effective vaccines against any coronavirus. The government, along with its partners at Dartmouth College and the Scripps Research Institute, filed for a patent, which will be issued this month.

another virus when the outbreak in China inspired his team to change focus. “We just flipped it to coronavirus and said, ‘How fast can we go?’” Dr. Graham recalled.

filed such a lawsuit in 2019 against the drugmaker Gilead over H.I.V. medication.

being lured to the United States.

“We funded the research, on both sides of the Atlantic,” said Udo Bullmann, a German member of the European Parliament. “You could have agreed on a paragraph that says ‘You are obliged to give it to poor countries in a way that they can afford it.’ Of course you could have.”

In May, the leaders of Pakistan, Ghana, South Africa and others called for governments to support a “people’s vaccine” that could be quickly manufactured and given for free.

They urged the governing body of the World Health Organization to treat vaccines as “global public goods.”

Though such a declaration would have had no teeth, the Trump administration moved swiftly to block it. Intent on protecting intellectual property, the government said calls for equitable access to vaccines and treatments sent “the wrong message to innovators.”

World leaders ultimately approved a watered-down declaration that recognized extensive immunization — not the vaccines themselves — as a global public good.

grant language requiring equitable access to vaccines. As leverage, the organization retains some right to the intellectual property.

Dr. Slaoui, who came to Warp Speed after leading research and development at GlaxoSmithKline, is sympathetic to this idea. But it would have been impractical to demand patent concessions and still deliver on the program’s primary goals of speed and volume, he said.

“I can guarantee you that the agreements with the companies would have been much more complex and taken a much longer time,” he said. The European Union, for example, haggled over price and liability provisions, which delayed the rollout.

In some ways, this was a trip down a trodden path. When the H1N1 “swine flu” pandemic broke out in 2009, the wealthiest countries cornered the global vaccine market and all but locked out the rest of the world.

Experts said at the time that this was a chance to rethink the approach. But the swine flu pandemic fizzled and governments ended up destroying the vaccines they had hoarded. They then forgot to prepare for the future.

For months, the United States and European Union have blocked a proposal at the World Trade Organization that would waive intellectual property rights for Covid-19 vaccines and treatments. The application, put forward by South Africa and India with support from most developing nations, has been bogged down in procedural hearings.

“Every minute we are deadlocked in the negotiating room, people are dying,” said Mustaqeem De Gama, a South African diplomat who is involved in the talks.

But in Brussels and Washington, leaders are still worried about undermining innovation.

During the presidential campaign, Mr. Biden’s team gathered top intellectual property lawyers to discuss ways to increase vaccine production.

“They were planning on taking the international view on things,” said Ana Santos Rutschman, a Saint Louis University law professor who participated in the sessions.

Most of the options were politically thorny. Among them was the use of a federal law allowing the government to seize a company’s patent and give it to another in order to increase supply. Former campaign advisers say the Biden camp was lukewarm to this proposal and others that called for a broader exercise of its powers.

The administration has instead promised to give $4 billion to Covax, the global vaccine alliance. The European Union has given nearly $1 billion so far. But Covax aims to vaccinate only 20 percent of people in the world’s poorest countries this year, and faces a $2 billion shortfall even to accomplish that.

Dr. Graham, the N.I.H. scientist whose team cracked the coronavirus vaccine code for Moderna, said that pandemic preparedness and vaccine development should be international collaborations, not competitions.

“A lot of this would not have happened unless there was a big infusion of government money,” he said.

But governments cannot afford to sabotage companies that need profit to survive.

Dr. Graham has largely moved on from studying the coronavirus. He is searching for a universal flu vaccine, a silver bullet that could prevent all strains of the disease without an annual tweak.

Though he was vaccinated through work, he spent the early part of the year trying to get his wife and grown children onto waiting lists — an ordeal that even one of the key inventors had to endure. “You can imagine how aggravating that is,” he said.

Matina Stevis-Gridneff and Monika Pronczuk contributed reporting.

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China’s Sharp Words in Alaska Signal its More Confident Posture

The extraordinary rancor aired by China’s top diplomats in Alaska was a manifestation of a newly combative and unapologetic China, one increasingly unbowed by diplomatic pressure from American presidential administrations.

