Having seven free trade agreements (FTAs) with Europe and MENA nations and one conditional trade deal (Qualified Industrial Zones) with the United States makes Egypt an ideal country for the free flow of goods. Those FTAs and QIZ give Egypt “access to 1.5 billion consumers,“ according to the General Authority for Investment and Free Zones (GAFI)
However, reaching those consumers is becoming more challenging due to a “backlash against globalized trade,” noted a paper from the World Politics Review, a specialized analysis platform, in February 2024. “Once hailed as a way to improve efficiency in developed economies and create prosperity in developing ones, the disruptions caused by trade liberalization began to generate popular discontent.”
That is leading governments, including Egypt, to pursue trade agreements that put caveats on cross-border trading requiring a two-way flow of goods. “These [agreements] ensure that neither side becomes overly dependent on imports, fostering fairer trade relations,” Naglaa Nozahie, the Central Bank of Egypt governor’s adviser for African affairs, told the media in December.
FTA backlash
Rejecting free trade came to the limelight during Donald Trump’s first term as U.S. president from 2016 to 2020. His “tools of choice for trade policy [were] high tariffs or border taxes, which make imports more expensive,” Jane Kelsey, emeritus professor of law, University of Auckland, wrote on The Conversation platform in November.
Trump reasoned that forcibly restricting imports would “increase products and jobs in the US domestic economy and incentivize foreign firms to invest within the US border to avoid tariffs,” explained Kelsey. The second reason Trump likes trade barriers is that “using super tariffs undercuts [the other country’s economic] rise as a competing power,” Kelsey noted.
In 2017, Trump withdrew from the Trans-Pacific Partnership (TPP) with 11 other nations from North and South America and Southeast Asia. He also scrapped the 1994 North Agreement Free Trade Agreement with Mexico and Canada for the new U.S.-Mexico-Canada Trade Agreement (USMCA) in 2019. One difference from NAFTA is USMCA provisions would be reviewed every six years, allowing future U.S. administrations to renegotiate terms and conditions. The second difference is the USMCA deal will expire in 2036 versus NAFTA’s permanent format.
Also in 2019, Trump signed the U.S.-Japan Digital Trade Deal, which regulates, for the first time, physical and virtual buying and selling of digital services between the countries.
That protectionist trade policy continued with Joe Biden, US president from 2020 to 2024. “The Biden administration is the first since … President John F. Kennedy’s time [1961 to 1963] to fail to negotiate a major free trade deal, instead embracing tariffs,” noted a Foreign Policy article in September.
Biden also did not reverse Trump’s decision to exit the TPP, reduce tariffs on China that his predecessor imposed in 2016, or water down import restrictions in Trump’s USMCA agreement. While Biden signed the Indo-Pacific Economic Framework in 2022, it was “intended to be a precursor for later negotiations, as it does not include a uniform lowering of tariffs,” the Financial Times reported at the time. Biden told the media its purpose was “writing the new rules for the 21st-century economy to grow faster and fairer.”
Both US presidents touted their protectionist policies to the rest of the world by “systematically undermining the World Trade Organization (WTO), claiming it no longer services U.S. interests,” said Kelsey. “Starting with Barack Obama [president from 2009 to 2017], US administrations … have paralyzed the WTO’s two-tier dispute system by refusing to appoint new Appellate Body members.”
That has meant successive U.S. administrations “can break the WTO rules with impunity – including imposing unilateral tariff sanctions,” said Kelsey. “At this year’s WTO Public Forum in September [2024], people were openly discussing the existential crisis in the organization.”
In the EU, concerns surround the yet-to-be-ratified EU-Mercosur FTA with South American nations. “Implementation of a draft deal signed in 2019 remains stalled, and its future has become increasingly uncertain following the election of Argentina President Javier Milei and amid opposition from some corners of Europe,” noted GIS, a think tank, in November.
That month saw French farmers protest the deal. According to Euronews, “They are one of several unions taking part in the protests in France in opposition to … duty-free imports of beets, poultry and sugar, which [unions] say create unfair competition.”
Meanwhile, the Japanese government continues to “stubbornly maintain high tariffs on important agricultural products, such as rice, and refused to liberalize agricultural markets to protect domestic farming,” Masayoshi Honma, a professor at the Asian Growth Research Institute in Kitakyushu, Japan, wrote in November 2023 in East Asia Forum. That is despite Japan’s membership in the Comprehensive Trans-Pacific Partnership, aka TPP without the United States.
New FTA model
To avoid economic fallout from collapsing free cross-border trade, governments have been exploring new types of trade agreements that would be profitable for their countries and their trade partners.
“Balanced trade deals can enhance workers’ rights, increase mutual prosperity and advance European standards if done right,” said the Green Party, an EU moderate left-wing political party, in its 2024 election manifesto. Their call comes despite the EU running a trade surplus since August 2023 — except in August 2024. On the ground, advocating for more balanced trade deals may require the EU to import more and export less from individual signatory nations.
