US Trade Policy in 2021

US Trade Policy in 2021

So, on trade, Trump and whatever might now be called the “Trump wing” of the party will be opposed to trade agreements (except for “really good ones” that are different from the current crop of deals). He made three big promises: to hike tariffs on China and Mexico; to “rip” up NAFTA, and to withdraw the US from the Trans-Pacific Partnership (TPP, now renamed the CPTPP after US withdrawal on Trump’s first Monday in office). Note that—in an otherwise wildly inconsistent presidency—Trump has delivered nearly all of what he set out to do in trade. Trade is the one area where Trump has strongly held beliefs that have not wavered across decades. He has found officials that share his vision of a world where the US continues to dictate outcomes and allowed them to press ahead. As he faces a very tough re-election fight in 2020, Trump is likely to continue to escalate one area that matters to him—reversing the economic “war” that the US had been losing by pursuing aggressive policy actions. The President already had extraordinary leeway to maneuver on trade, as we noted in 2016. The past years have shown that the presumed “guard rails,” like Congress, have been less effective in limiting actions than many anticipated. His use of Executive Orders and options pulled out of the US policy “toolkit” of largely forgotten provisions, often dating back to height of the Cold War with the Soviet Union, has continued to rise. Trade, President Trump believes, is a big part of what got him into the White House. Hence, expect it to remain dominant in the few months leading to the election. His advisors will also be more eager than ever to lock in policy actions consistent with Trump’s views on trade.

Building Supply Chain Resilience Starts at the Border

Building Supply Chain Resilience Starts at the Border

The net result of this unprecedented supply and demand shock to the economic system has led to many calls to build or rebuild supply chains with more “resilience.” Resilience is a word, however, a bit like motherhood and apple pie. After all, who doesn’t want a mother or pie? Who wouldn’t want resilience in the face of disruption? Resilience, perhaps like motherhood and apple pie, means slightly different things to different people. For some, it implies a new-found enthusiasm for relocating chains closer to home. If foreign markets are part of the problem, with uncertain responses to unfamiliar challenges likely to arise in the future, getting critical parts or entire chains to move home seems like a logical solution. For others, resilience means building up multiple supply chains, including an extreme version that calls for double chains for every item. The slightly less pronounced version looks to have multiple suppliers available for every item or every critical item in the chain. To minimize disruptive impact, these two chains or multiple suppliers should be located in entirely different countries or regions. Resilience can also mean holding increased inventory, to reduce the shock of chain disruptions. Over the past decade and beyond, firms have been following the “just in time” mantra and eliminating or reducing inventory. Parts, components and raw materials arrive at precise timings and get slotted directly into assembly. The reduction in inventory provided important cost savings for companies, as holding stock is expensive. Governments tend to be less certain about what, exactly, they mean when they ask for resilience in supply chains and are unclear about what sort of actions, if any, they ought to take to ensure it happens.

Bright Spots for Trade in Asia

Bright Spots for Trade in Asia

Two other important groupings have important milestones in August. The members of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) are meeting on August 5. The CPTPP, which still has no Secretariat to manage this sprawling and complex trade agreement, is instead driven by a series of meetings across the year by government officials working on various aspects of the deal. The primary mechanism for oversight is the CPTPP Commission, which will be held virtually under Mexico’s chairmanship this year. The Commission meeting should be notable for a few reasons. First, it is an opportunity to celebrate the achievements of the agreement after more than 18 months in operation. While trade flows remain depressed under the pandemic, governments like Vietnam have taken advantage of the opportunity to expand knowledge. Vietnam held 577 seminars and workshops in 2019 alone to encourage the proper utilization of the CPTPP by firms of all sizes across the country. Second, the Commission will review any issues that have emerged in implementation. An agreement that runs to nearly 600 pages with thousands of country-specific commitments is bound to have a few issues. As a simple example, a typo in one of the letters mentioned yams instead of yarn.

Unlocking the Chain: Gaining a Competitive Edge with FTAs

Unlocking the Chain: Gaining a Competitive Edge with FTAs

Firms of all sizes are currently experiencing unprecedented pressures as a result of COVID-19, the ongoing US-China trade war, and even climate change. Such quickly changing market signals have put enormous pressure on margins, leaving companies with sub-optimal networks and trading partners, and making firms more vulnerable to further disruptions and market fluctuations. In such an environment, building a more transparent and robust supply chain risk management program that monitors and responds proactively to potential disruptions has become a C-suite agenda item. Firms need to re-examine their existing supply chains and ensure that they are fit for purpose in a new, widely disrupted, trade environment. Companies that did not see the point in engaging in potentially complex reengineering of their footprint may be forced to look more closely. Areas of the chain that were previously unimportant may become a top-line challenge while other markets that have traditionally sustained business may no longer do so. To help lower risks, one key, typically underutilized, tool for companies is effective use of free trade agreements (FTAs). These agreements can limit the scope for sudden shifts in government regulations, policies, tariff levels and services and investment restrictions. Proper use of FTA rules can generate thousands or even millions of dollars in annual savings, providing consistently lower tariffs, plus rules between partners that bring greater certainty and lower risks for regional supply chains.

What Makes a “Good” Trade Agreement?

What Makes a “Good” Trade Agreement?

That said, agreements signed for non-trade reasons tend to exclude key sectors or items of interest, even in market access in goods chapters. They might provide 100 percent coverage of snow equipment—snow boots, skis, jackets, snowplows and snowmobiles—but carve out, or exclude, tropical fruits. If the agreement involves two equatorial members, a boast of “full coverage” for snow suits is unlikely to be met by enthusiastic manufacturers or traders, particularly if fruits that are actually exchanged are getting nothing new. Officials will often talk of the extent of coverage by bragging about the inclusion of tariff lines, ie, “this agreement includes 65% of tariffs from the first day of the agreement, rising to 90% coverage when fully implemented.” Given the high concentration of trade in a handful of tariff lines, firms might be extremely disappointed to discover that even 90% coverage may not provide any new tariff benefits for key products of interest. Better trade deals include more things.