Just as American views on China have shifted after years of encouraging the country’s economic integration, so have Beijing’s perceptions of the United States and the privileged place in the world that it has long held. The Americans, in their view, no longer have an overwhelming reservoir of global influence, nor the power to wield it against China.

That has made China more confident than it once was in pursuing its aims openly and unabashedly — from human rights issues in Hong Kong and Xinjiang to the territorial disputes with India and Japan and others in South China Sea to, most contentiously of all, the fate of Taiwan, the self-governing democracy that China claims as its own.

While China still faces enormous challenges at home and around the world, its leaders now act as if history were on their side.

it fought Indian troops last year and menaced ships from several countries, including Japan, Malaysia and Vietnam.

new report on the issue, said on Thursday.

Meetings between the Chinese and the Americans have been testy before, but the balance of power between the two countries has changed.

For decades, China approached American governments from positions of weakness, economically and militarily. That forced it at times to accede to American demands, however grudgingly, whether it was to release detained human-rights advocates or to accept Washington’s conditions for joining the World Trade Organization.

China today feels far more assured in its ability to challenge the United States and push for its own vision of international cooperation. It is a confidence embraced by China’s leader since 2012, Xi Jinping, who has used the phrase, “the East is rising, and the West is declining.”

largely tamed at home, and the internal political divisions roiling the United States. Mr. Yang singled both out in his remarks on Thursday.

“The challenges facing the United States in human rights are deep-seated,” Mr. Yang said, citing the Black Lives Matter movement against police brutality. “It’s important that we manage our respective affairs well instead of deflecting the blame on somebody else in this world.”

intensifying punitive measures imposed by the Trump and, now, Biden administrations.

In the latest round, the State Department announced this week that it would impose sanctions on 24 Chinese officials for their role in eroding Hong Kong’s electoral system. The timing of the move, just as the Chinese were preparing to depart for Alaska, contributed to the acrimony.

“This is not supposed to be the way one welcomes his guests,” China’s foreign minister, Wang Yi, said in remarks in Alaska that were equally pointed as Mr. Yang’s.

impervious to outrage over its actions, making the task all the more challenging.

new national security law to restrict dissent in Hong Kong did nothing to halt a new law this year dismantling the territory’s electoral system.

China also chose Friday to begin its trials of two Canadians who were arrested more than two years ago and charged with espionage in what was widely seen as retaliation for the American effort to extradite a senior executive from Huawei, the telecommunications giant, for fraud involving sales to Iran.

It was striking that Mr. Yang, a veteran diplomat and a member of the ruling Politburo of the Communist Party of China, used his remarks to say that neither the United States nor the West broadly had a monopoly on international public opinion.

That is a view reflected in China’s successful efforts to use international forums like the United Nations Human Rights Council to counter condemnation over policies like the mass detention and re-education programs in Xinjiang, the predominately Muslim region in western China.

“I don’t think the overwhelming majority of countries in the world would recognize that the universal values advocated by the United States or that the opinion of the United States could represent international public opinion,” Mr. Yang said. “And those countries would not recognize that the rules made by a small number of people would serve as the basis for the international order.”

wrote approvingly under a video of Mr. Yang’s remarks.

While American officials said the temperature of the meetings in Alaska went down behind closed doors, few officials or experts on either side are hopeful of a significant improvement in relations. The talks are scheduled to continue for another round on Friday.

“On the whole, this negotiation is only for the two sides to put all the cards on the table, for the two sides to recognize how big and deep each other’s differences are,” said Wu Qiang, an independent political analyst in Beijing, “But in fact, it will not help to bring about any reconciliation or any mitigation.”

Chris Buckley in Sydney and Lara Jakes in Anchorage contributed reporting, and Claire Fu contributed research.

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In Washington, ‘Free Trade’ Is No Longer Gospel

Like Ms. Tai and Mr. Lighthizer, many past presidents and trade officials emphasized fair trade and the idea of holding foreign countries accountable for breaking trade rules. But many also paid homage to the conventional wisdom that free trade itself was a worthy goal because it could help lift the economic fortunes of all countries and enhance global stability by linking economies.

