At the United Nations General Assembly on September 25, President Trump told world leaders that the U.S. will defend its “national interest” whenever it feels cheated. “We will no longer tolerate such abuse. We will not allow our workers to be victimized, our companies to be cheated, and our wealth to be plundered and transferred.” Trump reiterated his promise to renegotiate what he called “broken and bad trade deals” with countries he felt had gained an “unfair advantage” over the U.S.
The Administration’s recent trade successes include reworking deals with Mexico, Canada, and South Korea. “This is just the beginning,” Trump announced.
North America – USMCA
After 14 tense months of negotiations, Canada and the U.S. finally reached agreement on a trade deal. After the U.S. and Mexico reached agreement last month, massive pressure was placed on Canada to join the pact. The Trump administration was prepared to move ahead with a bilateral agreement with Mexico, leaving Canada to fend for itself, but members of Congress and U.S. interest groups voiced strong opposition. The last round of negotiations with Canada finally saw movement on the vital components of the agreement, including auto production, e-Commerce, and access to Canada’s dairy market.
The new accord, called the US-Mexico-Canada Agreement (USMCA), will replace the 24-year old NAFTA and will remain in effect for 16 years, with a chance for review and renewal after six years.
Lawyers and translators are currently finalizing the text of the USMCA in the hopes that all three countries will sign the agreement at the end of November. But a senior Mexican official said Mexico won’t sign the agreement unless the U.S. lifts the tariffs imposed on Mexico and Canada for steel and aluminum (25% and 10% respectively) imports. Juan Carlos Baker, Mexico’s Deputy Commerce Minister, said “Mexico won’t accept any American proposal to agree to a quota system on metals as a way for the U.S. to remove the duties… It won’t solve the issue. We need to get these tariffs lifted. That’s objective No. 1. How do we get to that point”?
According to Bloomberg, the new USMCA will draw the supply chains of the U.S., Canada, and Mexico closer together, empowering the countries to be less reliant upon trade with Asia.
Under the USMCA, most goods will continue to be free of duties, and barriers on certain agricultural products will be reduced. Value thresholds have also been raised for importing goods without having to pay duties.
Enhanced Rules of Origin, which mandates which components and products must originate from the North American countries, have been extended to include chemicals, optical fiber, glass, and an array of steel goods. Local content requirements for automobiles has risen to 75%, and they must be produced by workers earning at least $16 an hour. The intention for the new provisions is to bring manufacturing jobs back to North America. Other provisions of the agreement were put in place to limit non-trio components in textiles and apparel, including sewing thread and elastic bands.
South Korea – KORUS
In September, the U.S. and South Korea signed the new KORUS free trade agreement. President Trump announced that the updated agreement “includes significant improvements to reduce our trade deficit and to expand opportunities to export American products to South Korea.”
The Administration has secured key improvements to KORUS which will protect American jobs in the auto industry and increase the number of U.S. exports to South Korea. As a result of the negotiations, South Korea will double the number of American automobiles imported to Korea– from 25,000 to 50,000 per manufacturer per year.
South Korea also agreed to address concerns over onerous and pricey customs procedures which have hindered U.S. exports and has agreed to change its pharmaceutical reimbursement policy for innovative drugs by the end of the year.
China
Trade tensions with China have taken another negative turn as the Trump Administration demands that China come up with a specific plan to stop the alleged theft of American technology. The Administration announced on October 29 that it will not resume trade negotiations until Beijing produces a written proposal. The stalled negotiations threaten to undermine a meeting between Trump and Chinese President Xi Jinping at the G-20 summit at the end of November. “If China wants [the G-20 session] to be a meaningful meeting, we need to do the groundwork,” a senior White House official told the Wall Street Journal. “And if they don’t give us any information, it’s just hard to see how that becomes fruitful.”
Craig Allen, president of the U.S.-China Business Council, said that he recently met with senior Chinese officials to urge them to produce a written proposal. He said China wasn’t ready to produce a proposal unless the U.S. reduces the tariffs imposed on Chinese imports. U.S. officials have not indicated any willingness to reduce the tariffs.
United Nations Postal Treaty
Continuing his efforts to fight what President Trump calls “unfair trade practices”, the Administration announced on October 17 that the U.S. will pull out of the Universal Postal Union (UPU) treaty. The UPU treaty, established in 1874, sets the rates that each of its 192 members charge to deliver mail and small parcels from foreign carriers. Since 1969, the treaty has assigned lower shipping rates to developing countries in an effort to boost global competitiveness.
The White House stated that the UPU treaty enables foreign postal services, especially China, to take advantage of cheap shipments to the U.S. According to one official, the system allowed for a 40 – 70 % discount on small packages coming in from China to the U.S. The New York Times stated that Chinese manufacturers are “taking advantage of the lower rates to ship clothing, household gadgets, and consumer electronics”. Critics of the UPU say this not only undercuts U.S. manufacturers, but also facilitates the shipment of illegal drugs and counterfeit goods from China.
By pulling out of the UPU, companies like FedEx and UPS could become more competitive, especially in the e-commerce sector, and it could mean a boost for American retailers and manufactures.
The Trump Administration is seeking to renegotiate the terms of the UPU treaty even as it begins the process of withdrawal.
What’s next on Trump’s bucket list?
United Kingdom
The Trump Administration announced plans to negotiate a ‘cutting-edge’ free trade deal with the UK after it exits from the EU on March 29, 2019. While the trade agreement has been hailed as “ambitious” by some, it could form the basis for a “deep trade and investment relationship” between the US and the UK.
US Trade Representative (USTR), Robert Lighthizer, said “An ambitious trade agreement between our two countries could further expand this relationship by removing existing goods and services tariff and non-tariff barriers and by developing cutting-edge opportunities for emerging sectors where U.S. and UK innovators and entrepreneurs are most competitive.”
European Union
On October 16, USTR Lighthizer announced the Administration’s intent to negotiate a trade deal with the EU. But while an EU delegation is set to arrive in Washington next week to hash out areas of cooperation, talks to date have been unsatisfactory. Fighting words between Commerce Secretary Wilber Ross and European Trade Commissioner Cecilia Malmstrom in Brussels earlier this week showcase the difficulty the U.S. will have in reaching a trade deal with the EU.
Japan
Japanese Prime Minister Shinzo Abe and President Trump agreed in September to begin trade talks in an effort to shield Japanese automakers from further tariffs. For years Japan has been resistant to establish a free trade agreement with the U.S., but with the threat of 25% duties on imports of Japanese vehicles and automotive parts, Japan appears to have changed its tune.
The Trump Administration is expected to push hard, especially for agriculture, where U.S. producers have been at a disadvantage due to high Japanese import duties.
Philippines
The U.S. and Philippines announced on October 22 that they have made progress in resolving several bilateral trade issues, including areas such as cold chain, agriculture, and automotive, as well as relief from U.S. safeguard measures on solar cells and Section 232 tariffs on steel and aluminum. Both countries intend to collaborate on the development of cold chain requirements and best practices in the Philippines. The Philippines has committed to ensuring consistent valuation of agricultural imports for duty collection purposes as defined by the WTO and has agreed to accept vehicles that meet high automotive standards, such as the U.S. federal motor vehicle safety standards.
_______________
Sources:
- Bloomberg
- The Wall Street Journal
- CNBC
- STR Trade Report
- The New York Times
- The Loadstar
