As you know, there is a great deal going on in the trade world right now. Some (including me) would say that we are in the midst of a paradigm shift on international trade that will have a meaningful impact on how companies operate in the future. Since we all have a tendency to get caught up in the day-to-day developments, I thought it might be useful to step back for a minute and provide some thoughts on what you should be watching for in the coming months.
Ratification of USMCA – this appears to be the Administration’s best chance for a trade “win” in the near term. The USTR has spent a great deal of time working with Congress to iron out concerns with the agreement. It will be interesting to see whether a Democrat-controlled House of Representatives is willing to move the agreement in a presidential election year. If not, it will be interesting to see whether the president, in an effort, to change that calculus, revives his prior threat to withdraw from NAFTA unless Congress votes on USMCA (i.e., it is USMCA or nothing).
A Possible U.S.-Japan Trade Agreement – the Administration has also been working on a limited trade agreement with Japan and negotiations are pretty far along. The impetus behind these negotiations are undoubtedly the threatened tariffs on autos/auto parts under Section 232 (more on that below). There appears to be a good chance that the two sides will reach an agreement on a limited trade deal this fall that addresses auto/auto part imports into the United States (possibly similar to the USMCA side letters on autos), some agriculture issues and trade in industrial goods.
Other Possible U.S. Trade Agreements – in recent weeks, the Administration has talked about pursuing possible trade deals with Brazil and the United Kingdom (post-Brexit). While trade agreements with these countries present different challenges (and likely have very different timelines), they represent new opportunities that people should be following.
U.S.-EU Trade Issues – there are many points of trade friction between the United States and the European Union at present and several of those are going to come to a head in the very near future.
The United States is waiting for the WTO to confirm the amount of countermeasures it may impose as a result of the EU’s failure to comply with WTO rules related to aircraft subsidies. The United States requested permission to impose additional duties against EU products worth $11.2 billion a year and a decision is expected at any time. Once this decision is issued, we expect that the United States will move quickly to impose additional duties of up to 100% on select imports on a ‘carousel’ basis (e.g., 100% duties on a list of products that rotates every 3 months) until the dispute is resolved. The EU has its own WTO aircraft subsidies case against the United States and will likely impose its own additional duties once a final decision is reached (the EU has asked the WTO for permission to impose countermeasures on U.S. imports worth $12 billion).
In addition, the clock is ticking on the Section 232 auto/auto parts investigation. As you recall, back in mid-May, the Administration announced that imports of automobiles and auto parts “threaten to impair the national security of the United States” and that the USTR would pursue negotiations with the EU, Japan and any other country deemed relevant on voluntary export restraint agreements. The USTR was given until November 13, 2019 to conclude those negotiations. If agreements are not reached, then the President would consider imposing other measures on imported autos/auto parts (e.g., additional duties, etc.). To date, we understand that the United States and Japan have engaged in meaningful negotiations and have a chance of reaching a deal (discussed above). In contrast, it does not appear that discussions with the EU have progressed in any meaningful way. As a result, all companies that import autos or auto parts should be prepared for the imposition of additional duties or other border measures. If the United States imposes such measures, then we expect that the EU and other impacted jurisdictions will retaliate against U.S. imports (and likely not just against autos/auto parts).
U.S.-China Trade War – the U.S.-China Trade War continues on. The two sides continue to talk (the goods news), but do not seem getting meaningfully closer to a deal (the bad news). In the meantime, additional duties are scheduled to go into effect on September 1st and December 15th. U.S. farmers and agricultural interests are hurting, and companies that did business with Huawei are scrambling. While the Administration continues to profess that the trade war is not hurting the U.S. economy, it is also calling for the Federal Reserve to cut interest rates further, and now considering (reportedly) tax cuts (or maybe not, who knows). Given that the U.S. is heading into an election year, and that China is celebrating the 70th anniversary of the founding of the PRC, it seems unlikely that a grand deal will be reached anytime soon.
In addition to these issues, you also have to keep an eye on Brexit, the Japan-South Korea trade dispute, the African Continental Free Trade Area, France’s digital tax (and the likely U.S. retaliation), the EU-Mercosur trade agreement, the Regional Comprehensive Economic Partnership in Asia, U.S. Customs and Border Protection’s enforcement of forced labor issues, the Miscellaneous Tariff Bill process opening in the fall of 2019, and other trade developments. While there are a lot of challenges in the world of international trade, there are also a lot of opportunities. While the world 3 years from now may not look like it does today, it is also not going to look like 3 years ago (when everyone just assumed it would always get easier and cheaper to move goods, people and data around the world). Since the road ahead will continue to be bumpy, it is more important than ever that you (and your companies) stay on top of these developments in order to stay in the race.
We hope that this helps. If you have any questions, please let us know.
Ted Murphy 