That idea reached the height of its popularity under the presidencies of George H.W. Bush, Bill Clinton and George W. Bush, where the United States negotiated the North American Free Trade Agreement, led the talks that gave the World Trade Organization its modern format, granted China permanent normal trading relations, and sealed a series of trade agreements with countries in Latin America, Africa and the Middle East.

President Barack Obama initially put less emphasis on free trade deals, instead focusing on the financial crisis and the Affordable Care Act. But in his second term, his administration pushed to sign the Trans-Pacific Partnership, which came under criticism from progressive Democrats for exposing American workers to foreign competition. The deal never won sufficient support in Congress.

For Democrats, the downfall of that deal was a turning point, propelling them toward their new consensus on trade. Some, like Dani Rodrik, a professor of political economy at Harvard, argue that recent trade deals have largely not been about cutting tariffs or trade barriers at all, and instead were focused on locking in advantages for pharmaceutical companies and international banks.

David Autor, an economist at the Massachusetts Institute of Technology, said economic theory had never claimed that trade made everybody better off — it had said trade would raise overall economic output, but lead to gains and losses for different groups.

But economists and politicians alike underestimated how jarring some of those losses could be. Mr. Autor’s influential research shows that expanded trade with China led to the loss of 2.4 million American jobs between 1999 and 2011. China’s growing dominance of a variety of global industries, often accomplished through hefty government subsidies, also weakened the argument that the United States could succeed through free markets alone.

Today, “people are much more sensitive to the idea that trade can have very, very disruptive effects,” Mr. Autor said. “There’s no amount of everyday low prices at Walmart that is going to make up for unemployment.”

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Biden Shifts Focus Back to U.S. Alliances in Japan, South Korea

SEOUL—To see the Biden administration’s balancing act with the U.S.’s two most important Asian allies, just look at suit lapels.

During the first leg of a multicity trip, Secretary of State Antony Blinken and Defense Secretary Lloyd Austin sported blue pins while in Tokyo—a show of solidarity with Japanese abducted by North Korea.

But on Wednesday, as the two officials arrived in Seoul, the PINs were gone, a recognition that the matter carries less weight in a South Korea that currently gives priority to engagement with the Kim Jong Un regime.

After four years of relative inattention to U.S. allies, President Biden has pledged to rebuild ties with foreign friends, choosing two partners central to Washington’s challenges with a rising China and an increasingly nuclear North Korea.

“It’s no accident we chose [South Korea] for the first cabinet-level overseas travel of the Biden-Harris administration, along with Japan,” said Mr. Blinken on Wednesday in Seoul.

Japan and South Korea, both of whom rely heavily on the U.S. military for their defense, place an unusually high emphasis on receiving American diplomatic affection—and notice if either side ever receives more of it. For decades, Tokyo and Seoul have been angling to become Washington’s favorite ally in the region.

This has meant fretting over every word uttered by U.S. officials, over which Asian ally is first awarded a presidential phone chat and over which side earns the backing of the U.S. in disputes that have ranged from history to national security.

When the U.S. last week invited Japanese Prime Minister Yoshihide Suga to the White House, becoming the first world leader to be asked to Washington, South Korean media seethed and urged President Moon Jae-in to push for a trip of his own.

U.S. Secretary of Defense Lloyd Austin, right, was welcomed by South Korean Minister of Defense Suh Wook on Wednesday in Seoul.

Photo: Pool/Getty Images

“President Moon, too, must visit the U.S. on a not-too-distant date,” read an editorial in the Seoul Shinmun, a partially government-owned daily newspaper more than a century old.

Getting two very different, though interlocked, countries to get along is an important task for the U.S. Both Japan and South Korea host tens of thousands of American troops. The two U.S. allies play central roles, yet must coexist alongside, some of Washington’s vexing foreign-policy challenges that include China, North Korea and Russia.

“We are working to strengthen America’s relationships with our allies as well as the relationships among them,” Sung Kim, acting assistant secretary of state for East Asia, said last week. “And none are more important than Japan and the Republic of Korea.”

