Former Executive Vice President and Head of International Affairs, U.S. Chamber of Commerce
January 21, 2022
As 2022 gets underway, the temptation to quote Dickens — it’s the best of times and the worst of times, etc. — is more powerful than usual. For business, the ongoing pandemic and geopolitical risks (the threat of a further Russian invasion of Ukraine at the fore) are conflicting with strong economic growth and technological progress. It all presents an intense mix of challenges and opportunities.
U.S. Chamber of Commerce President and CEO Suzanne Clark highlighted some of these issues in her State of American Business address earlier this month. On the international front she notes: “By one vital measure—trade—we’re standing still. And that means we’re falling behind.” Clark explains in no uncertain terms why the United States must demonstrate leadership on international trade in the year ahead.
Understanding the global environment is imperative for the U.S. business community. For that reason, the U.S. Chamber team carefully tracks the biggest global trends. Here are some of the major ones on our dashboard as the new year begins:
Covid-19: Light at the end of the tunnel? While Covid-19 cases are surging to new heights as 2022 starts, experts see an inflection point in the pandemic. An important degree of immunity from vaccinations and past infections is widespread now in most countries, and the Omicron variant — while more transmissible than its predecessors — appears to be less severe in its effects. The no-longer-novel coronavirus will be with us for the foreseeable future, but growing immunity and new tools like antivirals will lighten its burden and hopefully will allow a fuller rebound in international travel. Unfortunately, many of the least-developed countries are lagging in vaccinations. The Chamber and others have urged U.S. officials not to relent until universal access to the vaccines is assured.
Growth: Strong but slowing. Partly reflecting the changing nature of the pandemic,economic growth rebounded strongly in 2021 to about 6% globally, with U.S. growth estimated to have clocked in at the same level — its strongest reading since 1984. Trillions of dollars’ worth of fiscal support to U.S. households, state and local governments, and select businesses over the past two years played a key role in these results. While Omicron’s spread may dampen growth in early 2022, the year ahead is expected to record robust — if somewhat slower — growth.
Inflation: Not just “transitory.” In the United States, the spike in inflation was an unwelcome surprise. Price hikes have proven to be politically fraught and more than merely “transitory.” U.S. monetary policy is already tightening, and markets expect the Federal Reserve to make multiple interest rate hikes in 2022. This shift may dampen growth, as will the inevitable — and appropriate — decline in fiscal support. Indeed, this turn in fiscal policy began in mid-2021 by one measure, but it will continue in the year ahead. Meanwhile, U.S. public debt now tops 120% of GDP.
Trade: The boom continues. Expanding international trade is both a cause and an effect of the recovery. The World Trade Organization estimates global merchandise trade expanded by 10.8% in 2021 and forecasts a 4.7% rise in 2022. Trade is surging even compared to pre-pandemic levels: U.S. goods exports in 2021 topped 2019’s level by 5% while imports rose by 11%. Indeed, major U.S. ports processed almost one-fifth more container volume in 2021 than they did in 2019. Services trade presents a mixed picture: digital trade continues its robust growth, but depressed travel and tourism continues to be a drag on some sectors that are major employers.
Supply Chains: Slowly normalizing. The pandemic and recovery have spawned supply chain challenges for products ranging from toilet paper and semiconductors to autos and PVC pipe. The causes include continuing Covid-19 outbreaks in manufacturing hubs to overwhelmed U.S. ports and a severe worker shortage. Perhaps the biggest factor has been surging consumer demand, fueled by the robust U.S. fiscal response to the pandemic. While output has risen sharply — even for products in short supply — it has been insufficient to meet this soaring demand. Gradual improvements in supply chain challenges are expected over the year ahead. The U.S. Chamber is urging new investments to modernize ports, reforms to address our workforce challenges, new funding for semiconductor investment, and tariff relief (which should help overcome shortages and price spikes for select products). One possible wildcard: further disruption looms if Omicron spreads in China.
China: Business strong, but concerns mount. Can a country trend? China has been doing so for several decades now, and it has become the top trading partner and source of investment not just in most Indo-Pacific markets but in much of Africa and Latin America as well. Some supply chains have moved out of China due to U.S. tariffs and rising labor costs, but most have not; indeed, many businesses from around the globe are strengthening their trade and investment ties to China. However, the Biden administration has picked up the baton from its predecessor to elevate non-economic concerns, including human rights and national security issues associated with Chinese technology, trade, and investment practices. Other governments around the globe increasingly share these concerns.
Trade Agreements: Multiplying. Another major trend has been the proliferation of trade agreements — just not agreements with the United States. Entering into force on January 1, the Regional Comprehensive Economic Partnership (RCEP) will eliminate more than 90% of tariffs on trade among 15 Asia-Pacific nations. Meanwhile, the 11-country Trans-Pacific Partnership (TPP) is attracting new applicants, including the UK, South Korea, Taiwan, and China. The EU now has 46 trade agreements with 78 countries. By contrast, the United States has just 14 trade agreements with 20 countries and hasn’t inked a comprehensive trade pact with a new partner in a decade. To ensure American workers and industries can compete globally, the U.S. Chamber is pushing for the United States to get back in the game on trade and negotiate new, market-opening trade agreements.
Digitalization: Accelerating. In 2020, global internet traffic was estimated to be more than 3 zettabytes, or 3 trillion gigabytes, and it will be 50% larger in 2022. This trend is creating substantial new opportunities for American companies of all sizes and diverse sectors — including a host of small businesses and service providers — and not just firms traditionally seen as “internet companies.” Indeed, digitalization will be key to U.S. competitiveness in a host of industries from finance and healthcare to logistics and AI. However, governments are increasingly considering data governance measures that extend well beyond traditional privacy regulation. These measures can be discriminatory and often include data-localization measures that undermine growth and may block the emergence of entire new industries. The U.S. Chamber is urging the United States to work with others to halt the proliferation of new digital trade barriers, including through the negotiation of a digital trade agreement.
Direct Investment: On the rebound. Investment flows rebounded globally in 2021, and foreign direct investment into the United States surpassed pre-Covid levels. The United States was the largest recipient of FDI over the 2019-2021 period, mainly driven by higher direct investments from Japan, Germany, and the Netherlands. To retain its position as a magnet for international investment, the United States needs competitive tax, regulatory, workforce, and trade policies. The world isn’t standing still: other countries are honing their own competitive advantages.
Energy Transition: Charging ahead. Clean energy costs continue to fall, and historic new investments in areas such as energy storage, advanced nuclear, and hydrogen technologies promise to accelerate this progress. At the same time, the role of natural gas as a bridge fuel has driven a huge share of the reduction in carbon emissions in the United States and Europe, and this process has the potential to drive global decarbonization further in the next decade. Meanwhile, the recent focus on the strategic minerals required to support these new energy alternatives — including cobalt, copper, lithium, nickel, and rare earths — will only become more acute. Global mining firms may have to raise production of these minerals by 500% in the next decade to meet climate goals, and yet investment in mines has dropped sharply over the past five years. The U.S. Chamber is urging the United States to work more closely with allies — including countries such as Australia, Brazil, Canada, and Vietnam that are home to ample mineral resources — to ensure supply meets demand.
These trends will have huge implications for global business in the year ahead. In any event, it’s more important than ever that the voice of U.S. business on these global issues be heard, and the U.S. Chamber will make sure it is.