International Trade and Global Business

 

Trade Agreements: Déjà vu?

Maybe.  Just maybe, there’s a silver lining hidden somewhere in the current commotion over punitive tariffs.  U.S. President Donald Trump started a multi-front trade war by slapping high tariffs on imported steel and aluminum from China and the EU.  He also insisted on renegotiating existing trade agreements with Mexico, Canada and South Korea.  He then ratcheted up the rhetoric, threating to boost tariffs on imported cars from Europe by 25 percent.  China was also threatened with punitive tariffs on billions of dollars of goods.
 
Those hit by U.S. tariffs hit back, with China targeting agricultural products from swing states that voted for the current president in the last election.  China knows how to deliver a blow to the breadbasket you might say. Orders from abroad have plunged, and farmers are afflicted with their elected representatives in Washington who have turned up the heat on the White House. There used to be gold in them thar soybeans.
 
The President has pleaded for patience with his hardball tactics, saying that the targets of the tariffs are already phoning his people to make a deal.  The calls may actually be going the other way.
 
The EU trade representative did come calling recently and talks seemed productive, though no deal was announced.  The meeting did result in a delay of further tariffs to see if a broader deal can be worked out, one that would permanently lower, perhaps to zero, tariffs on autos and auto parts. Since regular tariffs are already low, an agreement could also include removal of various non-tariff barriers that have irked the U.S. for many years. For example, the U.S. and the EU both have different standards for the size of certain auto parts such as headlights. Harmonize the specs and there are efficiencies to be gained, costs to be saved. 
 
Some of the topics and remedies discussed sounded like the proposed free trade agreement between the U.S. and the EU known as TTIP, which was negotiated nearly to the point of signing just before President Obama left office, only to have it voided after the inauguration of the current Presidential Administration. Truth be told, there were critics of the deal in the EU and its passage was not guaranteed. But now that the Eurocrats have had time to calculate the losses from a trade spat with the U.S., something like TTIP (TTIP Lite?) Is looking more attractive.  The President, meanwhile, is being pressured by Republicans to avoid a costly trade war with European allies right on the eve of midterm elections. Yes, Yogi Berra, it’s déjà vu all over again.
 
Driving a soft bargain
 
Bluster about the U.S.-Korea trade deal, or KORUS, has largely abated with Korea having agreed to some very minor modifications.  For example, Korea agreed to review its customs procedures for inspecting U.S. goods to qualify for reduced or duty-free treatment under the agreement.  These inspections had become a non-tariff barrier by themselves, with Korean customs officials reportedly scrutinizing paperwork, delaying clearance and is some cases denying eligibility based on faulty criteria. Another example was Korea agreeing to double the number of U.S. cars imported from 25,000 to 50,000.  Trouble is U.S. car companies have only been about to sell about 10,000 cars per year under the existing agreement.
 
Similar kinds of minor changes are expected with the NAFTA Agreement involving the U.S., Canada and Mexico.  At one point the U.S. insisted on separate agreements with each country, but the other partners refused, and the U.S. dropped the demand.
 
If a more comprehensive agreement with the EU is suddenly possible, can the similarly forgotten Trans Pacific Partnership Agreement also be revised?  The same domestic political interests that are pressuring The President on the trade war with China are angry that other countries’ famers are cashing in on the further opening of the Japan market.  The U.S. could have realized billions of dollars in new sales had the U.S not pulled out. Expectantly revision and negotiation of the trade deals could reestablish benefits to U.S businesses and workers.
 

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