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Mr. Biden, while a presidential candidate last year, penned an editorial for South Korea’s semiofficial news agency praising the two countries’ alliance. After taking office in January, Mr. Biden’s administration arranged a three-way meeting with Seoul and Tokyo to discuss North Korea. In recent weeks, the U.S. agreed to military cost-sharing deals with both South Korea and Japan—moves that had been difficult under former President Donald Trump, who often attacked the two allies for not paying enough.

This week, both Tokyo and Seoul have avoided publicly airing their disputes with each other. One Seoul government adviser said South Korea wasn’t offended by the U.S.’s choice of Japan as the trip’s first stop.

“We accept that Japan is a stronger country than us,” the adviser said. “That’s international order, and that’s just the truth.”

But ties between Tokyo and Seoul remain rancorous. The two are fighting a trade dispute that is under review by the World Trade Organization. Tensions erupted after a string of South Korean court decisions pulled World War II-era, forced labor issues into the present day.

Japanese Prime Minister Yoshihide Suga, center, met with Messrs. Austin and Blinken in Tokyo on Tuesday.

Photo: eugene hoshiko/pool/Shutterstock

The Japanese have been refusing to even talk with South Korea, say officials and advisers from both countries. Mr. Suga declined to meet with the outgoing South Korean ambassador in Tokyo earlier this year and has yet to meet the new ambassador.

On March 1, Mr. Moon repeated a proposal to Japan, offering to revive talks to sort out their disagreements. The gesture has gone unanswered in Japan so far.

The two countries’ acrimony has created security issues. In 2019, Japan’s unexpected trade sanctions prompted South Korea to threaten withdrawal from an intelligence-sharing pact that had been backed by the Obama administration and could help coordinate a response during a military crisis.

Over the decades, the U.S. has often found itself in the middle, or the cause of, disputes between Japan and South Korea.

When it comes to President Joe Biden’s foreign policy in Asia, Europe and Latin America, he is likely to focus on issues like transatlantic cooperation, U.S.-China relations and immigration. WSJ journalists examine the impact a Biden administration could have on U.S. allies around the world. Photo: Francois Lenoir/Reuters (Video from 11/13/20)

When then-President Barack Obama met with South Korea’s leader during his first term, the two leaders described their alliance as the “linchpin” of Northeast Asia. The U.S. had described its alliance with Japan as the region’s “cornerstone.”

Afterward, a former U.S. official began receiving multiple phone calls from Japanese officials asking if “linchpin” was more important than “cornerstone,” said Brad Glosserman, a senior adviser to the Hawaii-based think tank Pacific Forum, who had talked with the former official.

“That’s proof of how silly that rivalry can be,” Mr. Glosserman said. The U.S. hasn’t since changed the way it refers to each ally.

Last year, when Mr. Trump extended a guest invitation to South Korea for the Group of Seven nations meeting, Japanese officials pushed back. Mr. Suga, at the time Tokyo’s top government spokesman, stressed the importance of keeping the current G7’s framework. An official at South Korea’s presidential office accused Japan of shamelessness.

The one-upmanship has even included the sequencing of Mr. Biden’s phone calls to world leaders after his January inauguration. Keeping with tradition for U.S. leaders, Mr. Suga connected first, while Mr. Moon got a call a week later.

But South Korean officials spun this to a positive: they have privately noted Mr. Moon’s exchange lasted two minutes longer than Mr. Suga’s.

Write to Andrew Jeong at andrew.jeong@wsj.com

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Here Are 17 Reasons to Let The Economic Optimism Begin

That’s essentially what has happened in the last few decades as China has gone from being isolated to being deeply integrated in the world economy. When the country joined the World Trade Organization in 2001, its population of 1.28 billion was bigger than that of the combined 34 advanced countries that make up the Organization for Economic Cooperation and Development (1.16 billion).

But that was a one-time adjustment, and wages are rising rapidly in China as it moves beyond low-end manufacturing and toward more sophisticated goods. India, the only other country with comparable population, is already well integrated into the world economy. To the degree globalization continues, it should be a more gradual process.