The United States, whose trade deficit has been increasing since 1990, already has a “balanced” cross-border trade deal — the 2019 USMCA. It “will level the playing field for manufacturers in the US and support … American manufacturing jobs that depend on our exports to Canada and Mexico,” Linda Dempsey, vice president of international economic affairs at the National Association of Manufacturers, told Just Style, a research platform affiliated with data aggregator GlobalData. She called it “our top trade priority.”
That likely means future trade agreements with the US will follow the USMCA model until another trade policy narrative supersedes it. According to the America First Policy Institute, which adopts Trump’s protectionist agenda, “free, fair, reciprocal and balanced trade is a fundamental pillar of a pro-growth economic policy agenda as well as a requirement for American strength and economic security.”
Balanced trade deals also are a priority for developing nations like India, which has been running a growing balance of trade deficit since July 2020. According to the country’s industry minister, Piyush Goyal, “The government is working to ensure balanced trade deals and … equitable trade interests.”
He noted the country would still sign FTAs if they contain assurances bilateral trade would be balanced. “India looks for equity, balance, and fair trade when negotiating an FTA,” Goyal said, adding the government will only enter into such trade agreements “with countries which are transparent and open, and where governments’ economic systems align with India.”
The most recent example is India’s attempts to sign an FTA with the EU (EFTA). In a December press release from India’s Ministry of Commerce and Industry, Goyal stressed “both sides are aiming for a balanced, ambitious, comprehensive and mutually beneficial FTA.”
From his perspective, achieving that would require the EU to lower its trade barriers. “The [EU’s] policies and actions, including rules related to deforestation, carbon border adjustment mechanism, [and] adherence to ‘Common but Differentiated Responsibilities’ [a U.N. framework requiring developed nations to give trade advantages to developing ones], have adversely impacted the Indian industry,” he said in October.
Egypt’s balanced FTA
In late December, Prime Minister Mostafa Madbouly announced Egypt would start working on “forging balanced trade agreements with Africa,” an idea proposed by CBE.
According to Nozahie of CBE, the proposed agreement format “aims to increase export value by at least 20% annually from 2024 to 2030, targeting $130 billion in [fiscal year] 2026/2027 and $145 billion by 2030.” She added that imports from the continent also should increase, “helping ease deficits in African economies.”
However, for that “balanced trade deal” to work as intended, Egypt’s imports from Africa must increase significantly, reversing the decline witnessed in 2023. Egypt-based exporters may also need to significantly reduce their business on the continent to achieve the “balanced trade deal” underlying principle of fair trade. According to CAPMAS, in 2023, Egypt’s exports to Africa reached $7.4 billion, up 15.6% from a year earlier, while imports declined 21.7% to $1.8 billion.
Reaching an import-export equilibrium with Africa should be possible if Egypt-based businesses increase existing imports from the continent, move non-Africa supply chains to the continent, and open new companies that rely on its raw or semi-finished resources.
Slowly, but surely?
For some, fragmentation of global trade is inevitable given logistics and supply chain bottlenecks during and after COVID-19’s lockdowns in 2020 and 2021. It “has led policymakers and business leaders to question whether global supply chains have been stretched too far,” Douglas Irwin, professor of economics at Dartmouth College, wrote in an Op-Ed for the Center for Economic Policy Research, a think tank.
Geopolitical fallouts are another factor fueling deglobalization narratives. Governments argue that “in an environment where alliances are uncertain and international cooperation is absent, they should reduce their economic interdependence,” Irwin noted. “National security and public health concerns are providing new rationales for protectionism … and an emphasis on domestic sourcing.”
Those fears — fragile supply chains and geopolitical fallouts — make a strong case for companies to relocate production back home or to neighboring countries. The former, in particular, “can prompt deglobalization,” said a European Central Bank (ECB) paper.
However, a paper from J.P. Morgan published in January noted, “Despite dire predictions, global economic integration is not unraveling.”
A major factor hindering the transition to a more protectionist world is that “if firms restructure their production chains to source inputs from countries that are geographically close, rather than those that are more efficient, their production costs could experience an increase,” the ECB said. That would invariably raise consumer prices, prompting the central bank to tighten monetary policy, stifling GDP growth.
Another reason for deglobalization reluctance is that large corporations are satisfied with the status quo. “Despite several large shocks in recent years, … corporate profit margins maintained [their] historic gains made in recent decades due to globalization,” JP Morgan noted.
Nevertheless, governments will likely force a transition to a protected trade setup through legislation. JP Morgan “expects leaders to continue pushing at de-risking” from [non-ally countries. In such a case “trade infrastructure, competitiveness, and human capital development will largely dictate which [nations] benefit from those [trade] trends.”
This article first appeared in February’s print edition of Business Monthly.
