Hello from Brussels. The EU just announced it’s not raising any further the duties it put on US imports in retaliation for Donald Trump’s steel and aluminium tariffs back in 2018, an increase that was due to come in on June 1. In return for this reprieve it gets . . . what, exactly? More talks, it would appear. The US says a more comprehensive strategy to address global steel overcapacity is needed before it can lift tariffs. Well, yes, and free ice cream and a souvenir Make Protectionism Respectable Again baseball cap for all, but overcapacity is mainly a Chinese problem. How is the EU supposed to deliver it?

In more transatlantic niggle news, there’s a global health summit in Rome at the end of the week in which Brussels will try to come up with something that sounds as impressive as the US supporting the vaccine patent waiver at the World Trade Organization.

Today’s main piece is on the revival of talk about industrial policy and managed global supply chains in the light of the vaccine experience, about which we remain sceptical. Charted Waters examines evidence from North America that the rise in freight costs is less about demand for consumer durables than it is about capacity constraints.

“A crisis is a terrible thing to waste” is one of the snappier slogans coined by an academic economist, in this case Paul Romer, who later went on to win the Nobel Prize (though not, as it happens, for epigrams about the optimal conditions for policymaking). Covid-19 has supposedly made fluid in advanced economies many policy areas previously considered immutable, or at least sludgy. The private sector-driven model of globalisation is among them.

The months after the pandemic first hit were loud with chatter about making supply chains more resilient to shocks, often involving reshoring, nearshoring or regionalising them. We’ve been sceptical that this would go far, and so far we reckon we’ve been largely vindicated. In the EU, the resilience drive, led by French internal market commissioner Thierry Breton, hasn’t really achieved much except a bunch of voluntary public-private alliances and a lot of exhortation.

Three things have revived the debate. One, the vaccines issue, in which the EU has made up ground from its slow start, partly, Breton believes, because he banged heads together among pharmaceutical manufacturers and distributors. Two, Joe Biden, who talks a good game on building international coalitions to secure supplies of critical materials. Three, the reminders of vulnerability from the global shortage of semiconductors.

At this stage we maintain our scepticism, but watch with some interest. The European Commission two weeks ago put out an update on its original industrial strategy paper from March 2020, which examines some of the vital sectors and products, including critical raw materials such as rare earths, active pharmaceutical ingredients, semiconductors and cloud computing.

However, much of it bears the imprint of the trade and competition directorates, habitually sceptical of industrial intervention. The assessment shows that for only 0.6 per cent of imports by value is the EU seriously exposed to shocks to supply with few domestic alternatives. The proposals to improve resilience involve heavy reliance on the private sector itself plus some existing tools including trade defence instruments and competition policy, together with the foreign subsidies initiative we wrote about last week.

Unfortunately for the industrial policy enthusiasts, it’s not at all clear the vaccines initiative provides a model. It involved several atypical elements: the urgency of a Romerian crisis; masses of public procurement money, a sector (pharma) used to large-scale government involvement and, critically, an existing world-class vaccine production industry that does not depend heavily on hard-to-replace inputs from abroad.

It’s difficult to replicate that for electric vehicle batteries or semiconductors, as a glance across the Atlantic will tell you. Chad Bown of the Peterson Institute, who professionally speaking has had a tremendous crisis, notes: “Compared with the EU, the US government has more money and powers to direct supply chains, but it also has international co-ordination issues.”

In the 1980s, faced with Japanese competition, the US government and a dozen or so American companies set up Sematech, a public-private semiconductor research consortium generally held to be successful in establishing a strong US presence in the sector. But since then supply chains have fragmented internationally. Indeed, Sematech itself stopped taking US government money in the mid-1990s and became much more internationally focused.

So far, the US strategy to establish security of semiconductor supply has involved the rather crude means of whacking on restrictions on exports to China, including putting pressure on companies from friendly countries such as the Netherlands and Japan to follow suit. This has certainly had the effect of encouraging the Chinese semiconductor industry to service its home market, backed by the kind of government support about which its rich-world counterparts can only dream. But by dragging the US semiconductor industry into a trade war and depriving it of lucrative foreign markets, the US actions might in reality have undermined American resilience in that sector. Bown again: “The US has to go beyond just telling Japan, South Korea and the Dutch what they can and can’t export. If it is going to subsidise production, it needs to co-ordinate those subsidies across countries. But we couldn’t even do that with vaccines when faced with mass death, so it’s not clear we’re going to manage with semiconductors.”

As we say, we’ll keep watching this one intently. Any intel or ideas gratefully received. But despite some developments that ought to give an impetus to making supply chains more resilient, there’s still not much sign of co-ordinated action yet.

One aspect of the supply chain debate has, of course, been logistics. But is this an issue of capacity constraints or a surge in demand for consumer durables? It’s probably a bit of both. But the data from North America, taken from the Cass Freight index, which is based on 33m invoices, suggest there isn’t much freight that isn’t in use right now.

Line chart of Cass Freight Indices for expenditures and shipments in North America showing North American freight rates soar

The data are not without their flaws. We are comparing two different things — prices with volumes. But the surge in prices, coupled by a more moderate rise in volumes, suggests that logistics supply chains are operating at full pelt.

This lack of capacity could dissipate as Covid-related restrictions ease. The reopening of restaurants and bars and other public arenas could also lessen demand for durables. Both of those factors should affect the cost of freight. But people have been talking about the cost of shipments declining for some time. They remain sky high. We may be waiting for longer than we think before we actually do see costs sink back closer to their pre-pandemic levels. Claire Jones

Markets are pretty spooked right now about the possibility of inflation (more on which in the FT’s new Unhedged newsletter, penned by the excellent Robert Armstrong). Those price pressures are partly down to bottlenecks in global supply chains. Is there a trade policy angle to all of this too? Of course. Sebastian Mallaby ponders whether trade tensions and Buy America will weaken the ability of global competition to keep price rises in check. Reuters, meanwhile, reports that US trade representative Katherine Tai is coming under pressure from lawmakers and the construction industry to ease tariffs on one of the products that has shot up in price: Canadian lumber.

Brexit latest: UK minister who negotiated bad deal that everyone told him was a bad deal recently found out that it was bad, now he says it’s up to someone else to fix it.

The FT’s Brussels team (combined with David Pilling in London) has a scoop on the EU planning to throw its weight behind a push to expand vaccine manufacturing in Africa. That’s ahead of the health summit later this week, playing to the idea that getting shots in people’s arms is less about waiving IP rights and more about making it easier to make more shots.

Nikkei has an interesting read about how political tensions in Myanmar, which have led to sanctions, are hurting local businesses. An independent report urged Denmark’s Bestseller to resume sourcing from the country “as quickly as possible”, as the exit of international companies threatens widespread poverty and famine. The clothing brand, like other western companies, had paused orders following the February coup. Alan Beattie and Claire Jones

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