9. There’s only one Mexico

For years, American workers were also coming into competition with lower-earning Mexicans after enactment of the North American Free Trade Agreement in 1994. As with China, the new dynamic improved the long-term economic prospects for the United States, but in the short run it was bad for many American factory workers.

But it too was a one-time adjustment. Even before President Trump, trade agreements under negotiation were for the most part no longer focused on making it easier to import from low- labor-cost countries. The main aim was to improve trade rules for American companies doing business in other rich countries.

10. The offshoring revolution is mostly played out

Once upon a time, if you were an American company that needed to operate a customer service call center or carry out some labor-intensive information technology work, you had no real choice but to hire a bunch of Americans to do it. The emergence of inexpensive, instant global telecommunication changed that, allowing you to put work wherever costs were the lowest.

In the first decade of the 2000s, American companies did just that on mass scale, locating work in countries like India and the Philippines. It’s a slightly different version of the earlier analogy involving the farm; a customer service operator in Kansas was suddenly in competition with millions of lower-earning Indians for a job.

But it’s not as if the internet can be invented a second time.

Sensing a theme here? In the early years of the 21st century, a combination of globalization and technological advancements put American workers in competition with billions of workers around the world.

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China’s Rise Drives a U.S. Experiment in Industrial Policy

American leaders have long trusted in private markets rather than the federal government to pick the economy’s winners and losers, shunning the industrial policy popular with France, Japan and others.

Not any more. President Biden and both parties in Congress have begun edging into industrial policy, with semiconductors a key testing ground. In January Congress enacted legislation to match state and local incentives for new semiconductor fabrication plants (fabs), and bankroll extensive new research, development and training.

Congress hasn’t appropriated funding for those provisions, or enacted a related 40% tax credit toward the capital costs of new fabs. However, Mr. Biden has signaled support for funding and announced a 100-day review of supply-chain vulnerabilities in four industries: semiconductors, batteries, pharmaceuticals and strategic materials. “We’ll be using a mix of incentives to encourage production here,” Peter Harrell, who serves on the White House National Security Council, told reporters last month.

While American companies pioneered semiconductors and still dominate chip design, many have outsourced the actual fabrication of chips, mostly to Asia. The U.S. share of global chip making has shrunk from 37% in 1990 to 12% now and on current trends will slip to 10% by 2030, according to Boston Consulting Group and the Semiconductor Industry Association.

In a different era the U.S. may have quietly let chip making migrate overseas, as it had with televisions, laptop computers and cellphones. What changed? In a word, China. Its state-guided pursuit of technological dominance and coercive economic diplomacy, such as blocking Australia’s imports over its demand for an investigation into Beijing’s handling of the coronavirus, has infused economic transactions with national-security implications.

American foreign policy must abandon its “reflexive confidence in competitive markets,” Jennifer Harris of the Roosevelt Institute and Jake Sullivan, now Mr. Biden’s national security adviser, wrote in Foreign Policy a year ago. “Advocating industrial policy (broadly speaking, government actions aimed at reshaping the economy) was once considered embarrassing—now it should be considered something close to obvious.”

Besides pouring money into its own chip sector, China is dialing up threats to reunite, by force if necessary, with Taiwan, a democratic self-governing island that supplies 22% of the world’s chips and 50% of its most advanced. Imagine American leaders discovering at the height of the Cold War that its most sophisticated jet engines were all made in West Berlin, surrounded by the Red Army. You get a sense of the urgency in Washington over semiconductors now.

Add to that the chip shortages that have crippled some auto makers this year and semiconductors today resemble oil in the 1970s: a critical input to the economy whose supply is a matter of national security.

“Textiles, furniture, televisions—they’re single products,” said Sen. Mark Warner (D.,Va.), who co-sponsored the chip incentive program with John Cornyn (R., Texas). “Semiconductors are the fundamental building block of thousands of products that our lives depend upon,” he said. “We’ve never had a time where … the control over the technology is as much at stake. And we’ve never had a competitor with the size and skill of China.”

