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The United States and its current administration have mapped out some lofty trade goals. The list of countries and ongoing trade negotiations with the U.S. grows daily. The administration has forged ahead in trying to reach trade deals on various issues, most often using the tool of tariffs to persuade countries to come to the negotiating table. Here is a breakdown of what has happened in trade recently.
Mexico has become the latest country pulled into the tariff spotlight when President Trump threatened to impose a 5% tariff on imports from Mexico if the country did not take meaningful steps to curb migrants from crossing the US Mexico border. Before the administration was able to impose the first round of tariffs at 5%, which would then increase to 25%, the U.S. and Mexico reached a deal. While no details of the deal have been made public, it is reasonable to believe that the success the administration saw as a result of the threat of imposing tariffs on Mexico will further embolden the administration to continue to use tariffs as a tool in their ongoing negotiations with China and other countries.
The United States-Mexico-Canada Agreement (USMCA) is an agreement between the U.S., Canada, and Mexico that was signed in Argentina at the G20 summit and will effectively replace NAFTA. Now that agreement has been reached on the USMCA, all three countries must individually ratify the agreement.
The U.S. still has not taken action to formally ratify the agreement and is in a precarious position regarding the approval of the treaty, since there are issues being raised on a partisan basis. On June 13, 2019 Speaker of the House of Representatives Nancy Pelosi announced a Democratic trade working group that will be chaired by Chairman of the House Ways and Means Committee Richard Neal. This working group will be tasked with identifying ways to rework the agreement with Mexico and Canada, specifically on four topics of concern, including labor, drug pricing, environment, and enforcement. Given this development, approval of the agreement by the U.S. does not appear likely in the near future.
China has been at the center of U.S. trade negotiations with no sign of agreement. The Trump administration has imposed tariffs on three separate lists of goods. Though there have been ongoing negotiations with China and what seemed like action leading toward an agreement, the negotiations fell apart at the last minute and the administration made good on their tariff threat, raising the third list of tariffs from a 10% tariff on $200 billion worth of goods to 25%. As a result of these failed negotiations, the administration released fourth list of trade tariffs, placing a 25% tariff on almost $300 billion worth of goods that is currently in the public comment period.
While an exclusion process has been implemented, the process for obtaining an exclusion does not appear to be a simple undertaking. The administration is scheduled to meet with President Xi Jinping this month in Japan at the G-20 summit for further conversation. The next threat on the table, if the ball does not move toward an agreement with the U.S. and China, is the imposition of the tariff on this fourth list of goods.
In 2018, the administration launched a Section 232 investigation which allows the U.S. Department of Commerce to investigate the national security risks of specific imports; in this case steel and aluminium, and issue recommendations as a result. In March 2018, the Trump administration implemented a 25% tariff on imported steel and 10% on imported aluminium on countries of origin for both. Consumers generally bear the burden of the tax when the import is a final consumer good, and manufacturers generally bear the burden when the import is an intermediate good such as steel or aluminum. An exclusion application process was put in place for U.S. importers. As of March 2019, more than 50,000 steel and aluminium tariff exclusion requests had been filed. The Bureau of Industry and Security within Commerce has reached a decision on 61.9% of steel exclusion requests and 78.2% of the aluminium exclusion requests.1
Trade has been a hot topic for the Trump administration, and it shows no signs of cooling. With some arguable success in the case of Mexico and preliminary steps to agreement with the USMCA, the administration will likely continue to pursue bilateral and trilateral trade deals with other countries.
We are seeing companies moving production and business out of China and other countries to alternative locations, and these various trade talks will, if they have not already, have an impact on the positioning of employees. Shifts in business practices and workforce mobility are likely to be part of the outcome when important talent markets for our industry sit on the other side of negotiations with the U.S.
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