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Talking Trade blog

Where are we in global trade?

Published 25 July 2018

This has been an interesting, mixed, two weeks in trade. On the one hand, the system continues to receive new shocks, particularly from US President Donald Trump. On the other hand, trade integration is also moving forward. The net result continues to highlight the increasingly unsettled global environment. Firms need to focus on how to mitigate the risks facing their business operations.

Let’s start with the bad news. 

Two separate hearings have wrapped up in Washington.  The first focused on product categories for an additional $16 billion in 25% tariff rate hikes against goods coming from China. 

Regular readers may recall that the Americans first produced a list of items totaling $50 billion for new tariff increases.  The list was revised on the basis of hearings.  The first $34 billion in tariffs have already gone into force (and were met with retaliation by China on a similar amount).  But $16 billion in products were contested, resulting in a new list from the USTR. 

Now that hearings on the revised list of products has been completed, tariffs can be imposed at any time.  Expect them to be announced on Friday (since this seems to be the preferred approach of the Trump administration).  These new Section 301 tariffs will likely be met with $16 billion in matched retaliatory tariffs by China. 

Since Trump expects China to capitulate, rather than retaliate to tariff rate hikes, this will probably set in motion the next set of tariff rate lists.  USTR just released the list of new products subject to 10% increases for $200 billion.  [Comments due August 27, hearings set for August 20.] Trump has threatened to impose tariffs on the entire $500 billion in goods imported from China. 

In the second hearing just completed on Capitol Hill, the US Commerce Department heard from a wide range of disgruntled companies and foreign governments about proposed plans to impose tariff rate hikes on automobiles for Section 232 national security reasons. 

While only one speaker supported tariff increases, the hearings are a critical element of the domestic procedures needed prior to any tariff changes.  With this out of the way, Commerce and the Trump administration are freer to impose tariff changes.  Commerce still needs to issue a favorable report.

In anticipation of possible Section 232 changes for autos, the European Union is mobilizing.  They are sending the highest-level delegation to Washington to try to head off tariffs and, at the same time, requesting DG Trade to figure out retaliatory measures that could be rolled out if the auto tariffs are imposed. 

While the existing Section 232 tariffs on steel and aluminum have been disruptive, imposing similar rate hikes on the auto sector could be much more crippling to the global economy.  Autos are globally dispersed, with even very small firms contributing parts and components into supply chains from myriad countries around the world.  For major auto producing countries like Germany and Japan, the consequences could be catastrophic. 

The Trump administration has just announced $12 billion in new subsidies to help farmers cope with the retaliation and loss of markets for agriculture.  This suggests that the disputes will continue for some time to come.  Equally grim for US taxpayers, once subsidies start flowing, they are likely to outlast Trump.  Consider just how many agricultural support programs in the US started in WWII remain in place today…

With so much depressing trade news at hand, it can be easy to ignore the brighter rays. 

Three points in particular are worth noting from dynamic regional agreements.  First, the Pacific Alliance members (Chile, Columbia, Mexico and Peru) signed another deal to support trade facilitation by mutually recognizing authorized economic operators in member countries.

Second, members of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) continue to push forward.  Singapore became the third member (after Mexico and Japan) to officially compete domestic procedures to ratify the agreement.  Only three more members are needed for entry into force within 60 days.

CPTPP members met in Japan last week to discuss accession procedures and other institutional mechanism issues to help the agreement run more smoothly.  While no new members will be joining until next year, after the agreement goes “live,” the timelines are moving quite fast. 

Columbia has already formally requested entry into CPTPP.  Other states present at the Japan meeting included Thailand and the UK.  South Korea continues to weigh the timing of their response. 

In short, while global trade continues to boil, the CPTPP members are pushing ahead with both ratification and expansion in the next 12-18 months.

Finally, the 16 countries involved in the Regional Comprehensive Economic Partnership (RCEP) negotiations are meeting in Bangkok.  The political pressure to get this Asian trade agreement done this year is tremendous.

Despite 23 rounds of talks, the parties remain stuck on a number of important issues.  Nearly all are the same problems that have bedeviled the talks for months.  Still, members are slowly whittling down controversial points.  Ministers will need to take up some issues in August and a smaller package will be put before leaders to resolve in November. 

The final deal may not be quite wrapped up this year—close, but probably not so close that texts and schedules will be released in 2018.  Nonetheless, at a time of chaos elsewhere, the steady pace towards greater integration in Asia is a welcome sign.

In short, the last two weeks in trade continue to reflect the mixed picture we have seen across most of this year—buffeting or worse from Washington combined with renewed efforts to stabilize the system by key players, especially in Asia.  It will continue to be a race to see whether the shock absorbers will be in place fast enough to offset the damage.

© The Hinrich Foundation. See our website Terms and conditions for our copyright and reprint policy. All statements of fact and the views, conclusions and recommendations expressed in this publication are the sole responsibility of the author(s).

Dr. Deborah Elms is Head of Trade Policy at the Hinrich Foundation in Singapore.  Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

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