Every major host country already subsidizes semiconductor manufacturing; China’s incentives are the most lavish and the U.S.’ among the skimpiest. Generous incentives made Taiwan Semiconductor Manufacturing Corp. the world’s largest contract chip maker. Such incentives may violate World Trade Organization rules, but subsidies cases are difficult to prove, and market share can migrate in the time it takes to resolve one.

“This industry is fiercely competitive and fiercely market driven,” said John Neuffer, head of the SIA. “There is one piece here where we don’t have a level playing field, and that’s the semiconductor manufacturing. This one piece of our industry needs fixing.”

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With a $50 billion incentive program, the SIA predicts the U.S. share of capacity would rise to 14% in a decade. Time, it says, is of the essence: Manufacturers are deciding now on locations that will lift capacity 56% in the next decade. Incentives will likely influence plans by TSMC and Samsung to build fabs in the U.S.

The traditional skepticism toward industrial policy is well deserved. Once Washington starts writing checks for semiconductors, other industries may get in line with the outcome determined more by political clout than economic merit. As in shipbuilding, the targeted companies may end up in perpetual need of federal protection and unable to compete internationally. Former President Donald Trump also delved into industrial policy, but his tariffs failed to revive steel manufacturers and a heavily subsidized liquid crystal display factory he championed in Wisconsin has yet to be built.

Mr. Warner counters: “We have a crummy record on industrial policy when we try to pick winning companies, but I don’t think that’s right when we try to pick winning industries.” Indeed, the Pentagon and NASA were critical early buyers of semiconductors. Unlike with LCDs, the U.S. today hosts several semiconductor ecosystems, clustered around Hillsboro, Ore., Phoenix; Austin, Texas; and upstate New York.

Semiconductors are too globally integrated and reliant on economies of scale for any country to be fully self-sufficient. That, though, isn’t the goal of the U.S.’ new foray into industrial policy. Rather, it is to ensure that the U.S. and its allies have, between them, a supply chain insulated from China. As the White House’s Mr. Harrell put it last month: “Our supply chain should not be vulnerable to manipulation by competitor nations.”

In the biggest climate commitment made by any nation, China pledged to go carbon neutral by 2060. While it will be challenging for Beijing to achieve its goal, China’s plan to become a green superpower will have ripple effects around the world. Illustration: Crystal Tai

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U.S. and Europe Will Suspend Tariffs on Alcohol, Food and Airplanes

The United States and European Union agreed to temporarily suspend tariffs levied on billions of dollars of each others’ aircraft, wine, food and other products as both sides try to find a negotiated settlement to a long-running dispute over the two leading airplane manufacturers.

President Biden and Ursula von der Leyen, the president of the European Commission, agreed in a phone call on Friday to suspend all tariffs imposed in the dispute over subsidies given to Boeing and Airbus for “an initial period of four months,” Ms. von der Leyen said in a statement.

“This is excellent news for businesses and industries on both sides of the Atlantic and a very positive signal for our economic cooperation in the years to come,” she said.

In a statement, the White House said Mr. Biden had “underscored his support for the European Union and his commitment to repair and revitalize the U.S.-E.U. partnership.”

had authorized both the United States and Europe to impose tariffs on each other as part of two parallel disputes, which began almost two decades ago, over subsidies the governments have given to Airbus and Boeing. The E.U. had imposed tariffs on roughly $4 billion of American products, while the United States levied tariffs on $7.5 billion of European goods.

The aircraft dispute is an early test of the Biden administration’s ability to rebuild America’s relationship with Europe, which U.S. officials see as crucial for accomplishing other trade and foreign policy goals.

Former President Donald J. Trump took a more adversarial and aggressive stance toward the bloc. He accused it of cheating the United States on trade and imposed tariffs on European metals, aircraft and other products. He also threatened further tariffs against European automakers.

The Biden administration has said it would restore ties with the E.U., formerly a close ally, as it seeks to form coalitions to take on bigger global problems, like China’s unfair trade practices. And it has committed to pressing Europe for a settlement on the aircraft dispute, as well as other continuing trade spats over metals, digital service taxes and other issues.

temporarily suspend tariffs levied against the United Kingdom, including on Scotch whisky, as part of the dispute for a period of four months.

Monika Pronczuk and Liz Alderman contributed reporting.

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